HC Deb 07 April 1952 vol 498 cc2295-446

Order for Second Reading read.

3.44 p.m.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)

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

In moving the Second Reading of this Bill, which, no doubt, the House will be discussing from time to time during the next few months, I should like to begin with a word about its purpose. Its theme and purpose can be summed up as the restoration of the economic independence and solvency of this country. There are, of course, obvious limitations on what any financial proposals of any Government can do to achieve this, and I have often thought that it was something of an impertinence to suggest that any Government can, by its Measures alone, repair and restore the fortune of this country, because that task falls inescapably on the shoulders of our whole people.

But a Budget and a Finance Bill can do three positive things to help. They can restore confidence abroad in our economy and in our resolute determination to put our House in order. Secondly, they can create conditions at home in which efficiency and effort are encouraged, and, thirdly, they can help to secure that a sufficient quantity of goods of the type for which there is a demand abroad go abroad.

So far as the first of those three matters is concerned, the figures which my right hon. Friend the Chancellor gave to the House in his statement on Friday morning, while it would be very rash to regard them as any indication that we are yet out of the wood, do give some grounds for feeling that the efforts which we are making are beginning to have their effect upon the confidence which foreign countries feel in us.

It is the core of the argument which I shall seek to address to the House this afternoon that the theme of the restoration of confidence abroad and conditions helping recovery at home runs through my right hon. Friend's proposals, great and small, because they aim at creating simultaneously the physical conditions and mental climate in which the qualities and the capacities of our people can, not for the first time in our history, achieve a task which unfriendly people believe to be impossible. It seems to me that it is of the essence of sound financial proposals to create conditions in which those qualities can find the fullest opportunity.

That is the theme and purpose of this balance of payments Finance Bill. But it is important, if these proposals are to be fairly judged, to bear in mind the purpose for which they are intended. When a person is dangerously ill, powerful drugs sometimes have to be administered to him and it is no real argument against the use of those drugs to say that their effect will be to impair perfect health later on. It is essential to remember that he will die then and there if he does not have those drugs administered; and it seems to me that that is the factor in our position today which is overlooked by such critics as the writer of the leading article in today's issue of "The Times," who seeks, among other things, to bring down both the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) and my right hon. Friend with what in other circles would be described as a right and left. He seems to ignore the fact that positive measures have to be directed, in the first place, to the immediate needs of our still critical situation.

Before dealing with some of the major matters which arise on the Bill, some of which, I suspect, are not wholly without controversy, I should like to deal quickly with one or two matters of somewhat less moment which, for quite obvious reasons, did not secure very much discussion during the Budget debate. The first of these relates to a group of recommendations made by the Millard Tucker Committee. In many ways we should have liked to have been able to include in this year's Finance Bill more of the recommendations of that Committee, to whose hard, careful and painstaking work I am sure all hon. Members would desire to pay tribute.

There is, however, a limit to the load which even a Finance Bill can be made to carry and to the number of matters with which it is right to ask the House to concern itself at any one time. We have tried, therefore, to give preference to those of the Millard Tucker recommendations which are not only right in themselves in the abstract but which, in some degree, assist the main purposes of the Bill. For example, there are a number of such matters embodied in Clauses 16 to 19 of the Bill. These enable very useful tax reliefs to be given to mining activities, both at home and abroad, and therefore help in some degree to stimulate the production of valuable raw materials.

In addition, we have been able to provide that expenses in connection with unsuccessful applications for patents should be admissible for tax purposes. That is Clause 20. In Clause 22, we have withdrawn the special deduction which for many years the brewers used to enjoy in respect of tied houses let for less than their full value—a measure which, I am sure, will cause simultaneous joy in Hornchurch and Ealing, North.

Mr. I. Mikardo (Reading, South)

But for different reasons.

Mr. Boyd-Carpenter

As the hon. Member rightly says, for different reasons.

Another matter which I am particularly glad that my right hon. Friend has been able to deal with in the Bill is the rectification, in Clause 61, of the very venerable anomaly by which liability to Estate Duty, when a member of the Armed Forces was killed in action, depended upon the rank which he then held. It is a very old anomaly. Indeed, as hon. Members who have looked at the Schedule of the Bill will observe, in order to rectify it we have had to go back and to repeal part of the Stamp Act of 1815.

I suppose the distinction between the higher and the lower ranks for this purpose, grew up in the past, when it was reasonable to assume that all the higher ranks were rich and all the lower ranks were poor. In these days of National Service and commissions from the ranks, that argument, if it ever had any validity, is completely out of date. I would remind the House that it was not even a clear distinction between officers and other ranks. In the Army one became liable to Estate Duty on reaching the rank of sergeant and, in the Navy, on passing the rank of chief petty officer.

Hon. Members who were in the House last year will recall that we had a considerable debate on this subject on last year's Finance Bill, and that a most effective and very moving speech was made by a very distinguished soldier, now no longer in the House, General Sir George Jeffreys. I am, therefore, particularly glad that my right hon. Friend has found it possible, even amid the major problems of this time, to rectify this not inconsiderable anomaly.

The Clause operates like this. Any officer or man who is killed in war, or in war-like operations in a time of general peace, has his estate absolutely exempted from duty. As the House knows, in present circumstances that exempts the whole of the Armed Forces, who are treated for Inland Revenue purposes as being on active service, no matter where they are stationed. It covers also Territorials and members of the Home Guard when death is as a result of their service.

At the same time, I should tell the House that the opportunity has been taken to provide that in time of peace, if indeed, we ever reach so admirable a state of affairs, there will be no immunity for those of any rank who die in the ordinary way, that is to say, of, for instance, influenza, but only for those who die as a result of war-like operations. We can say, therefore, that it has been possible to take the element of rank completely out of Estate Duty, and I am perfectly certain that, when a small number of cur fellow countrymen are engaged both in Korea and in Malaya in a grim struggle with a dangerous enemy, while the great majority of us live normal peacetime lives at home, that is a very appropriate time for us to make it clear that the revenue does not intend to benefit from the property of those who give their lives to their country.

Another anomaly which my right hon. Friend has brought to an end is the discrimination, so far as the payment of motor licence duty is concerned, between motor vehicles registered before 1st January, 1947, and those registered after that date. The flat rate of £10 on cars registered after 1st January, 1947, was, of course, introduced by the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) on what, if he will allow me to say so, were the sound grounds of the adverse effect upon design and thus on the export trade of the horsepower system of taxation.

The right hon. Gentleman himself indicated that sooner or later he expected that the flat rate would be extended to cover all cars. He made it clear then, perfectly frankly, that the reason why he did not do it at the time was the cost. Curiously enough, the cost of doing it on the £10 basis has risen rather than fallen during the intervening period; indeed, the latest calculation it is possible to make suggests that to introduce the flat rate on the £10 basis would cost £7 million, which is £1 million more than the figure given, I think by the right hon. Gentleman the Member for Battersea, North (Mr. Jay), from this Bench last year.

On the other hand, the argument for an overall flat rate is very strong. It must be within the knowledge of most hon. Members that many people today run an old car simply because they cannot get a new one, and it is, perhaps, somewhat unfair that that inability to replace their old car should, of itself, involve them in the payment of a higher rate of duty. My right hon. Friend has therefore introduced, by this Bill, a flat rate of £12 10s. as from 1st January, 1953. Even this will cost the Revenue £1,300,000 in a full year.

Like all general changes, it does not benefit everybody. The old car of nine horse-power and below will pay more than it has done—or rather, its owner will—though it is fair to say that the increase for the nine horse-power car will be smaller than the increase which falls on the owner of a car already on the £10 flat rate. But to leave smaller old cars at the old rate would not only more than double the cost of this change, but would also perpetuate the dual system of taxation which is administratively not very convenient; and it is perhaps relevant, in this connection, to point out that the smaller cars use somewhat less petrol and are, therefore, less affected by the increase in the petrol tax.

I noted with interest that a couple of months ago the right hon. Member for Battersea, North, in an article in the "New Statesman," used a quotation from Edmund Burke: To tax and to please, no more than to love and be wise, is not given to man. I am sure that quotation was founded on the right hon. Gentleman's own experience—I am referring, of course, to the first part of the quotation—but I suppose there is no part of our system of taxation to which that quotation is more apposite than in connection with the Purchase Tax, because this tax, whatever else may be said about it, is not likely to be exposed to the risks of excessive popularity. It has, however, a most important part to play in our modem fiscal system, with a yield last year of £338 million. The importance of the yield, no doubt, is one of the reasons why successive Chancellors of the Exchequer in successive Governments have retained it.

I should like to say a word about the part of the Bill in which big changes are made in that part of the Purchase Tax system to which the utility scheme used to apply. Perhaps I should make it clear what I, at this stage of the debate, regard it as my duty to do. My duty, in moving the Second Reading of the Bill, is to explain the proposals of the Bill as they stand in the Bill. When my right hon. Friend replies he will be able to deal with any points raised in the course of the debate about the effects of the operation of the scheme.

The first point that really is of compelling importance is that the Utility scheme had largely outlived its usefulness except, perhaps, in the case of furniture, where, as the House is aware, we are retaining it. Hon. Members who read the unanimous Report of the Douglas Committee will, I think, be left in no doubt at all upon that point. The The House will recall that that Committee was appointed by the right hon. Member for Leeds, South, that its Chairman was an extremely distinguished ex-civil servant, and that its members included Mrs. Margaret Allen, who has served in several capacities in the Co-operative Movement, and Mr. Heywood, the General Secretary of the National Union of Dyers, Bleachers and Textile Workers, and business men.

That Committee came to a unanimous conclusion on the point I am now on, that the Utility scheme, in general, did not provide protection for the public from the point of view of the maintenance of standards of quality. Conclusion (f) in paragraph 65, said: The social advantage conferred by the tax exemption for Utility goods is weakened by numerous anomalies, and by the considerable variation in the proportion of Utility available for the main classes of goods. The other reason why it was essential to make a change arose from our international obligations. The Utility scheme, of course, applied only to home-produced goods and, consequently, foreign manufactured goods which competed with home manufactured goods in the Utility ranges found themselves faced by what amounted to an additional protective tariff. Hon. Members may differ as to whether that was a desirable state of affairs or not, but the fact remains that it was in complete contradiction to our international obligations, and the House may remember that last September the right hon. and learned Gentleman the Member for St. Helens (Sir H. Shawcross), who was the President of the Board of Trade, at Geneva had to ask for a further period of grace on the understanding that the Government would abolish, as early as possible next year, the discrimination against imports arising from the Utility scheme.

Then, from the point of view of the export trade, the scheme recommended by the Douglas Committee, and, I think, generally known as the D scheme, has the practical advantage that it involves cutting out what is called the "blind spot." That was, of course, the point at which, under the old system, the full rate of Purchase Tax fell upon an article. Perhaps I could illustrate it with a simple example. Take an article costing £1 within the Utility scheme, and then another costing 21s. and just outside it. The Utility article, of course, was saleable at £1. With Purchase Tax of 33⅓ per cent., the non-Utility article sold at 28s. Nobody who can get an article worth 20s. for 20s. will pay 28s. for one worth 21s. This created a category of goods unsaleable at home and, therefore, extremely difficult to manufacture for export—without the advantage of even a possible home market.

The D scheme abolishes that blind spot by, as it were, letting in the clutch of Purchase Tax more gently, and, I think, there is very little doubt that that is the better system of the two. The tax falls, as the House is aware, only on that part of the price of the article which exceeds D, and D is, of course, for various articles, as set out at length in the Schedules to this Bill. In most categories of goods the purchaser can buy tax free anywhere in the cheaper half of the category since the D is in general fixed at the medium point—that is, half way up the total quantity.

The old Utility scheme was riddled with quite indefensible anomalies. One could buy Utility, and so tax free, dancing shoes; rubber boots, which are a necessity for agricultural and many other workers, were liable to tax of full value. One could buy a Utility dinner jacket, if one saw fit, but tax fell in full on some of the necessary protective footwear and clothing of miners and fishermen. Cotton tablecloths were tax free; their competitors, oil baize cloths, carried the full rate of tax; both these fabrics serve as table covers, particularly among the poorer section of the community, yet one bore the full rate of tax while the other was largely tax free. The Utility scheme had run into a deplorable state of affairs, in which there was neither rhyme nor reason for the distinctions between one article and another through quite considerable ranges.

The result of the change has been to exempt from Purchase Tax articles which did, in fact, carry it and, at the same time, to impose Purchase Tax on articles which previously were free from it. It is natural that trades which have been virtually immune from tax in the past and now find themselves exposed to it should criticise the scheme; but I would ask the House to recall the fact that the primary purpose of D relief is to enable the lower income groups to buy their most essential articles—clothing, footwear, gloves, etc.—tax free, and that the D list has been drawn up with this object in view, on the lines recommended by the Douglas Committee. This inevitably means that in some trades where Utility coverage was particularly wide many goods previously exempt now have to bear some tax, and, equally, that other goods which previously bore the tax now are free. The process has operated both ways, and the point that I want, with respect, to submit to the House is, that the scheme should be looked at as a whole and that it ought to be given a fair run.

As I have said, my right hon. Friend, when he winds up the debate, will have had the advantage of hearing what hon. Members think on this subject, and then he will, no doubt, be able to deal with specific points which, I have no doubt, will be put to him; but I would make this general comment, that it is possible to exaggerate the effects, adverse or otherwise, of Purchase Tax. Hon. Members should recall that it does not affect manufacture for export; it does not cover contracts for Government Departments; it does not cover clothing for children. There are very substantial ranges of goods completely outside the ambit of the tax at all and that even—

Mr. John Paton (Norwich, North)


Mr. Boyd-Carpenter

I am so sorry. I do not want to be discourteous, but I hope the hon. Gentleman will excuse me from giving way because I am in the middle of a rather complex argument.

Even within this ambit substantially half the goods concerned are tax free because, as I mentioned to the House a moment ago, the median point is selected—the middle point in point of quantity is selected—as the point for D. Therefore, while I do not underrate the fact that, for certain trades, no doubt, the tax seems to fall hardly, the point I would put to the House is that this new scheme really does deserve consideration as a whole.

Now let me turn to a new tax—

Mr. Paton

Will the hon. Gentleman give way?

Mr. Boyd-Carpenter

Yes, all right.

Mr. Paton

I am grateful to the hon. Gentleman for his courtesy. He mentioned in his argument that this new tax does not apply to manufacture for export. Has the hon. Gentleman not considered the very serious effects upon manufacturing for export of the very strong incentive now given to down-grade design and quality in order to try to make goods tax free?

Mr. Boyd-Carpenter

If the hon. Gentleman had been following my earlier argument, I think he would have heard me make it clear that one of the disadvantages of the operation of the old Utility scheme was precisely that upon exports, to which he refers, in particular in connection with the blind spot. I agree wholly that any tendency seriously to down-grade quality would have very serious repercussions in the export field. Since I think that in general the House would agree that our export markets are better for the comparatively higher than from the comparatively lower quality of goods, I do not think there is any difference between us.

Now let me pass to the new tax which is imposed in this Bill—the Excess Profits Levy—which occupies Clauses 31 to 57. In our Election Manifesto we said this: Our theme is that in normal times there should be the freest competition and that good wages and profits fairly earned under the law are a public gain both to the nation and to all industry—management and wage-earner alike. But the vast re-armament policy of spending five thousand millions in three years on defence inevitably distorts the ordinary working of supply and demand. Therefore, justice requires special arrangements for the emergency. We shall set our face against the fortuitous rise in company profits because of the abnormal process of re-armament. We shall accordingly impose a form of excess profits tax to operate only during this exceptional period. The justification in principle for a tax of this character is that it is wrong that special and extraordinary profits should be made and wholly retained out of a great national effort in re-armament. There is a strong case, in principle, for saying that it is right to impose an additional tax upon such profits, and that case is re-inforced when one comes to analyse the methods by which the re-armament programme is sustained.

Not only are public funds on a very great scale put into re-armament, but scarce raw materials are allocated by the State to industries, or indeed to individual factories manufacturing armaments. That means that when materials are scarce, highly reputable and highly enterprising industries and firms which do not at present directly contribute to the higher priorities of re-armament, find the materials which they need and could use sent to other industries or to other firms.

Therefore I would put it to the House that, as a result of re-armament, not only are some firms benefited, but, equally, others are handicapped, and it is not necessarily the case that those who are handicapped are the least enterprising. It is equally true, as I concede at once, that a tax of this sort has certain inherent and unavoidable disadvantages. That is probably true of all forms of taxation. These particular disadvantages have had the engaging consequence of lining up the right hon. Member for Bishop Auckland and the "Economist" in an uneasy alliance.

There is the point that the levy falls on all firms that make increased profits, whether they are directly concerned with re-armament or not. But it is quite impossible in practice to distinguish between additional profits made as a result of re-armament and those made for other reasons. If we spend the very large sums of money which we are spending on re-armament we inject into the economy a vast mass of purchasing power whose ultimate destination no one can foresee.

Let me take a simple example. If, in a small country town, there is erected a munitions factory employing a substantial number of people at high wages, the incomes of the retailers and entertainment caterers of that town, and perhaps even the licensee of the local hostelry, will be increased. They are not people who, in the ordinary sense, can be said to be concerned with re-armament, but their additional earnings are the indirect consequence of the spending by the Government of large sums of money on national defence, and there is a really very great difficulty in drawing the line.

Another and very obvious difficulty which it would be quite wrong to burke is that a tax of this sort tends to be extremely complicated. I am not suggesting—and no hon. Member who has studied the Bill would believe me for a moment if I did suggest it—that this proposal is of complete simplicity. The fact that it takes 26 Clauses of the Bill is alone no doubt sufficient to answer that. Any hon. Member who had experience of the war-time E.P.T. will be only too well aware of the complexity of a tax arranged on those lines, and I am sorry to have to tell the House that, although that tax came to an end in 1946 the Inland Revenue are still engaged in trying to settle a number of cases where liability arose under that tax.

We hope that this tax, the Excess Profits Levy, is a tax which it will not be necessary to maintain over any very prolonged period. The intention is that it should cover the period of re-armament, and I suppose all hon. Members hope that that period may not be unduly lengthy. It is, therefore, important that the tax should be as simple to understand and collect as is reasonably possible; and it is equally desirable that its collection should not involve a great inflation in the staff of the Inland Revenue. It is our desire and intention to operate this tax without expanding the staff of the Inland Revenue, particularly in view of the fact that it is hoped that this will not be a tax of undue duration. I am sure hon. Members will realise that it is very desirable that there should be no such expansion.

Freedom from complication is important, and that is one of the reasons why the tax has not been applied either to individuals or to partnerships, as it was on the previous occasion. I next come to a part of the proposal which I know has been a matter of a good deal of controversy, both in the Press and no doubt later in this House, and that is the proposal that the alternative standard of profits during the standard years should be based on the nominal capital instead of the capital employed in the business. It has been objected that the former is a standard which can, in certain cases, be unfair to one taxpayer as against another. I think that there has been some genuine misunderstanding about this, and that in any event the scale of the trouble may perhaps have been a little bit exaggerated.

Let us take it by stages. In the case of what are called new companies, companies that have started since the beginning of the standard period, this difficulty does not arise; allowance is made for money ploughed back into the business since 1st January, 1948, and I think there is no real complaint with respect to them. It is equally the fact that this trouble does not arise in the case of companies which made appreciable profits during the standard years, for their standard depends on the actual profits made. The question arises in the case of old—that is, old in this sense; pre-1947 companies—which during the standard years, 1947, 1948 and 1949, failed to make appreciable profits and, therefore, seek to call in aid the alternative standard provided in the Bill.

The problem is, therefore, narrowed down to whether or not such companies—ex hypothesi companies that were not doing particularly well—had at that time substantially more capital actually employed in the business than their nominal capital would appear to suggest. I stress that for this reason. Under the war-time rule allowance was only made at 6 per cent. This time allowances are made at 8 or 10 per cent., as the case may be. For any company, therefore, to be worse off under this proposal than under the wartime one, the actual capital employed in the business would have to be substantially more than the nominal, and the question, on which, no doubt, opinions will be later expressed, is whether, in a large number of cases, such companies—the companies which, I repeat, were doing comparatively badly in those years—had, in fact, any substantial surplus of actual over nominal capital.

If it can be established that such substantial surplus did exist in a reasonable number of cases, that would be a very valid argument against adopting the basis in the Bill as the sole standard of computation, and it might, in those circumstances, be necessary to consider whether any alternative method, at the option of the companies concerned, ought to be evolved. I make no commitment on this issue, but anything which hon. Members bring forward on this point will receive the close consideration of the Government.

There is one other point which I would like to deal with in connection with the E.P.L., and that is the choice of the standard years 1947, 1948 and 1949. There has been a good deal of criticism in the Press of the inclusion of 1947 in the standard years. In fact, 1947 was, in general, nothing like as bad a year as one might think from reading certain articles. It may interest hon. Members to know that the total company profits on the basis prescribed for the E.P.L. in 1947 were only £110 million behind those of 1948, and those for 1949 were only £50 million up on 1948. So, whether hon. Members regard those years as having been not so bad or not so good, the point that is material is that there was no drastic and dramatic change as between them.

These gross figures conceal certain variations between one type of business and another; and there is a very special case to be considered in respect of those Far Eastern territories in particular which suffered occupation and spoliation during the war, and which were, during 1947, perhaps engaged in expensive and unremunerative reconstruction work. Therefore, while it seems that, in general, the three standard years are not unreasonable, Her Majesty's Government will listen to any comment that may be made upon this provision of the Bill.

Finally, I would point out—as an answer perhaps to some of the calculations that have been made in certain quarters—that there is a provision in the Bill for an over-riding maximum of liability to tax—the 18 per cent. provision. In the case of a new tax such as this, that is perhaps peculiarly the sort of matter on which the Government should and ought to listen to the opinions of hon. Members and the experience of the House. I am quite certain that my right hon. Friend will carefully consider what is said.

One of the most striking, as it is one of the most important, features of the Bill is the relief it brings in respect of Income Tax. Before going into the detailed reasons for my right hon. Friend's proposals under this head, there is one general consideration to which I would like to invite the attention of the House.

It is this: if, at a time of rising prices and rising money incomes, we maintain at the same point, in terms of money, the point at which liabilities to tax began, we are, in fact, increasing the burden of the tax upon the taxpayer. For example, if we were to retain the single person's tax free allowance at £110 a year at a time when both money wages and prices have been rising, we exempt each year a smaller proportion of the taxpayer's real income from tax. In other words, we are increasing the severity of his tax burden. That is of itself, from the point of view of fairness, one good reason for reconsidering the levels of income at which various Income Tax liabilities bite.

There is also another very practical purpose in my right hon. Friend's proposals. Hon. Members may differ about the extent to which they think that high direct taxation acts as a disincentive, but I think that it is beyond doubt that the knowledge that either by working overtime, or by putting in harder work at piece rates, or by taking on extra work, one can earn more without incurring such heavy Income Tax charges, is a very real factor in encouraging extra output and extra work.

Mr. H. Rhodes (Ashton-under-Lyne)

In Lancashire and Yorkshire?

Mr. Boyd-Carpenter

It is no disparagement of my right hon. Friend to say that most people prefer to think that they are working for themselves rather than for my right hon. Friend. That is why this reduction in Income Tax charges, mainly through the medium of increased allowances and the regraduation of the scale, is a fundamental part of my right hon. Friend's proposal.

Its essence is that it makes harder work more worth while. It is very carefully designed to operate particularly in the income zone which most directly affects the earnings of the skilled worker and his earnings from overtime. In the Financial Statement, the figures in general are given and I should like to illustrate them with two examples. I understand that the average miner—and I take the miner as an example, because he plays so vital a part in our economy—working on the coal face, can reasonably expect to earn something in the neighbourhood of £10 12s. a week—if he is a married man with two children, the changes made mean that instead of paying 17s. 4d. a week through P.A.Y.E. he pays only 7s. a week. Not only does he get a larger proportion of his earnings, but he has the knowledge that if he is able to increase them further he will get a much bigger proportion of them. On a £1 of overtime earnings his tax will drop from 4s. 5d. to 2s. 4d.

Take another vital worker—the worker in an aircraft factory. There are many in my own division, now building the finest aircraft in the world. I understand that it is not unusual for them to earn £9 10s. a week. A married man with two children will pay, as a result of my right hon. Friend's proposal, no tax at all instead of 3s. 7d. a week, and, with the further encouragement, that, if he wants to work overtime, he pays 2s. 1d. on the £1 of overtime instead of 4s. 5d. These changes reinforce the appeals which hon. Members on both sides of the House have made and continue to make for increased output by solid and material considerations. They amount to a recognition of the fact that it is upon the skill and industriousness of our people that our national recovery depends.

Here may I clear up a misunderstanding which arose in a rather curious way on this subject. In the OFFICIAL REPORT, 17th March, 1952, col. 2064, my right hon. Friend is reported as stating that no less than 75 per cent. of the benefit of this tax relief will go to the benefit of those with incomes of less than £2,000 a year. If that figure were right, it would, as a matter of elementary mathematics, follow that 25 per cent. would be going to those with incomes in excess of £2,000 a year. At Question time last Thursday the right hon. Member for Battersea, North, whom I am glad to see in his place, and with whom I have already communicated on this subject, was, naturally, misled on that point. As a matter of fact, that is a misprint of what my right hon. Friend said. Instead of the figure being 75 per cent. it should have been 95 per cent.*; that 95 per cent. being the amount of the tax relief which goes to people with incomes below £2,000 a year, leaving a subtraction of 5 per cent. for those above.

That, of course, gives a very different picture. It is, in point of fact, so rare for the Official Reporters to slip, and all hon. Members have so high a regard for their accuracy, that I thought it right to inform the right hon. Gentleman that he had been, naturally, misled in his reliance on the OFFICIAL REPORT but that the figures were far different from what the misprint led him to believe.

Mr. Douglas Jay (Battersea, North)

I thank the hon. Gentleman. I was following HANSARD, and I entirely accept his statement that there was a misprint. But will he, in his turn, accept this? As he told me, of incomes above the Income Tax level, 99 per cent. are below £2,000 a year. It follows that a higher percentage than that of all incomes must be below £2,000 per year. Therefore, more than 99 per cent. of the benefit of the food subsidies must go to people below that income limit.

Mr. Boyd-Carpenter

I did not quite tell the right hon. Gentleman that. Speaking from memory, I believe I told him that the figure was 98.7. Of course, it is a matter of judgment as to the exact proportion in which it is right to spread these tax reliefs, but I should hate to suggest that incentives were not required above the level of £2,000 a year. As the right hon. Gentleman will appreciate, the whole of my argument on this part of the *The correct figure has been inserted in col. 2064, 17th March. case was the contribution which these tax reliefs would give to added incentive.

I said earlier in my speech, and I repeat it, that it is upon the effort, skill and industry of all sections of the community that our national recovery depends, and I think it would be quite wrong to say that we must space out tax reliefs in mathematical proportion without bothering whether proper incentives are given to all who can contribute.

As the point has been raised, I should like to break the figures down a little further for the right hon. Gentleman. Of these tax reliefs, just under 40 per cent.—£70 million—go to people with incomes under £10 a week; £55 million—30 per cent.—goes to people in the £10–£15 per week category; 10 per cent. goes to the £15–£20 category; and 20 per cent. goes to the £20 and over category. That is the break-down of the figures.

I ask the House to judge them not on the basis that one is seeking to indulge in a universal school prizegiving but from the point of view that they are calculated, and carefully calculated, to back the appeals for extra output we all make—which, I am glad to say, hon. Members on both sides of the House make—with solid and material inducements by making extra work more worth while to the person who does it.

I commend the Bill to the House, therefore, as a coherent and precise instrument for a particular purpose. That purpose is to enable this country, while bearing the heavy burden of re-armament, to restore its balance of payments and to earn its living in the world. I am sure that, however much we may differ as to the means by which we think this end can best be achieved, it is an end which all of us without exception are determined to see achieved, and it is as an honest, sincere and courageous attempt to achieve this national purpose that I commend the Bill to the House.

4.34 p.m.

Mr. James Callaghan (Cardiff, South-East)

We have seen this afternoon a much less jaunty Financial Secretary to the Treasury than I ever remember. By eschewing controversy and sticking to the Bill he has contrived to forget both the context in which the Bill is placed and also the results of the county council elections.

The Chancellor of the Exchequer, I am sorry to note—from his point of view—lost two seats on Saturday. If that would have weighed with the hon. Gentleman and his right hon. Friend in the meantime in their consideration of the Bill, let me say to them now straight away that we intend to divide on this Bill tonight. The House will notice that the country has already expressed its opinion about the Bill. It is a bad Bill, arising from a bad Budget, and we shall oppose it throughout the whole of its course.

The Chancellor of the Exchequer (Mr. R. A. Butler)

Does the hon. Gentleman suggest that the local government of England could be run on the basis of a national Bill in Parliament?

Mr. Callaghan

If the Chancellor of the Exchequer believes that his Government's miserable failure over the last six months has had nothing to do with the results in Saffron Walden, he is even more of a political innocent than I believe him to be. He knows very well that his Government's broken promises and record are such that if the Conservative Party were to go to the country today they would be turned out of office.

The Financial Secretary told us that this was a balance of payments Finance Bill. Where? What Clause in this Bill will help us overcome our balance of payments crisis? Is it the Entertainments Duty Clause? Is it making the cricket spectator pay more so that the speedway spectator can pay less? Will that balance our payments? Is it the increase in the petrol tax? Will making those who are having to travel to work by bus pay more in fares help us balance our payments? Is it the new D scheme? Will that help us balance our payments? No. There are very few provisions in this Bill which help us to overcome our balance of payments difficulties. Indeed, our criticism of the Bill which has been introduced, and of the Budget which it is proposed to represent, is that they are quite irrelevant to the major difficulties which this country has to face.

What the Bill does is redistribute income and wealth. That has been the purpose of many Budgets since I have been in the House and was the purpose of many Budgets before I came into the House, but this Budget is different. This Budget and this Bill redistribute wealth in such a way that those who were poor become poorer and those who were rich become richer.

Mr. Cyril Osborne (Louth)

The hon. Gentleman does not really believe that.

Mr. Callaghan

The hon. Member says that I do not believe that. Not only do I believe it, but I shall produce figures later in my speech to demonstrate it.

I will take one or two examples to show the degree of incoherence and stuttering stupidity to which the Government have reduced the petrol tax. The Chancellor of the Exchequer tells us that the object of increasing the petrol tax is to reduce consumption, because, he says, it costs us foreign exchange and he wants to lessen the amount we spend on foreign exchange. I understand from those who have examined the figures that 85 per cent. of the petrol and oil which is consumed in this country is consumed in industry by road haulage vehicles. If there is one thing which is quite clear, it is that the greatest economies which have been made in the use of petrol and oil over the last three or four years have been achieved through the cutting out of what is technically called "dead mileage" by the operations of the Road Haulage Executive.

The Road Haulage Executive have been able to link up return loads in a way in which they were never linked before. [HON. MEMBERS: "Oh."] Yes, it is a matter of fact. The way in which the Road Haulage Executive have set up machinery so that the groups in different parts of the country can exchange prior information about loads has enabled them to save a phenomenal degree of dead mileage. This is a matter of fact, and it can be demonstrated very easily by questioning the Road Haulage Executive. [HON. MEMBERS: "Rubbish."]

Before hon. Members shout "Rubbish," I suggest that they examine the facts. I had the opportunity of being at the Ministry of Transport for some time and I saw the consequences of what was happening. Let there be no doubt about this in the minds of hon. Members opposite. The Road Haulage Executive have enabled transport in this country to run more efficiently and more economically. In this connection they have saved the Chancellor a great many dollars by cutting out "dead running."

The Minister of Transport came to the House at Question time today and told us that shortly after Easter he will announce his proposals for road haulage. He is to free road transport. He is to extend the amount of free running that the road hauliers can do beyond the 25-mile limit that they are running now. They will be running back empty. They are now returning only 25 miles empty, but hereafter it will be 40 to 50 miles.

Mr. Osborne

It will be much cheaper.

Mr. Callaghan

But the point is that the Chancellor of the Exchequer has increased the petrol tax to save petrol consumption. There is nothing that the Conservative Government can do by way of extending the range of private enterprise hauliers that will save petrol consumption. This will waste it. Let us be clear that the policy that will result from the Minister of Transport's extension of road hauliers' licences will result in offsetting some of the gain the Chancellor of the Exchequer hopes to make by the tax increase which he proposes.

I do not understand how a party which last year voted against an increase in the tax to 1s. 10½d. can now go into the Lobby to vote for an increase to 2s. 6d. It is logical for hon. Members on this side of the House to say that 1s. 10½d. was the height to which it ought to go and can vote against this year's increase. But it is not logical for the party which last year objected to 1s. 10½d to come along and support an increase now to 2s. 6d. [HON. MEMBERS: "Abadan."] That is no reason for putting up the cost. That may be a reason for decreasing consumption, but the other thing does not flow from it.

The first consequence of this increased tax is to put up petrol and oil charges to London Transport Executive by £1.1 million a year. Some of us are getting a little impatient with the Minister of Transport coming along on Mondays and saying, about fare increases, "Please, Sir, it was not me. It is the British Transport Commission who are doing all this," and then proceeding to hide behind their skirts. This time he cannot do it. It is this Government who are responsible for this vast increase of over £1 million for petrol to the London Transport Executive, which will have the consequence of increased costs sooner or later to the travelling public on London, and what is true of London is also true of the bus services and of the operating companies through- out Great Britain. One thing is quite clear from what the Chancellor of the Exchequer has done about this petrol tax. The cost of living has not been reduced, travelling costs have been increased and this will make the burden harder for the public to bear.

I want to say a word about the Entertainments Duty. I realise that this is a difficult matter, but I should like to put to the Chancellor of the Exchequer one point of interest. The Glamorgan County Cricket Club—and there is no need for me to tell the Chancellor of the Exchequer that Glamorgan won the championship some three years ago and that they will win it again—has sent to Welsh Members an account of what the increase in the Entertainments Duty will mean today, and I will put this to the Chancellor of the Exchequer because, as I say, it is a very serious matter indeed.

In 1951, after they paid their Entertainments Duty, the club were left with a profit of £200. Duty paid amounted to £950, so altogether they made £1,150 and had to pay £950 to the Chancellor. Under the new proposals the Chancellor of the Exchequer is to ask them to pay, assuming, of course, that gates are at the same level, £2,270 as against £950. Instead, therefore, of making a small, modest profit of £200, they will find it turned into a loss of £1,120.

There will be only one consequence of that, and that is that gate money will have to go up and the price of admission for spectators to the matches of the Glamorgan County Cricket Club will be increased. First-class cricket gates are already going down, I am sorry to say, and what is true of cricket is true of football and other sports. Rugby, which is so popular in South Wales, will suffer very much, and I say to the right hon. Gentleman that this is the second consequence of his Budget. It is no easement at all, because what he is doing is to put up the cost of these sports to those who watch them. This is another factor in his Budget which is at variance with the very wide promises that were made to the electorate before the Election.

Mr. Butler

If the hon. Gentleman wishes to give a fair picture, as he said, he should make some reference to Entertainments Duties which we reduced, and he should also make reference to the fact that this arrangement was the result of an inquiry into the matter, as promised by my predecessor, the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell).

Mr. Callaghan

I am, of course, concentrating on those aspects of the Budget which suit me best. After all, the Chancellor of the Exchequer painted a very rosy picture on Budget day, which so delighted his followers that they waved their Order Papers. What a splendid sight it was to see them cheering the Chancellor of the Exchequer. Now we are filling in some of the gaps and pointing out some of the defects in a Budget which caused the right hon. Gentleman's admirers and followers such happiness. We are telling him what the consequences are as seen by other eyes.

I am delighted that the speedway fan should pay less to watch speedway racing, but I do not see that it helps very much that the football fan has to pay it for him. That is, after all, what this Budget does. The football fan has to pay another 3d. or 6d. to go to a football match so that the speedway fan pays less. It is one way of redistributing incomes, but it does not seem to me that the right hon. Gentleman is entitled to claim that this is any great concession to anybody.

I now turn to Purchase Tax, about which the Financial Secretary gave us an essay. He seemed to be making the pace for the Chancellor of the Exchequer later this evening, but, unfortunately, we do not know what way the Chancellor of the Exchequer is going to run. We on this side of the House have always thought and said—indeed, my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) said it in his Budget last year—that Purchase Tax serves two purposes.

It is, of course, a revenue-raising tax, and some £350 million this year are to be derived by the Chancellor of the Exchequer from it. But it has another purpose, and I hope that this will not offend hon. Members opposite. It is also a planning instrument, and it should be used in a sensible and flexible way. The right hon. Gentleman, in his approach so far, is regarding it purely as a means of raising revenue and is having no regard to the economic consequences of the tax. In our view there is a very strong case for using the Purchase Tax both as a tax on luxuries—as, indeed, it has been used in the past—and also to direct home consumption to export if, indeed, that is what the Chancellor of the Exchequer wants done.

In the particular case of textiles, it should be remembered that industry is not made for plans but that plans are made for industry, to meet the requirements and demands of industry. In our view, the use of the Purchase Tax as an economic planning instrument should now be subordinate to the needs of the textile industry in Lancashire. We take the view, and we press it upon the Chancellor, that he should remove Purchase Tax on textiles as a temporary measure. He should not remove it as a permanent measure, because it is an economic weapon, and because no industry ought to be told that the tax will be removed and will not be reimposed irrespective of what the consequences may be. That would be negation of planning.

The removal of the Purchase Tax on textiles at present would have a stimulating effect on home consumption. We cannot expect that it will solve our difficulties overseas, because there is a world recession in textiles at the moment. There is a very long telegram, which the Chancellor of the Exchequer has received. It was addressed to him, but a copy has been sent to my right hon. Friend the Leader of the Opposition. It is from 200,000 textile workers—or rather from the legislative council of the association which represents them—and it tells the Chancellor that since 1945, that is, since the end of the war, from 70 per cent. to 75 per cent. of textile production has been consumed in the home market. It says: The level of internal demand and purchasing power has never been so important (at least for 100 years) in determining a high or low level of employment in the cotton industry. The Government have it within their own hands as never before to determine what will happen. This situation is one in which, in our view, the Chancellor should take immediate action. If he does so, while no one can say that that will result in a permanent solution to the difficulties of the textile industry, it can nevertheless act as a temporary stimulus, and he should regard it as such. Let him be flexible in his planning.

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

Does the telegram use the words "temporary suspension"?

Mr. Callaghan

I am sorry that I cannot say. My hon. Friend will see that it is a telegram of four or five pages. I have only just had it put into my hands and I am not sure whether it says "temporary" or "permanent." I and my hon. Friends on this side of the House believe, as Socialists, that if we are to use this planning instrument sensibly and flexibly it should be done in a way that will enable us to put it on or take it off according as the national interest determines.

Mr. Ralph Assheton (Blackburn, West)

Does the hon. Gentleman appreciate that one of the most objectional features of the Purchase Tax is that it is constantly being moved up and down and that if we want to give confidence to an industry, we must have a definite decision which is not likely to be reversed in a very short time?

Mr. Callaghan

I am told—I am not an authority on this matter—that the Purchase Tax has not been altered for some time.

Mr. Assheton

The hon. Gentleman is no doubt aware that considerable discussion is going on about this matter and that suggestions were made in the debate the other day about suspending the Purchase Tax. I myself made a suggestion. I want to make it clear that my opinion is that suspension is likely to do damage to the trade, and that what ought to be considered is either reduction or abolition, rather than suspension.

Mr. Callaghan

That point can be discussed later and in great detail. I must make it clear that it is our view that Purchase Tax should be removed, at least as a temporary measure, and that the Chancellor should act very quickly.

Mr. Osborne

To what extent do the hon. Gentleman and his colleagues think that removal of the tax would ease the burden in Lancashire? That is a very material question. How far can the removal of the tax cure Lancashire's trouble, and how far is that trouble bound up with the retention of the Purchase Tax?

Mr. Callaghan

That is something upon which I am not qualified to express a view, but I am sure that it is far better to reduce the price of a commodity that is not selling well in order to get it selling again than it is to keep the price where it is. That seems elementary common sense which ought to appeal to the hon. Member. How far removal of the Purchase Tax will result in a permanent solution is beyond the wit of anybody to say, but as the textile industry is largely a home industry, such a step ought to get trade moving much more than if the trade were dependent upon exports. We shall put down Amendments for the Committee stage, if the Chancellor has nothing to say to us tonight, which will have the effect of removing textiles from the Purchase Tax list for this year.

There is a great deal of trouble in other industries too; in the boot and shoe industry, for example. It was the case that 98 per cent. of the products of the boot and shoe industry was free of Purchase Tax. Only 2 per cent. bore any tax at all. Now, under the present proposal of the Chancellor of the Exchequer, 50 per cent. will bear tax. This has really nothing to do with the Douglas Report; it is the Chancellor of the Exchequer who has decided that 50 per cent. shall bear tax in the future.

Does the Chancellor really think that this is the right time to add Purchase Tax to 48 per cent. of the output of boots and shoes that are to be bought and worn in this country? How does he think that the operatives on short time in Oldham will be able to buy a pair of shoes made in Northampton if another 10s. or 15s. is put on the price?

We were told by the Financial Secretary that this alteration was removing a "blind spot" in the Utility scheme. He said that it was "letting the clutch in," as it were. Let me tell him that if he lets the clutch in and puts the brake on at the same time, the engine will stop. That is exactly what he is about to do as a result of this scheme. It is quite the wrong moment for the Chancellor of the Exchequer to introduce a scheme of this sort with those consequences.

In Committee we shall move Amendments to provide that the proportion to be exempt from Purchase Tax under the new scheme shall be as high as the top Utility levels were. Taking the boot and shoe industry as a particular example, we shall do our best to ensure that 98 per cent. of the products of that industry are exempt from Purchase Tax, as they were before.

I now come to the Excess Profits Levy and the Profits Tax. The Chancellor of the Exchequer cannot be feeling too happy on this subject. He has been shot at from behind, and we shall note with considerable amusement how he deals with the situation. Let our position be quite clear. The Trades Union Congress told the Chancellor of the Exchequer before he prepared his Budget that the proposed Excess Profits Tax was a wasteful tax. They had derived that knowledge from their experience of the six years during which the tax had operated. My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) very soon educated the country on the shortcomings of any Excess Profits Tax over a long period.

We have noticed the air of slight disdain and stand-offishness with which the Chancellor of the Exchequer regards this tax. He is not too anxious to assume responsibility for it. Indeed, if the phraseology in the Conservative Party Election Manifesto is any guide, this tax is the brain-child of the Prime Minister. That is no doubt why the Chancellor of the Exchequer is most anxious to disclaim any responsibility for a tax, which is wasteful in its incidence, has bad effects upon industry and particularly on the younger industries and which, in short, does nothing except multiply the number of bureaucrats—I think that is the right term—and puts all the accountants in the country on overtime. It achieves, at the expense of a great many man hours and by using a very blunt instrument, the result that can be achieved by increasing the Profits Tax or the Income Tax. Why this tax should have been thrust upon us at the present time is beyond my comprehension.

Mr. Mikardo

They must keep one promise.

Mr. Callaghan

My hon. Friend says they must keep one promise, but I doubt it. I have a feeling that it will be so emasculated by the end of the Third Reading that there will be very little of that promise left too. However, we will help the Chancellor to keep one part of his promise. We will pledge our support to him that no stab in the back will stop us from following him into the Lobby in order to keep the year 1949 as the standard year for determining profits. We do not want 1950; we want 1949. If the Chancellor is tripped from behind him we will bear him into the Lobby with us and will be with him to a man. He must not interfere with those three years. He chose the three years in question because he knew that if he did not choose them he would have a tax that would not produce any revenue at all.

There is another sound reason, which the Prime Minister will appreciate. These three base years have been chosen in the United States of America. Of course we ought to follow their lead on a matter of this kind and there is no reason why, if they believe these to be the right years, we should take any different view. No, we shall be happy to support the Chancellor on this matter, so he can go ahead without taking any account of the faint hearts behind him. We will be there with him and will support him in the Lobby.

There are some ways in which the Chancellor has been saved from the worst of the follies of the Prime Minister in this matter by the Board of Inland Revenue. In those Clauses there they have assimilated the tax requirements for the Profits Tax with those now proposed for the Excess Profits Levy, he is getting out of this in the best way possible, if I may say so, because I would like to uttter some words of encouragement to him. I think he has been right to make the Excess Profits Levy not deductible from Income Tax. I am sure that is right. And, in the case of the definition of the accounting period, he has made that uniform as between the Profits Tax and the Excess Profits Levy. That, too, is right.

Indeed, I offer the right hon. Gentleman this assurance: as far as we are concerned we shall protect those companies from such minor lunacies as we detect in these Clauses. We cannot undertake to protect them from the major lunacy of having a tax of this nature without what the Prime Minister calls "sticking it into the mandate"—I think that was the elegant term he used. We shall watch with great interest the arguments of the Chancellor with his back benchers and with those who represent the City of London. We shall be ready to join in those arguments and to vote with him where we think it appropriate, or against him if we think it necessary by reference to what the needs of the national interest require on every occasion. We shall watch this fight, as it goes on, with great interest.

I must point out that this is only a temporary tax. Yet he has reduced the Profits Tax and, presumably, that will be a permanent reduction. What are we to deduce from this? The Chancellor said that industry could not carry the Profits Tax as well as the Excess Profits Levy, so he has reduced the Profits Tax as far as undistributed profits are concerned from 5¼ per cent. to 2½ per cent. net and, as far as the distributed profits are concerned, from 26¼ per cent. to 17½ per cent. I have given net approximate figures. I ask my hon. Friends to notice that in the case of undistributed profits the reduction is 2¾ per cent., but if a company proposes to distribute its profits, it will pay tax at a reduced rate of 8¾ per cent.

What are the consequences of this? Surely the Chancellor must see what he has done? The companies who have distributed most in the past and have put least to reserve will get the greatest benefit, because their level of tax is being reduced from 26¼ per cent. to 17½ per cent. While those who have done what previous Chancellors asked them to do in the national interest, those who have put their profits to reserve and have not distributed them in the shape of dividends, are only getting relief at the rate of 2½ per cent. This is a fine way to reward those companies who in the past have taken the view of the Chancellor as to the inadvisability of distributing profits and have put them to reserve. We view with considerable apprehension a reduction in Profits Tax which gives the major benefit to those who have ignored the advice of the Government that they should keep their dividends low and put their profits to reserve.

According to one financial weekly, for whose figure I do not take responsibility, but which looks about right, where no Excess Profits Levy is payable the effective rate of taxation for such companies will be reduced from 13s. 3d. in the £ on their standard profits to 12s. 3d. in the £. That is a considerable reduction—

Sir Herbert Williams (Croydon, East)

Too high.

Mr. Callaghan

The hon. Gentleman says it is too high. I ask him to keep in mind in this context that the effect of part of this Budget is to take food subsidies away from those at the bottom who can ill afford them and to give relief to those at the top. It is in that context that I ask him to consider this reduction in taxation.

To take the group quoted by my right hon. Friend the Member for Battersea, North (Mr. Jay), why should the breweries who make as much profit this year as they made last year be relieved of a considerable amount of tax? Surely that was not the object of the manifesto of the Conservative Party? What the right hon. Gentleman said in that manifesto was that those who made fortuitous profits as a result of re-armament should have to pay them over to the Chancellor of the Exchequer. He did not say that those who do as well, but no better, should have a substantial reduction of tax at the same time as he finds it impossible to keep the food subsidies at their present level. This is no measure of equality, it is a considerable inequality, and I say to the right hon. Gentleman that we shall put down Amendments as far as we can to limit the operation of this matter.

Now I come to Income Tax allowances. We are told that this is an incentive Budget. Those were the words used by the Financial Secretary. We are to get more work done if we pay less in Income Tax. That is the story. Yet I understand that the difficulty in, say, the engineering industry today is shortage of materials, not the inability of people to work or their reluctance to work. It is not the Income Tax which is keeping them at home on a four-day week in Coventry today, or in any of the other industries we know about.

The right hon. Gentleman is behind the times in this matter. If he would concern himself more with getting materials for industry and not with striking off a penny or twopence, because that is what it amounts to, he would be getting nearer the bones of this problem. Then there is the textile industry. Is it there the Income Tax is keeping people at home? No, neither is it shortage of raw materials. What is keeping them at home there is shortage of demand. They are ready to go to work, I tell the Chancellor, and to pay their Income Tax if he can create the demand or if the President of the Board of Trade can do so.

To talk about this as an incentive Budget is quite beside the point. In the month of April, 1951, there was a case for it, when my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), increased the reduced rates allowances, or when my right hon. Friend the Member for Bishop Auckland and Sir Stafford Cripps did the same thing. There was a case then for saying that we wanted everybody to go all out and to work as hard as possible, but to say at this time that this is necessary in order to create incentives will sound like hollow mockery in many parts of our country today.

I do not understand what underlies the Chancellor's mind when he can come to the House with a Budget which gives so much more relief to the Surtax payer than to the man at the bottom of the scale.

Mr. R. A. Butler

Less than the right hon. Member for Bishop Auckland (Mr. Dalton) gave.

Mr. Callaghan

The right hon. Gentleman thinks that he has a let-out because, he says, he is not giving as much relief to the Surtax payer as my right hon. Friend gave. But let me tell the Chancellor this. My right hon. Friend the Member for Bishop Auckland financed his Surtax and Income Tax reliefs out of decreases in Government expenditure; he did not finance them out of the worst-off sections in the country. [Laughter.] The level of Government expenditure—and let hon. Members opposite who are laughing so uproariously remember this—we were told, was to be reduced, but the Chancellor is asking for more revenue today than any Chancellor of the Exchequer has ever had in peacetime. And even this has been achieved by running down stocks to a great extent.

What is the justification, if we are in a difficult situation, as the nation is, as the Prime Minister constantly reminds us—I wonder whether he appreciates this—for saying that the £10 a week miner shall be relieved to the extent of 4s. 6d. a week—I am taking only the Income Tax figures—and that the man on £2,000 a year is to pay 25s. a week less? What is the justification for a Budget which leaves that result if, as the Financial Secretary constantly reminds us, the miner is the most important man in industry today? He is the man who should have the 25s. [HON. MEMBERS: "Hear, hear."] The plain truth is that in this, as in so many other matters, the Chancellor has got his values upside down.

If we want to encourage enterprise and to encourage the miners, why do the Government think it necessary to relieve those who are enjoying investment incomes of an average of £30 to £40 a year? In Income Tax, they will pay samething like £30 to £40 a year less. I do not follow the thought that underlies this.

The Government ought to thank Heaven that they have not got Mr. Brendan Bracken in the House, because Mr.—now Lord—Bracken, whatever his other faults, said, and I always agreed with him in it, that the great thing that every Government had to do was to increase the difference between the earner and those who merely live on the production of their investments. I read "Men and Matters" this morning, or whatever that page in the "Financial Times" is called, hoping to see some scathing comments about the Chancellor of the Exchequer. I was sorry to see that there was nothing there, but I can guess what Lord Bracken is saying about it behind the right hon. Gentleman's back.

If the Chancellor of the Exchequer has some money to give away at this time, when he is demanding sacrifices, let him not give it to those who are living on substantial investment incomes. What about repaying Post-War Credits to the permanently sick, to the disabled, or to the widows? I know the administrative difficulties—the Inland Revenue will produce them by the hundred—but, in the words of the Prime Minister in another connection, "Do not argue the difficulties. They will argue themselves."

If the Chancellor of the Exchequer has some money to give away, there are many more worthy classes than the Surtax payers or even the brewers. The permanently sick, the permanently disabled and the widows can be easily identified and picked out, and they would be very fit subjects indeed for relief of this nature.

Mr. R. Maudling (Barnet)

If the administrative difficulties are not so great, why did not previous Chancellors of the Exchequer do anything about it?

Mr. Callaghan

Because my right hon. Friend, when he was able to make taxation reliefs, gave them in accordance with the need of those who wanted them most. Our whole complaint against the Budget—and this is what hon. and right hon. Gentlemen must understand—is that it takes from the poorest and gives to the wealthiest. If the party opposite are doing that, then at least, I suggest, there are many better ways of spending money than giving it to the wealthiest classes.

I should like to give an illustration. The Financial Secretary corrected a misprint in HANSARD about the Surtax payers and the amount of relief that they get. I should like to draw a deduction from what the Chancellor of the Exchequer said and to put it round the other way. The right hon. Gentleman put it in the way that was most favourable to him. I should like to put it in the way that I think is accurate. What, in fact, is happening is that 70 per cent. of the benefits under the Income Tax remissions go to those getting less than £15 a week, to those paid up to between £750 and £800 a year.

Let us put it the other way. Thirty per cent. of the Income Tax reliefs are going to those getting more than £800 a year. [HON. MEMBERS: "Why not?"] They number something like 1,500,000 out of the 20 million Income Tax payers. In other words, 7½ per cent. of the best-off people are to get Income Tax reliefs amounting to 30 per cent. of all that the Chancellor of the Exchequer is giving away. That is the way in which those figures ought to be looked at.

Now I come, finally—I have been rather a long time—[HON. MEMBERS: "Go on."] My hon. Friends encourage me too much; I should like to continue. I come, finally, to the general effects of the Budget. One of the worst things that the Chancellor of the Exchequer has done is to throw overboard the T.U.C. He has had a lot of help from them, as Governments have had since the beginning of the war, and in one Budget gratuitously he has thrown them overboard.

Let there be no doubt about it. The T.U.C. sent the right hon. Gentleman a statement before the Budget in which they advised him of the things that he should do in order to help them to take a sensible and a moderate line in the balance of payments difficulties with which we are confronted. As far as I know, the only direction in which he has taken their advice is in relation to the reduced rates relief.

I wonder whether the Chancellor of the Exchequer realises what he has done? He has made it quite impossible for any trade union leader to go to his union and appeal for moderation.

Mr. R. A. Butler

indicated dissent.

Mr. Callaghan

The right hon. Gentleman shakes his head, but has he not seen that already three million engineers have decided to put in a claim for increased wages?

Mr. R. J. Mellish (Bermondsey)

Thirty shillings a week.

Mr. Callaghan

Does not the Chancellor know that 500,000 agricultural workers have submitted a claim to their Central Wages Board and that the miners are taking similar action? My hon. Friend the Member for Bedwellty (Mr. Finch), who is the Secretary of the Miners' Group in the House, has given me a copy of the resolution which was passed at a special conference of the National Union of Mineworkers: This Conference declares its intention of insisting upon increases in wages … to offset the effects of this Budget upon our members' living standards. The T.U.C. said, in its statement after the Budget: … trade unions could not hope successfully to encourage moderation except as part of a common effort in which the Government and other sections of the community play their part. If … the Government proceed to limit their responsibilities, trade unions will be compelled to place increasingly greater emphasis upon wage increases as a means of protecting the interests of their members. … Trade unions would willingly accept, as they have in the past, any measures, however unpleasant, which were seen to be equitable and necessary … we believe that it is our right and duty … to emphasise that unless those policies"— that is, those policies which seem to bring equity into our economic situation— are maintained and developed, the whole basis of our economic and social progress will be endangered. I notice that Mr. Arthur Deakin, writing in this month's "Record," says: No amount of exhortation can prevent claims being made by 'rank and file' members of the trade unions. They will definitely require their executives to take those steps which are essential to safeguard their present living standards. I think when I look back on the moderation, skill and statesmanship with which the trade union movement has been led over the last 10 or 12 years—I take the period since the beginning of the war—that one of the worst steps a new Chancellor could undertake is to fly in the face of their advice in the way the right hon. Gentleman has done.

I say to the right hon. Gentleman that he has precipitated and set in motion wage claims that can have the consequences at the moment, when demand is diminishing in many quarters, of causing that classical form of deflation which has already been one of the consequences of the free enterprise capitalist system. We may run into these difficulties—I do not know at the moment. He seems to be relying on the Bank rate to get him out of them. If one has plenty of liquid reserves one can ignore the effects of the Bank rate. The Bank rate will come down on these young, expanding companies which need more capital, and large, mature, well-established companies can go scot-free if they have plenty of liquid reserves.

Many hon. Friends will shudder at the thought of British industry being handed over to the bankers again. We have seen that before. It is 20 years ago this year that the Bank rate was 4 per cent. The last time was in 1932. What worries me about the Chancellor's policy is that he has left himself very little room for manœuvre, for the present Budget is thrown out of balance by a number of factors he believes are going to keep it in balance. It is a very finely balanced Budget, and if all the factors he hopes will operate in his favour do so, he may be driven to a higher Bank rate and more unemployment by the consequences that flow from it. I am not surprised that he has placed so much emphasis on the Bank rate. This is a feature of a Government of bankers and directors of insurance companies. The boardroom of Lloyds Bank must look denuded now and, contrariwise, a Cabinet meeting must appear like a meeting of directors of Lloyds Bank. Perhaps it is not surprising that we should have this emphasis on monetary policy, but I warn the Chancellor that, left as it is, he runs a great risk of his monetary policy running away with him.

I should like to say one thing in conclusion about the Budget—

Sir H. Williams

The hon. Member has come to his conclusion before.

Mr. Callaghan

I will sum up. Coming from the abstractions of Whitehall and Cabinet committees down to the effects of this Budget in the ordinary small household, there can be no doubt that the Chancellor will find he has greatly under-estimated the financial effects of what he is doing. The food increases are going to be much more than 1s. 6d. a week—a lot more. They are already starting. One of the small shopkeepers in my constituency has sent me an extract from the bills of three of his customers—I asked him to send them to me—telling me just what the increase in the price of bread has meant to those bills. Here, in Grangetown, Cardiff, is an old age pensioner and his wife. They have a loaf a day and one and a half on Saturday. The outlay for that old couple has increased from 3s. 2¾d. to 4s. 0¼d. for bread alone already.

A man, working in Cardiff docks, his wife and two children were paying 8s. a week. They had two loaves every day and three on Saturday, and they also had what we in Cardiff call cobs but what Londoners call rolls, which are very good for the children, who like to get their teeth into them. The total cost for that family was 8s., but today it is 10s. 4½d. Already, there has been an increase of 2s. 4½d. in the budget of that family for bread alone, and there are still the other increases to come—the butter, meat, cheese, tea and all these other food prices which are going up. I say to the Chancellor that he will find he has stimulated wage increases beyond the level he dreamed possible as a result of this stupid and incredible method at the present time of reducing food subsidies in order to give relief to Surtax payers.

The consequences of this Government so far are that it has cut down our food and increased its price. That is the first thing it has done. It is compelling payments for medical attention and dental treatment and putting up the cost of transport. It is increasing the Purchase Tax and, therefore, the cost of clothes, boots and shoes and household goods. It has increased National Insurance contributions and raised the Bank rate so that those who want to buy a house find it will cost several shillings a week more to do so. Unemployment in patches is increasing and the Government have decreased taxes on the wealthy. Those are the consequences of what the Chancellor has done so far.

Is he surprised to learn that we shall vote against this Finance Bill tonight and will fight him in the country? Moreover, will he be surprised to learn, when the electoral results come through from the county council elections, that the superficial attractiveness—on the first hearing—of his Budget has disappeared because people now realise that this Budget is what it was always intended to be, a Tory Budget which helps those who are wealthiest and hinders those who are weakest, which strengthens the strong and weakens the weak.

5.26 p.m.

Captain Charles Waterhouse (Leicester, South-East)

When I hear hon. and right hon. Members opposite speaking, I very often wonder on which side they are in the contest we are having to maintain our position in the world. I wonder if the hon. Member for Cardiff, South-East (Mr. Callaghan) thought he was really helping himself, or those who sit behind him, or any section of the country, when he referred to the difficulties and negotiations with the T.U.C. and to the possibility of increased wage demands. I wonder if he realised the danger of what he said.

After all, the hon. Member is speaking from an important position; he was speaking from the Front Opposition Bench. He has a right to have his opinions listened to—

Mr. William Ross (Kilmarnock)

They were not opinions but facts.

Captain Waterhouse

—not only in this country but in the world. It would be a bad thing if he should give the impression that he would rather encourage than discourage an action which, if entered upon, would have disastrous results not only in this country but in the world.

Mr. Jack Jones (Rotherham)


Captain Waterhouse

I know that hon. Members opposite love to interrupt me, but I do not want to be interrupted today because many hon. Members on all sides of the House wish to speak, and I shall not make a too controversial speech.

The next point to which I wish to refer is the remark of the hon. Member for Cardiff, South-East that today there is no more need for incentive and no need for extra effort. Does he really think that that is a helpful remark, and is that the advice Her Majesty's Opposition are to give to workers either by head or by hand? If that is the position, we are in a sorry plight.

The hon. Member referred to the fact that my right hon. Friend was having to budget for the largest sum ever in peace-time. That is true, but whose fault is it that over the years the expenditure of the nation has been mounting and mounting? [HON. MEMBERS: "It is still mounting."] The hon. Gentleman referred to the miserable failure of the present Government over the last six months. It is because of the miserable failure of right hon. and hon. Gentlemen opposite over the last six years that my right hon. Friend has had to produce this particular Budget. That is the opinion of the country, and very soon it will be the opinion of the world. I congratulate my right hon. Friend on his Budget—

Mr. Mikardo

Is this the non-controversial part?

Captain Waterhouse

It is a sound and commonsense Budget—[HON. MEMBERS: "Who for?"]—and it is—[HON. MEMBERS: "Ask them in Leicester."]—a balanced Budget. At least we on this side of the House try to deal with the country as one unit. We do not endeavour to set up enmity between section and section and between class and class. That we utterly decry.

It is a Budget designed to raise something over £4,000 million. So long as a Chancellor has to raise anything like that sum he cannot have what is called a "popular" Budget. I hope that before the next Budget a real effort will be made to curtail expenditure in many directions. I believe that can and must be done, and that my right hon. Friend and the Financial Secretary will show that it will be done.

The hon. Member for Cardiff, South-East, started his speech very boldly by attacking the petrol duty. Why has the petrol duty become necessary? Primarily because of the dollar exchange, and that is aggravated by the fact that we have now to get an increasing amount of our oil supplies from dollar countries. The blunder of Abadan must be laid upon the doorstep of hon. Members opposite. It is entirely their muddle. They curtailed the flow of petrol to this country from that source, and therefore it is their responsibility now, just as it was when they increased the tax themselves a year ago.

I wish to confine my remarks almost entirely to two matters—

Mr. Mikardo

Is this the "non-controversial" part now?

Captain Waterhouse

—the Excess Profits levy and the new Purchase Tax. I read an article this morning in "The Times." I completely agreed with it. It seemed to me a pity that that paper had not taken that particular line long ago and stuck to it more closely. We do not like this particular form of tax, and here again it is a direct legacy from the Socialists. The right hon. Member for Leeds, South (Mr. Gaitskell), when on this side of the House, said that re-armament would mean some form of Excess Profits Tax and that he intended in due course to bring in such a duty. I think he has succeeded better than he expected. I do not think I am going too far when I say that my right hon. Friends were rather bounced into it.

I would make this point about the necessity for that tax. When we have to re-arm in war-time, there is very little time to make proper provision for production. We have to get the production where we can. It does not really matter, we say, if a thing costs £10 million or £15 million. We have to win the war. That is all that matters. But now, in peace-time, we are under no such stress, and surely it should be possible to devise a price system for re-armament which will at least ensure that the firms making the armaments concerned do not get an undue profit.

I know there is a great division of opinion and a fundamental division of belief on the question of profits between us on this side of the House and hon. Gentlemen opposite. They dislike profits; they think them wrong. We do not dislike profits, because we know that profits are earned by efficiency. If hon. Members opposite think that any firm or any person is going for a long period to earn considerable profits without being efficient, they must know very little of the business side of the life of the community. But I look upon this particular tax as penal. It bears hardly in many directions. It is, of course, another capital tax like any tax on undistributed profits must be. It is said it will bring in £200 million a year, an enormous levy. I hope my right hon. Friend is right when he says it will be of short duration.

I wish to draw the attention of the Chancellor to one particular class who are much damaged by this measure. That is those firms who were concentrated during the war. There are a good many of them in the textile industries in Lancashire and the Midlands. I had as much to do with that particular concentration as any other hon. Member in this House, and I feel a responsibility for it. I shall have the agreement of anyone who knows anything about the matter when I say that when calls were made on these firms to concentrate during the war they responded in a truly magnificent way. There was no havering, no hesitation and no quibbling. Very often they had to give up their buildings and see their plant and machinery pulled out and put into storerooms where they knew it would deteriorate.

My right hon. Friend the Member for Aldershot (Mr. Lyttelton), who was then President of the Board of Trade, promised them that they would be looked after after the war, and that their interests would be safeguarded. Most of these firms never got going at all and did not even get possession of their buildings until the end of 1946 or 1947. Comparatively few of them were really in operation in 1948. Many of them were not in operation at all by 1948 or 1949. I would put in a very special plea that the plight of these firms should be examined.

How it could be done I leave to the wisdom of the Chancellor. Possibly it could be done in one or two, or three ways. It could be done by including the year 1950; by giving the choice of two years. Still better, I think, would be to give the inspectors of taxes the right to form a basis of their own, by agreement. There should be laid down clear rules for their guidance and they should be allowed to negotiate with the firms or their accountants to see if it is possible to arrange a fairer system than exists at present.

My last point is in regard to the new Purchase Tax. Here again the hon. Member for Cardiff, South-East, put the responsibility on to us for that. But who appointed this Douglas Committee? Who gave the Douglas Committee these quite impossible terms of reference; telling them they had to look after Utility; to maintain tax returns; and at the same time telling them they had to do something to promote the export trade? They were given an utterly impossible task which no Committee could fulfill. The hon. Gentleman the Member for Cardiff, South-East, described the Purchase Tax as a fine planning instrument. I rather prefer the description which the Financial Secretary gave to it when he said that, while discriminating against imports, it was riddled with indefensible anomalies and had no rhyme or reason in it. That is typical of the planning instruments of the last Government.

Mr. Mikardo

When was that said?

Captain Waterhouse

It was said by my hon. Friend the Financial Secretary a few minutes ago.

Mr. Rhodes

What was he describing?

Captain Waterhouse

He was describing the last Government's Purchase Tax. I daresay that the scheme was not a very good one, but I do not believe that the new one is very much better. If the other was riddled with anomalies, this too is also riddled with anomalies. The other at least had the advantage that the traders had got to know it. They could work it, and that was something. There is a great deal in the old saying, that it is better to have the devil one knows than the devil one does not know. Most traders would have preferred to continue the old scheme than to have this new one.

Hon. Members opposite must not put the entire blame on the Government. This was a scheme produced by their Committee, and we have adopted it. However, I believe that I am right in thinking that my right hon. Friend is likely to modify it materially before the Bill goes through all its stages.

Mr. Mikardo

How does the right hon. and gallant Gentleman know?

Captain Waterhouse

I do not know any more than hon. Gentlemen opposite, but I hope that he will; and I shall do my best to see that it is modified.

Mr. Mikardo

I will bet that the right hon. and gallant Gentleman does not vote against it.

Captain Waterhouse

The hon. Member for Cardiff, South-East, ended his remarks by speaking of the boot and shoe trade under this proposal. That is one of the leading trades in the City part of which I have the honour to represent. I endorse that in the past only 2 per cent. of this trade paid tax. Now I am told that something like 50 per cent. will pay tax. The yield of the old tax was £250,000 or £280,000 a year. I put down a Question to my right hon. Friend but, unfortunately, under the new rules of the House, I was too late and did not get an answer. I hoped to get the figure of what he expected would be the yield of the new tax.

I am told that it may well be up by 1,000 per cent., that it may be something of the nature of £3 million, £4 million or even £5 million, instead of the £250,000. I appeal to my right hon. Friend on this issue. Is this really a time when, even under a scheme started by a Socialist Government, he ought to put an impost of this sort on a trade as necessary as this one is to the whole community.

Mr. Barnett Janner (Leicester, North-West)

Would the right hon. and gallant Gentleman explain what he meant a moment or two ago when he said that the scheme in respect of boots and shoes which was introduced by the past Government was not a correct one, when we were allowing 98 per cent. of the boots and shoes to be free of tax?

Captain Waterhouse

I am glad to give way to the hon. Gentleman, because he is as interested in this question as I am. I was coming to that point. Already much mischief has been done to the trade by the Purchase Tax, because it has penalised the higher quality part of the trade. [HON. MEMBERS: "Nonsense."] I am stating my view, and I believe that I am stating a fact. It may not have hurt so much in Leicester as in Northampton. In Northampton it has undoubtedly done very great harm. One will always find that when there is a high penal tax on the better part of a trade it has a thoroughly bad effect on craftsmanship and on progress. I hope that my right hon. Friend will consider this question carefully. I am assured by people whose word I trust that this will mean bankruptcies for reputable firms—not the largest firms, of course, but good, strong firms who have been, and can be, of service to the country.

I am certain that my right hon. Friend is the last person to want to enforce a tax with such an effect upon us. What he can do, I leave him to judge. It may be that he will think that he should abolish the tax on boots and shoes. It may be that he will alter the D line and do something to help in that way. What I ask him to do now is to consult with the trade. Unfortunately, owing to the position which always arises when a Budget is being prepared, there was no prior consultation with the trade. The trade feels bitterly about that. I am sorry that they feel bitter, but I do not really mind about that. I do, however, mind intensely if they are put in mischief by this Bill, and I shall find it difficult to follow my right hon. Friend into the Lobby unless he can make some definite improvement in the structure of this proposal.

5.47 p.m.

Mr. John Paton (Norwich, North)

I find myself in a happy position in being asked to follow the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse), because, like him, I am most interested in the effect of the Budget proposals, under the D scheme upon the footwear industry. I hope that after he has heard my speech, which will be wholly confined to that subject, he will agree to come with me into the Lobby tonight in opposition to this Bill to show his reality and sincerity of view about the effect of this provision on the industry.

I will not deal with the Budget generally, because I want to be brief. I endorse completely the general remarks made by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan). I take his general view about the Budget. Having said that, I want to deal with this aspect of it. The D scheme, as the right hon. and gallant Member truly said, has been brought into operation without any prior consultation with the trade. Perhaps that was unavoidable. Obviously, the Chancellor was working within narrow limitations of time. Nevertheless, it is most unsatisfactory that a scheme like this which, will have such a bad effect on many of our industries, was not adequately discussed to discover all the possible effects before it was announced in the Budget.

It would have been far better if the Douglas Report had been debated in the House and subjected to a critical analysis before the Government decided to take action upon it. But time was short, and probably the Chancellor felt that he had to act. In its application to the footwear industry the D scheme has effects which are quite distinct and different from the effects upon any other industry. We have heard a great deal about the possible effect upon the textile industry. We have heard debates in the House, and constantly seen reports in the newspapers, about the necessity for relieving the textile trade of the D tax.

I am in sympathy with those in the textile trade in the position in which that industry finds itself today, but, in the footwear industry there are aspects of this tax that do not apply in the textile industry. So far as 98 per cent. of the footwear industry is concerned, it is a new tax, not a redistribution of already existing taxation within a range of particular products, but an entirely new tax which is being imposed for the first time on 98 per cent. of the total production of the whole industry.

It is that feature, of course, which is an extraordinarily serious aspect in relation to the footwear industry, because—and I hope that the Financial Secretary to the Treasury will please listen most carefully to this—

Mr. Boyd-Carpenter

I am listening.

Mr. Paton

—that tax is being imposed on the footwear industry now, not at a time when that industry is prosperous, but when it is facing the beginnings of a serious recession, when, in my own constituency of Norwich, constituents of mine are being thrown out into the street unemployed, when manufacturers are threatening to go on short time, and when we are now faced with serious suffering and hardship on a large scale in this industry.

At the very moment when the industry is faced with a recession of that kind, it ought to be the duty of the Chancellor of the Exchequer to prime the pump and stimulate buying. We are now to have the additional burden of a heavy tax placed upon articles of everyday use which have not borne this tax before. That is not the only effect.

One of the facts which the Treasury have never understood, and I do not blame them for not understanding it, is that the great part of the high quality production of the footwear industry is concentrated in a small number of centres. Norwich is almost exclusively concerned with the manufacture of high quality ladies' and children's footwear. It manufactures hardly anything at all in the lower grades, so that, in Norwich, because of the high quality of its products, the tax will be imposed, not on 50 per cent. of the total production of the Norwich factories, but on about 70 per cent. of their total production. The new tax will be coming on to the production of these factories at a period when the home trade is beginning—

Sir H. Williams

As the hon. Gentleman the Member for Cardiff, South-East (Mr. Callaghan), who spoke first from the Front Bench opposite, said, that is exactly what the Purchase Tax had to do—to hit the high-class products.

Mr. Paton

The hon. Member shows a complete inability to understand the arguments of my hon. Friend who spoke from the Front Bench. What my hon. Friend said was quite true. The Purchase Tax can be used as an instrument of economic planning. We can reduce the tax on certain commodities when the demand for them is in decline, to help the manufacturers to get their markets back, and we can raise the tax on an industry whose products are in too high a demand.

The point I am making to the Chancellor is that he is doing precisely the opposite of that sensible plan. He is imposing a new tax for the first time on 70 per cent. of the total production of my constituency, at a time when the home demand is seriously declining and when we are faced with heavy unemployment in our factories. Perhaps, now that I have explained the matter in words of one syllable, even the hon. Member for Croydon, East (Sir H. Williams), can understand it.

The second point I want to develop in the case I am making is highly important. We have these high quality products concentrated in a small number of footwear centres. In high quality women's shoes, for instance, we have Norwich, Stone and Stafford, places which are very much concerned with that kind of production. In men's shoes, we have Northampton I am not giving a complete list, but only using examples. Northampton is the foremost example in the case of men's shoes, and, here again, therefore, we have the danger of this new tax being imposed on these high quality commodities and hitting these areas with an effect that will not be felt normally throughout the rest of the country, because they are so specialised. I am quite sure that matters of this kind were not understood by the Exchequer when they decided to act as they have done.

Let me now make one or two points about the trade recession. There was a very useful letter in "The Times" last month from Mr. Bancroft Clark, who is one of the large manufacturers of footwear in this country, in which he drew attention to the fact that, already, in the footwear industry, the number of employees has declined by 7½ per cent., and that, of the remainder who were still working, nearly 50 per cent. are now on short time.

I have in my hand a letter from a constituent in Norwich, North, who is one of the biggest manufacturers in my constituency, and who says this, of which I hope the Financial Secretary will take note: In the present strong buyer's market, the distributors have definitely refused to pay Purchase Tax on orders which were in course of production. This has involved me in a loss of £15,000, most of which will be paid by the Exchequer. I hope that that secondary consequence will not be lost upon the Financial Secretary to the Treasury. He goes on to say: As to future business, buyers are taking a rigid stand against investing money in tax, and are refusing to place fresh orders of shoes at prices above the D line. This means that the revenue obtained from the tax on shoes will fall short of the anticipated figure. It is that precise consequence which constitutes the very important point which the writer brings out—that the temptation will be very strong for manufacturers of high grade shoes to try now to turn over to producing shoes of far lower quality, to try, as far as they possibly can, to escape the tax. The effect will be very serious, and, there again, is the point which I interposed in an injection while the Financial Secretary was speaking. It is one of very great consequence, not in its short-term effects, but in its long-term effects upon an extremely important industry.

It is calculated in Norwich that, on the lines of shoes which are the popular lines produced there now, the tax will amount to about 8s. on the higher of the two prices. The two most popular lines are priced at 69s. 6d. and 79s. 6d., and the tax on shoes of that price may be about 8s. per pair, even if we do not have an additional "uplift," in addition to the tax itself, as may quite well happen.

The continuance of a strong and thriving home demand for good quality shoes is the basis and foundation upon which any export trade must rest. That, I think, will be agreed as axiomatic. One of the first consequences of the new difficulties with which the trade is faced is that manufacturers, in an effort to escape the worst effects of the tax, will reduce qualities and standards. They will try to cheapen their products in order to get an effective market, and that will be fatal. What is the export trade in footwear about which I am speaking? For the last two years, our exports to the dollar market alone were valued at £2 million a year, so that there is no doubt what it is we are in danger of losing.

Again, Mr. Bancroft Clark informs us that in the last three years British men's welted footwear in the United States market increased from 77 to 90 per cent. of the total imports into that country of that class of goods. In women's welted footwear the increase was from 53 to 73 per cent. of the total imports into the United States. The only reason why it was possible for our manufacturers to crash into that highly competitive market was because of the superlative quality of materials, workmanship and design of those goods produced in this country.

Manufacturers in my own constituency have been able to break into some of the most competitive markets in the world, and this has been due to the combination of two things, the initiative and drive of our manufacturers in Norwich combined with the high quality of design, skill and craftsmanship for which Norwich has for many generations been famous. It is because of this that we have been able to make this very considerable contribution to the solution of the great dollar problem with which we have been faced during the last three years.

If the Chancellor persists with this scheme, the whole of that industry will be gravely threatened. The temptation to diminish standards and quality to attain cheap prices and more numerous markets will be almost irresistible. With that will go our standards of quality and fine workmanship, and before very long we shall find ourselves with a boot and shoe industry capable perhaps of satisfying the requirements of our home population, particularly as they are being driven down to lower levels of life by Tory policy, but certainly for ever incapable again of making any considerable contribution to this great problem of exports by which we must live.

I think the Fiancial Secretary will admit that what I have been using are not merely political polemics, but solid arguments based upon the facts of the industry, and that what I have said will be confirmed by hon. Members opposite as well who are interested in the footwear trade. I beg the Chancellor to have another look at this plan as it applies to the footwear industry, and when we come subsequently to discuss the Amendments on the Order Paper, I hope that the Financial Secretary will be willing to look at them with a fresh eye and will try fairly and squarely to meet the extreme difficulties of this industry.

6.4 p.m.

Sir Hugh O'Neill (Antrim, North)

I think that, on the whole, this Budget has been well received throughout the country.

Mr. Mikardo

Has the right hon. Gentleman read the papers during the last couple of days?

Sir H. O'Neill

In a debate of this kind, which ranges over the whole field of the Budget, it is obvious that any individual speaker can deal with only one or two special points. My object this afternoon is to deal with the question of the Excess Profits Levy and to point out how grossly unfair and harmful it is going to be in certain cases. The object of the Levy was stated to be to lop off excess profits from those industries which had been and were making large profits out of the re-armament programmes.

That may have been all very well, but it has not been confined to that object. The concerns to which I want specially to refer are British-owned companies operating abroad with what one may term risk capital. They are such companies as the gold producing companies in West Africa and other parts of the world, and the rubber producing companies in the Far East.

Surely, in our present balance of payments crisis, it is to our national advantage that enterprises producing gold should produce more gold. But this Excess Profits Levy will, in my view, effectually prevent increased production and may even bring about a serious diminution in the production of gold by these companies abroad. The concessions given to mines, and which were so much stressed in the White Paper, amount to so little as to make practically no difference at all.

I will give the House an example from my knowledge of a company carrying on the business of gold producing abroad. Due to bad development and the extraction of much of the higher grade ore profits in the standard years were abnormally low. Indeed, in one year, there was an actual loss. The Excess Profits Levy standard is consequently much below the normal profits level.

In 1949, after, as I have said, things had been going rather badly, the management was changed and an intensive programme of increased development and production was inaugurated which meant, of course, capital expenditure on new and more modern machinery and plant. This expenditure had to be financed out of surplus revenue.

In that case, the programme of expansion has so far been successful and the tonnage of ore and the ounces of gold produced have materially increased since the standard years with, of course, a consequent increase in profits. The lion's share of these profits, however, has been utilised in what is called ploughing back into the business in connection with this programme of development and expansion.

The effect of the Excess Profits Levy will be that practically the whole of this extra margin will be taken away and paid over to the Inland Revenue. It will no longer be available for modernisation and re-equipment. For a company in this situation dividend limitation would have been better than the new Levy, because for risk capital of this nature a reasonable dividend would surely have been allowed, and the surplus revenue would then have been available for capital expenditure.

In such a case there is obviously a very great temptation to curtail production and restrict profits to those of the standard years and, if it is a gold producing company, to leave the gold in the ground while the Excess Profits Levy lasts: or, if it is a rubber producing company, to leave the rubber untapped—if that is possible, I am not an expert—while Excess Profits Levy is in operation. If that were to happen the Treasury would receive no Revenue and there would be fewer dollars or gold for this country.

There is a very strong case indeed for giving special consideration to rubber producing companies. Unlike gold producing companies they have benefited from the re-armament programme because the stockpiling of rubber in the United States and elsewhere has led to a considerable increase in the price.

For the last four years of the war, however, the rubber producing companies in Malaya and the Dutch East Indies were occupied by Japan and had terrible losses in war damage. Plant and equipment were largely destroyed and, of course, during those four years their financial resources were reduced and their shareholders naturally received not one penny of dividend.

Now, admittedly, they are making profits but their requirements for the re-equipment and rehabilitation of their estates and for replanting and so on are colossal and must be found mainly, if not entirely, out of the better revenue and profits they are now making. In his opening speech today my hon. Friend the Financial Secretary to the Treasury referred to the Far Eastern companies, by which I suppose he meant the rubber producing companies in Malaya and the Dutch East Indies, and he indicated that in their case there might be a good argument for altering the standard years.

If I understood him aright, he suggested that possibly the year 1950 might be added to the standard years, which should give those companies a higher average standard. If the Government can do that so much the better, but I feel that that is a rather niggardly approach to this great industry.

Why not take the big view? Why not admit that industries like the rubber industry and the gold producing industry are not the kind which should be penalised in this way? They are running great risks. They have good years and they have very bad years. They are producing badly needed gold and dollars in large quantities, which will help our balance of payments difficulties at the present time.

I feel most strongly that these industries, on whose behalf I have said a few words today, can produce an unanswerable case for being completely removed from the ambit of this Excess Profits Levy. I hope that while this Bill is going through its Committee stage the Government will take their courage in both hands and remove them.

6.15 p.m.

Miss Alice Bacon (Leeds, North-East)

There are many aspects of this Bill about which I should like to speak, but I intend to be brief—particularly as so many other hon. Members wish to speak—and confine my remarks to one aspect only. The reactions in the country to the Budget have shown that people are much less concerned about increases in family allowances and decreases in Income Tax than they are about the maintenance of full employment. That is the important thing for thousands of people.

Of late years the Budget has become less an accounting instrument and more an instrument of economic policy, but the Budget has done nothing to stimulate trade. Indeed, in many aspects, particularly in connection with the new D scheme, it has done a great deal to help make the trade depression greater.

We have heard a great deal in the House and outside about the effects on the Lancashire cotton industry, which are really very serious. There are also serious effects on the Yorkshire woollen industry. I would, however, remind the House that the serious effects in the textile trade fall not only among those who spin and weave the cloth, but among those who make that cloth into clothes.

I represent a constituency which is a very great clothing centre. Leeds and clothes are synonymous terms. The workers in the clothing industry have been on short time. I very much fear that not only will they be on short time in the future, but that many thousands of them probably will be unemployed for a long time to come. This is a constituency problem for me as workers in my constituency are affected, but I also know that it is a general problem affecting everybody since the price of clothes affects every family in the country, except the nudists, of whom probably there will be more as a result of this Finance Bill.

Everybody is seriously concerned—workers, employers and consumers. On matters which come before the House we usually have many divergent opinions from the different interests involved, but on Purchase Tax and the D scheme I have had identical representations from workers' organisations, from employers and from consumers. Recently, the National Union of Tailor and Garment Workers branch in Leeds, which represents 30,000 tailors in the Leeds area, passed a resolution strongly condemning the abolition of the Utility scheme and the adoption of a new D scheme.

Just before the Chancellor's Budget speech, the Financial Secretary to the Treasury and the right hon. Gentleman the President of the Board of Trade both received letters from a very big firm in my constituency. Montague Burton. The firm were good enough to send me copies of the letters, in which they gave this warning to the hon. and right hon. Gentlemen even before the Chancellor of the Exchequer made his speech: The substitution of a sales or other tax in place of the existing Purchase Tax would, in our view, have a most disturbing effect upon the public and would create chaos and confusion in the industry. They went on to say: … and if the Douglas Committee's recommendations are adopted they will increase stll further the alarming roll of unemployment in the textile and allied industries. And they added: Those engaged in the clothing industry are apprehensive that if the Douglas Committee's recommendations are accepted they will add still further to the decline in the demand for textiles and clothing. … It may be said that that is only one firm, but I would remind the House that this is the biggest clothing firm in the country, and that it makes suits for one-fifth of our people. I believe that one-fifth of all the suits made in this country are made by this firm. Therefore, the Financial Secretary and the President of the Board of Trade ought to have paid heed to the warning which they got from that important firm.

We are all aware of some of the defects of the old Purchase Tax, to which the Financial Secretary referred this afternoon. We know of the blind spot, and we know of its effects on international trade. But Purchase Tax was a tax on expensive articles. It is now proposed, with the acceptance of the D Scheme and the fixing of that D at such a low level, that there shall be taxes not only on expensive goods but on medium and low priced goods as well. Indeed, there are reductions in the prices of expensive articles and increases in the lower priced articles. The only solution which the Government have for rectifying the defects of the Purchase Tax is to make millions of people pay taxes on goods which have never before been taxed.

Take men's suits, for example. Suits costing under £9 16s. are free of tax. A suit costing between £10 and £16 bears quite a heavy increase—anything from £1 to £2. But if one is in the habit of buying suits costing from £20 to £50 one gets quite a substantial decrease. I have been making investigations, and I find from clothing factories in Leeds that the greatest demands for men's suits are in the £12 to £16 range, which are now to bear the heaviest burden of this increased tax. Similarly, with women's clothing, a suit costing under £8 will be tax free. If a woman buys a suit in the medium ranges—these are the most popular ranges—there will be a heavy increase. Those in the habit of buying suits costing over £20 will have a substantial decrease.

I have been comparing some of the prices on the D level with some of the old maximum Utility prices, and I find that there are many great discrepancies. For example, it is not generally realised that a woman will now pay tax on a dress if the wholesale price is more than £3 15s., whereas previously under the old Utility scheme no tax was paid on any dress the wholesale price of which was less than £6 10s. 10d. That is a very heavy increase. I am talking now of woollen dresses. Taking women's pyjamas, under the D scheme all of them bearing a wholesale price of over 10s. are to be taxed. Under the old Utility scheme there was no tax on pyjamas the wholesale price of which was under 30s. Again, that shows a very great increase in price which will have to be paid for clothing.

It has been said by hon. Members opposite that we on these benches are now adopting a different attitude to Purchase Tax from our attitude when we were in the Government. I want to make it quite clear that there are certain very important differences. For instance, when we were the Government there was no unemployment in this field, and that is a very important difference. In addition, Purchase Tax was on expensive clothes. Today, we are not deciding between taxing expensive articles and having no tax at all. The proposition today is a tax on medium priced and low priced articles as against no tax at all.

I have spoken to many traders during the last week or two, and I should like to submit to the Chancellor of the Exchequer one point which has been put to me by every manufacturer and every retailer to whom I have spoken. They have said that the Government must end this uncertainty. After Christmas the whole of the clothing trade was held up because people were waiting for the Budget and they thought there would be some difference in price. Immediately the Budget speech had been made speeches were made not only by hon. Members on this side of the House but by hon. Members opposite, suggesting that the Chancellor of the Exchequer would make a great concession in this field. Indeed, one hon. Member who sits on the Front Bench opposite, as a Whip, made a speech outside the House saying that the D line was much too low.

What happened to trade? People did not buy while they thought there was a possibility of some alteration being made. If tonight the right hon. Gentleman were to say that there will be no tax whatever on textiles and clothes, I believe that would have a great psychological effect and people would flock into the shops. If, on the other hand, the right hon. Gentleman merely says, "I am going to raise the D level by a small amount," people will merely wait until after the Committee stage of the Finance Bill before they buy any clothing, in case any reductions are made.

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

The hon. Lady will surely admit that the argument put forward on the benches opposite is a little confusing. On the one hand, we are told that the effect of the Budget is that there is no money at all in people's pockets, and then we are told that if we remove the Purchase Tax the people will flock into the shops to spend the money which they have not got.

Miss Bacon

We have not said that there is no money at all. Surely even the hon. and gallant Gentleman realises that those in the lower and middle income groups, at any rate, ought to have sufficient money in their pockets to buy the footwear and clothing that they need.

As I was saying, I believe that it is most important that the Chancellor of the Exchequer should make a categorical statement tonight which will relieve the uncertainty which is felt by the traders in the country. I believe that the D scheme was hastily conceived. One hon. Member opposite said that we on these benches had set up the Committee. That is perfectly true, but it does not follow that any Government which sets up a Committee must automatically swallow everything which that Committee produces. I do not know how the D levels have been fixed, but there are very great discrepancies.

I would point out to the right hon. Gentleman what may be considered a detail but which, at the same time, is very important for many men and women. In this Finance Bill there is no distinction and there are no allowances made for outsize clothing, which means that those who take the bigger sizes will be penalised. There are all kinds of discrepancies and anomalies. A week or two ago I met a textile manufacturer who had had to engage an army of mathematicians because under the D scheme yard-ages of materials were priced per square yard, and everybody knows that materials are not bought by the square yard; they are 27, 37, 45 and 54 inches wide. It was quite a job for that textile firm to convert the prices. I urge the right hon. Gentleman to do away with all these anomalies and irritations by making a definite statement tonight which will once against stimulate our textile trade.

6.30 p.m.

Mr. Clement Davies (Montgomery)

It is always a pleasure to listen to the hon. Lady the Member for Leeds, North-East (Miss Bacon). Her speeches are always clear and well-informed. As she can see, the House always listens not only with respect but with attention, and I am grateful to her for describing the position in her constituency.

Very rightly, the hon. Lady has said that the matter which is uppermost in the minds, of the working classes is whether the unemployment which has started will be of a temporary nature—as we all hope, and as I believe, it is—or whether there is to be a repetition of what we suffered for some years before the war. Memories of that time are so vivid that it is little wonder that this fear of unemployment is uppermost in the minds of the workers.

I should like to refer to the opening remarks of the Financial Secretary, who was, apparently, followed in those remarks by the hon. Member for Cardiff, South-East (Mr. Callaghan). They both seemed to stress that the purpose of a Budget is to control the country's economic position and its industries. The Financial Secretary began by saying that his right hon. Friend's Budget was intended to restore confidence abroad, to assist home production and encourage exports; three matters of very great importance. But I should have thought that we should bear in mind what was the original purpose of the Budget and what is still its primary purpose, namely, to put into statutory form the decision of the Committee of Ways and Means to provide the revenue to meet the expenditure which has already been decided upon.

It is only within the last few years that these other purposes have been brought in. I admit that I have been very largely guilty; but I did not have in mind the object which the hon. Gentleman apparently has. When I first raised this matter, which I think was in the Budget before the war, my complaint was that Chancellors of the Exchequer usually limited their remarks to the effect and incidence of taxation without relating it to the national wealth. Therefore, it was necessary for the House to have a far fuller statement of the national position, with regard both to national expenditure and national wealth, so that we might compare the relationship of Government expenditure to national expenditure and Government revenue to national revenue. That was merely so that we could judge as best we could the incidence of the tax.

That is really the matter which concerns us and that is the matter which was raised by the hon. Lady. If one plays about with Purchase Tax, what will be its effect upon the producer, the employer, the employee and the consumer? We have certainly to bear that in mind. With regard to the primary purpose, the provision of revenue to meet the expenditure, I did not follow the main approach of the hon. Member for Cardiff, South-East. He seemed to criticise it; but my recollection is that the complaint made by the Opposition was that the programme of expenditure was not great enough and that it should be increased.

There was certainly a criticism that certain cuts in expenditure should not have been indulged in and, had the Opposition been in power, they would certainly not have indulged in them. That was their criticism in relation to the cuts in a portion of the food subsidies. If the expenditure is agreed upon, or if the expenditure that has been provided, in the view of the Opposition, ought to be even higher than that to which the Government has committed itself, how is the Opposition suggesting that the money to meet that is to be raised?

Surely that is the main question here. We know that the Chancellor of the Exchequer, rightly, in my opinion, has sought not only to raise the revenue to meet that expenditure but to raise even greater revenue to deal with the inflationary pressure which, although it seems to be absent in some trades, is undoubtedly present in others and will inevitably be here so long as a large part of our efforts is devoted to increased armaments and exports. Of necessity, that will mean fewer goods here, while the national revenue remains the same or even increases.

I should like to direct the attention of the Government, the House and the country to this point. The Financial Secretary said, first of all, that it was necessary to restore the confidence of people abroad in the £ sterling. I quite agree. Since January there has been an improvement in the drain upon our reserves. There is an improvement in the value which people abroad now attach to the £ sterling, and that is all to the good. But what worries me is why we should, all the time, in this country and in other countries, be subjected to these crises one after the other.

It has taken countries a very long time—and two world wars—to realise their position with regard to defence if there is aggression. Ever since nationalism became rampant—if I may so call it—under the aggression and persecution of Napoleon, only 150 years ago, each nation has tried to live its own life in its own way without regard to its relationship with other countries and without even providing for its own defence against any kind of aggressor.

After the 1914–18 war, countries never learned the lesson because, though the League of Nations was formed, it was never fully supported. Then came the last war and, after six years, there was the formation of the United Nations; but even that has not brought home the lesson. It is what has happened since the end of that war that has made the free countries realise that they must pool their resources for defence.

That is why they are discussing the question of standard armaments. That is why we have one generalissimo and why there is a call for one admiral in the Atlantic and one in the Mediterranean. There are even complaints now that the amount that should be provided by one country has not been provided and, therefore, that it is not doing its duty as well as the other countries.

Quite apart from the fact that we are not quite sure what has been decided about what is the common foreign policy for which they are forming a common defence, at any rate this is clear—that they are far away from forming a common economic policy which will enable them the better to create the defence which they need. Each country is going its own way, erecting its own barriers, one against the other; and we are seeing the extraordinary position in which one is so indebted to the other that they cannot trade properly.

I am not blaming one country more than another, but take the case of Australia. They are badly in need of machinery and of motorcars, but they have to say to the rest of the free world, in which there is an agreement about common defence, "We are so sorry, but we cannot possibly take your goods." We, in this country, in the same way, vulnerable as we are and dependent as we are on imports of raw materials and food, have to say to the rest of the world, "This must stop." This may well affect our exports. Certainly it will affect our standard of life by cutting down our imports—and yet we go on, doing it one against the other.

At the beginning of this year the Chancellor of the Exchequer, very rightly, had consultations with members of the Commonwealth. I do not know that they were very effective, for the moment the consultations were over the Australian representatives went back to Australia and the Australian Government stopped trade. What I do not understand is why these countries are not all called together to work together, in view of the fact that they have one common fear and, therefore, have to pool their resources for defence. Yet they are refusing to pool their resources for a far finer purpose, the maintenance and improvement of the standard of living throughout the world.

I hope that this is a matter which will be taken up by everyone so that we can break down this barrier. There is a call for pooling our resources. It ought to be a more general call, for there is a fear of hunger and a fear of unemployment and a fear of lack of raw materials. Surely there would be less fear of all of those things if we all joined together in assisting one another. What could we do if there were full mutual aid!

Perhaps I may turn for a few moments to certain matters raised in the Budget. The hon. Member for Cardiff, South-East, said that the Budget was very finely drawn and that failure in one respect might bring down the whole edifice. It does not lie in the mouths of the Opposition to call too close attention to that. Budgets are always finely balanced; they should be. Indeed, in the old days they were most strictly and finely balanced. But those which were most finely balanced of all were the Budgets of Sir Stafford Cripps, because they were balanced and this he admitted time and again at the Box—upon the success of the trade union leaders and the Government in keeping down the demand for increased wages.

That was a demand which was natural and right in my view. There should be a right to demand a proper wage for the work which the man is doing, and he ought not to be bound once and for all on this matter. Those Budgets were finely balanced and Sir Stafford Cripps knew perfectly well that if that aspect of his policy failed the whole of his economic and financial structure would fall to the ground. It certainly does not lie in the mouths of any hon. or right hon. Members of the Opposition to offer that criticism.

One question to be asked is this: If the Chancellor has money to spare, where could it best be spent? In my submission it could best be spent upon those who are hardest hit today by the rising cost of living. As I said in the Budget debate, so far as the low wage earners are concerned, the remedy is in their hands and in the hands of their trade unions—to demand, what they should get, the proper wage to enable them to meet the situation. That is an attitude which I have always adopted, even when Sir Stafford Cripps was imploring them to hold down wages at the existing level.

Supposing a food subsidy had been introduced before the war and it had been realised then that the subsidy was, in part, a substitution for wages. I wonder what answer right hon. and hon. Gentlemen would have made. Would they not have said, "Do away with this; we do not want food subsidies out of taxation; we want a proper wage which will enable us to pay for food in the proper way"?

There is one class to which that does not apply, and here my complaint is that the Chancellor of the Exchequer has not gone anything like far enough. I am certain that the statement made at the Treasury Box this afternoon by the Minister of National Insurance is not the way to do these things. I have felt all along that the grant of pensions was a grant made as a result of a contract between the man or woman who was to receive the pension and those who were to pay it. By that contract pensions were to be maintained, whatever the money value, in a certain position and to give a certain standard of life; and the amount of money first fixed was, after all, an amount of pension which was supposed to give that standard of life. What has happened? The value of the £ has steadily decreased and the contract has not been carried out. That is why I have always said that the fair and right thing to do is to link pensions to the cost of living.

A second class in which that does not apply concerns those in receipt of family allowances. My mail bag is generally heavy, but I have never received so many letters about one subject as I have received about my request to the Chancellor of the Exchequer that the family allowances should be extended to the first child. It has been said, rightly, as, indeed, I ought to have reminded myself, that the first child is the most expensive of all. It is then that the perambulator is bought and the cot is bought. Those who follow down the line take second or third or fourth use of these articles. I can speak feelingly on this subject because I was number seven—a long way down. The Chancellor would be doing justice to the family if he extended this allowance to the first child. He could give to the first child a smaller amount than that which he is giving in the case of the second, third and other children.

May I say a few words about excess profits? I have already dealt with this subject. This is the most extraordinary tax of all. Members on both sides of the House have said that what is needed above everything else today is increased production. All kinds of methods of propaganda have been devised to secure it. Posters have appeared on walls saying, for instance, "Turn out more goods" and, "Do more work." One of the main points made by the Chancellor of the Exchequer in support of reduction of Income Tax for the lower income groups was that it would encourage working overtime and an increased amount of production. The point was, he said, that that was the way to stand on our own feet and to increase exports and to reduce the inflationary pressure.

Then, having done that, the Chancellor turns round on the man upon whom he is dependent, that is, the first-class manager, and says to him, "If you manage so well, if you manage better than you managed in 1947 and 1948 and 1949, I will teach you what happens to a person like you. I will punish you. I will see you do not do that kind of thing again. The more profits you make the better evidence it is that you are really managing affairs extraordinarily well. I intend to see that you do not do that kind of thing."

Is that the way in which the Chancellor hopes to restore confidence in this country, to expand our production and to increase our exports? Or will he turn round to the manager who, instead of increasing his profits is getting nearer and nearer to bankruptcy, and whose employees may be being put out of work, and point him out to the good manager, whom he is going to penalise, and say, "Look at this fellow. He cannot manage his business. He does not attend to his business. It is going down"? Does he pat the bad manager on the back and say, "Well done, thou good and faithful servant. I wish everyone else would follow your footsteps"?

That is the principle underlying this Excess Profits Levy. If the Chancellor wants this money, as he does, there are better ways of raising it from companies than that one. I suggest this to him as I did to his predecessor when he was introducing a somewhat similar tax—who then, very wisely, withdrew it.

I ask the Chancellor of the Exchequer, especially in view of the appeal made on his own side to him from the Father of the House, the right hon. Gentleman the Member for Antrim, North (Sir H. O'Neill), to reconsider this, and to bring in a far more equitable system of taxation which, instead of punishing people, will encourage them into producing more, and which will bring about better managerial methods in their businesses. I am glad that action outside the Budget has succeeded as well as it has, but that action may be nullified unless the Chancellor deals more fairly with the methods of taxation in the Budget than he has so far.

6.54 p.m.

Mr. John Baldock (Harborough)

The right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) has made a strong attack on the new Excess Profits Levy. While I wish to say one or two words of criticism about that tax later on, I want to ask the House to consider, to begin with, the great benefits which have accrued from the reduction in the direct taxation of individuals in this Budget.

I believe that that has been one of the greatest signals of hope for our economic recovery that has been visible for a very considerable time. Already, in all quarters of the financial world, the £ is showing an increased strength, which is, to a considerable degree, a reflection of this new policy, which, I hope, is a new policy of reducing as fast as that can be done, and by stages, the direct taxation of the individual.

The lack of buoyancy in the increase of industrial production over the past months or year is to quite a considerable degree—I agree that there are many other reasons, such as shortage of materials, and the switching from productive industry to the re-armament drive—the result of the excessive burden of direct taxation that has gradually been accumulating on the shoulders of the individual over the past years.

I am certain that the party opposite ought to consider—it may not be entirely in line with the best text books, but I am sure it is in line with human nature, at any rate, 20th century human nature—that a time comes when, however well the revenue which is collected from taxation is spent by the Welfare State, the individual revolts against the weight of taxation, and comes to the decision that, however satisfactory or attractive further expenditure on welfare services may be, there is an even greater attraction in being allowed to spend a little more of his own money himself and to control his own destiny.

Mr. Mikardo

I wonder why the hon. Gentleman directs those observations to us on this side of the House, for if his thesis is that people want to spend less on taxation and to spend more themselves, then that thesis should be directed to the Chancellor of the Exchequer, who is taking more money from Great Britain this year than has ever been taken before in peace-time.

Mr. Baldock

I am very glad to see that the Chancellor is in the House and is listening to this argument. What I am saying in no way conflicts with the fact that the Budget is larger than it has been before.

The fact is that Budgets have been increasing at a tremendous rate over the past years, but the present Chancellor has managed to curtail the civil expenditure of the Government for the first time in a very considerable number of years.[HON. MEMBERS: "No."] I think that that is a great feature of this Budget.

Mr. Mikado

It has gone up.

Mr. Baldock

My right hon. Friend is stopping increased civil expenditure. Naturally, expenditure on armaments and in other directions is rising, and, therefore, it has not been possible at this stage to reduce the increase in the Budget as a whole, but the tendency to hold expenditure is there, and the Chancellor has made an effort to reduce the Government's civil expenditure and to make economies in other directions. He is unwinding the coil which has been circling round the individual taxpayer, and has been fettering for many years his productive effort, and which has had the effect of causing a lack of buoyancy in the production of this country that has been seen for the last months or year.

Incentives are required not only by manual workers. It was argued, I think, by the hon. Member for Cardiff, South-East (Mr. Callaghan), that this was not the time to give any additional incentives to those with the greater incomes, but I think that some incentives are desirable at all levels. The hon. Gentleman will surely agree, from his experience in the Navy, that nobody has greater influence on a ship than her captain.

The same applies in industry. As a rule no one man has greater influence over the success or failure of a business than the managing director, who is a person in the equivalent position of the captain of a ship. Surely, nothing is more important, therefore, than to encourage those people to make the greatest efforts.

Mr. Austen Albu (Edmonton)


Mr. Baldock

I have already given way to one hon. Gentleman opposite, and I have promised to be as brief as possible, so I will not give way. I think that these incentives are very important at every level of those in productive industry.

I hope that, as a result of the Chancellor's Budget and these reductions in direct taxation to most workers in industry, a reflection will be seen in a further upward rise in productivity. I submit that it is not true to say that incentives are not required and that it is shortages of raw materials which are curtailing our industrial progress. That is, of course, true in some industries, but there are many in which a great deal of incentive is required, as hon. Members opposite have said themselves. For instance, both sides of the House are anxious to see a great increase in the productivity of the building industry.

Mr. Mikardo

What about the steel?

Mr. Baldock

Steel is not a very essential factor in housebuilding. The supply of materials for housebuilding, the bricks and timber, is becoming more plentiful. The important thing will be to increase the productivity of the labour, which is calculated to be roughly 20 per cent. less than it was before the war. The answer surely is that incentives are required. I should have thought that this Budget was, therefore, aiming in the right direction in giving incentives to greater production.

I now wish to refer to the new Excess Profits Levy. While this is perhaps not a very large point, it is important to a considerable number of small businesses. I ought to declare my interest here and say that I am concerned in such a small business. I believe that the Excess Profits Levy will fall particularly harshly on some of those small businesses which were struggling to their feet after the war.

I do not ask necessarily for an alteration in the base years on which the standard profit is to be computed. I believe it would give them tremendous assistance and help if the figure at which relief from E.P.L. is given over and above the standard rate of profit, which at present is £2,000—a business does not pay E.P.L. on the first £2,000 of its profit over and above the standard rate of profit—could be extended to £5,000. The effect of that on the revenue which the Treasury would receive would be extremely small. I imagine that the great mass of this revenue will come from large companies and large concerns, which will be making hundreds of thousands or millions of pounds profit and paying E.P.L. on those.

The effect on the small business, which is perhaps making only £10,000, £15,000 or £20,000, if it were given a chance to earn the first £5,000 above the standard profit without paying E.P.L., while making very little difference indeed to the revenue, would be to make a difference out of all proportion in encouraging those small businesses. Both sides agree that the small businesses, particularly the new ones, which this will effect, should be given every possible encouragement. I ask the Chancellor to consider that very carefully.

My last point is, I am afraid, likely to be very controversial. It is not one on which I suppose action could be taken in this Finance Bill, but it is one about which I hope the Treasury might be thinking for future years. I refer to the cost of education to people who bear the whole of it themselves out of their own pockets: those people who educate their children at their own expense. To a very large extent this is now being done out of capital.

Very large numbers of children are educated out of capital by middle-class parents, who feel that that is a good way to spend it. As long as they have that capital that is a satisfactory situation, but I believe that the time will soon come when that capital will begin to run out, and that is why I ask the Treasury to be considering now what steps can be taken when that occurs. All over the country there are great numbers of private schools educating children, and it is surely highly desirable that they should continue to do so, if for no other reason than that the State schools are overcrowded. [Laughter.] Hon. Members opposite may laugh, but that is the position which has been handed over to the present Government.

The schoolrooms are overcrowded, and if these private schools were to close that overcrowding would obviously be considerably increased. If people wish, and are prepared, to give their children an education different from that provided by the State—perhaps a boarding school education if they think that has benefits—there is no reason why they should not be given some degree of tax concession comparable with the cost to the State of educating those children if they went to a State school. That seems to me to be a perfectly reasonable proposition.

A parent who is paying for his child's education is saving the State the whole cost of educating that child, and I should have thought there was no reason why the State should not give the parent some concession by way of tax allowance. The State would still be saved a great deal of money, and those private schools would be kept in use. If a parent chooses to spend more money than the State would provide in giving his child a different kind of education, why should he not do so?

I ask the Treasury to be thinking about that matter against the time when this capital does run out and middle-class parents are no longer able to find the money, when those private schools are likely to get into financial difficulties. I believe that would be something really worth while considering for the future.

7.7 p.m.

Sir Richard Acland (Gravesend)

The hon. Member for Harborough (Mr. Baldock) has a somewhat 19th century view of the means of stimulating production, because in my opinion it does not in this century depend so much on offering private inducements to separate citizens, but rather on creating a sense of common fairness and common purpose among the population as a whole. That is a point to which I shall return in a minute.

Today, the Chancellor and his Financial Secretary have let me down very badly. When I came into this Parliament and saw a Conservative majority I found myself in an extremely austere mood. During the election campaign I was deeply aware of the increasing gravity of the economic situation and the gathering world crisis confronting our country. I counselled my hon. Friends in many ways to be very restrained in their criticisms of such unpopular measures as might be adopted by the Government to deal with it. I even wrote to "The Times" and said it should be our duty not only to admit but to proclaim that if we had won the Election we would have had to impose new cuts and new burdens.

I was appalled when I found in the "Labour Press Service" for February, an article under the heading "The Biggest Myth Yet," quoting balance of payments figures no less recent than those of 22 months ago, making out that there was really no crisis at all. I had even taken the first step towards securing an interview with responsible leadership in my own party to criticise this kind of thing and to suggest it should not happen again, when, suddenly, we got this Budget and the Chancellor let me down.

Of course, when it is a question of spending less money per child on education, or taking a shilling off the sick, or stifling Britain's voice on the ether of the world, then even the Chancellor still talks and thinks as if there is a crisis. But when it comes to his Budget as a whole, he says to the nation, "It's quite all right. There's nothing to worry about. We can eat as much this year as we ate last year. The only thing is that we will redistribute the eating away from the poor and towards the middles and the tops." With that he makes wage demands inevitable and deprives himself of the only inducement he could have used in pleading for restraint. What is worse, he gives the high imprimatur of Government approval to the worst of the moods that is in all of us, namely, the mood in which, when it is suggested that we should do more or more worth while work, we respond by saying, "How much do I get out of it?"

That is the mood which has been stimulated by this Budget. I suppose that I ought not to be surprised about it. It is Tory policy and Tory philosophy and this is inevitably a Tory Finance Bill. My view is that this country faces such a crisis not merely in the next 12 months but in the quarter century lying ahead that Conservative policy, Conservative philosophy and Conservative Finance Bills will not make the grade any more.

Mr. Osborne

Nor will the Socialists.

Sir R. Acland

Having expressed my disagreement with the Government and with one of the official publications of the Opposition, I shall, in a few moments, express my disagreement with the 56 hon. and right hon. Gentlemen who voted with me on a certain recent occasion, and I therefore find that I have almost no friend left in the House except the hon. Member for Louth (Mr. Osborne), who seems to be one of the most courageous and clear-thinking hon. Members on that side of the House.

I wish to quote some of the words which he used in his last speech on this subject, on 30th January, when he said: … the crisis with which we are faced is not merely a British crisis, but is part of a world crisis. Three things have led up to this crisis. The first is the rapid growth in world population, the second two destructive wars and the third the rise of nationalism in the East and the demand of coloured peoples for a fair deal. … He went on to say of the food position of the world: a dark question mark is overhanging all mankind."—[OFFICIAL REPORT, 30th January, 1952; Vol. 495, c. 295.] If, to that dark question, the world gives an adverse answer do not let us imagine that the sufferings and consequences of food shortage will be limited to far away countries like India and Honduras. Our food resources are closing against us and the markets for our traditional exports are closing against us; and as I said in perhaps over-dramatic terms in a memorandum to the Parliamentary Socialist Christian Group: The challenge of world starvation, if it comes, is going to leave its dead bodies not only in the Ganges but in Gravesend as well. That is the kind of situation which is confronting us and it is to this that we should address our thoughts. Part of my complaint of this Budget is that it is prepared to spend more on meeting the military challenge, which, at its worst, is only a hypothetical one, and less on meeting the impending challenge of world starvation. One of the meanest little items of economy leading up to the total sums which this Finance Bill has to raise is the reduction to £310,000—41 per cent.—in the contribution which this country makes to the United Nations programme of extended assistance to backward countries. We had down a Question about that, and the Minister of State said that only 10 per cent. of what we had contributed to the last subscription period was spent up to September of last year, which would seem to the uninitiated to be an overwhelming reason for subscribing less in the forthcoming period.

Anyone who knows about this programme, however, knows that the work has to be planned ahead and that when it is only three-quarters of the way through any prescription period it is the most natural thing in the world to have spent only about 10 per cent. of what has been received; and I say that our contribution to this programme—meaner in proportion to the national and budgeted income than that of any other comparable country in Europe—is such that if all the other countries had followed our example the work of giving assistance to the backward countries would have collapsed. This is the one thing which the world is doing on an international scale to meet this impending challenge.

We ought to be spending less on the military challenge and more on meeting the threat of world starvation; and this is really my point of dissent from the 56 hon. and right hon. Gentlemen whom I mentioned just now. Those of them who believe, as I do, that it is a good thing that points of disagreement should be brought into the open and not merely discussed behind closed doors, will agree with me that I had pleaded with them time and again not to create the impression that by a reduction in arms expenditure they could make everything easy for the British people at this time.

Mr. James Carmichael (Glasgow, Bridgeton)

Nobody said that.

Sir R. Acland

That impression has been widely created that by cutting arms expenditure we could make things easier for people at home now. I have voted for a reduction of arms expenditure because, in my view, what we save on armaments should be transferred not to our own consumption here but to an attack upon the poverty of the world.

Mr. Frederick Messer (Tottenham)

So the hon. Gentleman would do something by reducing armament expenditure?

Sir R. Acland

Yes, but it is raising false hopes to lead anyone to suppose that by a reduction in armaments we can get rid of all the difficulties that threaten us at home.

Mr. Ellis Smith

I have known the hon. Member for Gravesend (Sir R. Acland) for a long time. I know his record and I accept the sincerity of his statement, but he ought to extend the same sincerity to others who voted in the same Lobby with him, and who also have constructive proposals to make on the matter with which he is dealing.

Sir R. Acland

I appreciate that point, and I do not want a prolonged argument with my hon. Friend.

It is not certain, of course, as the hon. Member for Louth so well knows, that there is any way in which we can ward off the threat of world starvation which is hanging over all mankind. The only way in which we have any chance of doing that is if we lead the world and, through our leadership persuade the world to launch what will indeed be a Hundred Years' War on world want; and if we give to that struggle the same sort of dedication, sacrifice and effort as has, alas, up to now been called forth only by the exigencies and challenge of a bloody war.

If we will do that, then perhaps there will be enough food in the world so that we and others do not starve and perhaps there will be enough work in the world so that we and others do not rot in idleness. It is at this point that I have to part company with my hon. Friend, because to do these things we would have to give up our preoccupation with money making. It is impossible to launch war on world want with a "4 per cent." mentality. We would have to give up, too, our "phoney" ideas about expecting cosy times for one and all in Britain to come around the next corner but one. I am sure that my hon. Friend the Member for Louth agrees with me and disagrees with Lord Woolton who, in another place, suggested that with a little more effort we should soon reach the happy position when every Englishman could do everything he wants and have everything he likes.

Mr. Osborne

I agree, if the noble Lord said that he was following the example of a Socialist Chancellor of the Exchequer who spoke about having a "song in his heart," and a previous Foreign Secretary who said that the nation had turned recovery corner four years ago.

Sir R. Acland

So long ago as the Labour Party Conference, in 1949, I criticised the Chancellor of the Exchequer here for underestimating the impact of the forthcoming world crisis and perhaps with that the hon. Member for Louth will try to persuade his noble Friend that we shall have to give up these "phoney" ideas about the easy times likely to break out in the near future for ourselves. We shall need a different mood among our people from the sort of mood that we have now. I do not say that the change of mood has to be, as some of my hon. Friends put it, one from a mood of cheery optimism to a mood of gloomy pessimism. To me the prospect of misery is to live in a community which is perpetually and bad-temperedly disillusioned and disappointed because the sky-high material promises made by the winners of each successive General Election are disappointed in the succeeding Parliament.

I think that there might be a much healthier mood in our people if leaders of all parties would be a bit more thoroughgoing in describing to our people what are the real prospects which the world actually holds out to us. That would result in a mood which would give more zest and a greater feeling of common purpose, and there would be less feather-bedding from the directors' table down to the man who cleans the floors. There might be more common enthusiasm, a common purpose and even common sacrifice to an agreed common end.

I am glad that hon. Gentlemen opposite agree with me so well in all that I am now saying, because the next point that I want to put is that none of that can be achieved under capitalism, under capitalist philosphy, capitalist policy and capitalist Finance Bills. It is completely inconsistent to put forward the self-seeking motives in men not merely as being motives which, in fact, move us but as being the motives which ought to move us or which are to be relied upon by the Government as the motives for getting the work of the country done—it is completely impossible to put forward all that and then to turn round and say, "Come on; let's have common effort and common sacrifice in the common cause."

It is no use trying to stimulate people with individual rewards. We must give the country a common purpose, and then we must organise our community in a way that makes sense of common effort for a common cause. Of course, this lays on the Labour Party an immense task in education and propaganda. It requires a re-orientation of 50 years of our political outlook. I say to my hon. and right hon. Friends: for 50 years we have, in effect, advocated Socialism as something which would be nice because it would greatly increase the total amount of material wealth available for our consumption. In this way we have led people to desire not Socialism, but the fruits which they expected they were to be able to gather from Socialism.

I suggest to my hon. Friends that we have now to commend Socialism to all our people as being a policy which is necessary because it is the only means of organising our community that makes sense in a world which is not going to allow us markedly to increase, and may even oblige us to decrease, our consumption of material wealth.

I want to give one or two almost random examples of the sort of changes in policy which we should have to make, all of them in a Socialist direction, so that one might make sense with an appeal for common effort for a common cause. My first example is quite trivial, and it relates directly to the Finance Bill. I hope that we who now represent a majority in this country will not let this Bill go through until there is in it a new Clause which will prevent directors and other men at the top of industry entertaining each other to lunch and charging it up to Income Tax expenses. It is completely unreasonable to appeal for common effort for a common cause while such a thing as that is going on.

I hope that we shall not let this Budget go through until we get assurances from the Government that we shall not allow man hours and paper to be wasted on advertising goods which are not available for sale anyway and which we would not want people to buy even if they were available. It does not make sense to ask people to make a common effort for a common cause while that sort of thing is going on.

One of the things which will affect the production of steel—the Budget depends on an increase in output—is the shortage of coke. To our shame, in the early part of 1950 we on this side allowed coke to go to greenhouses without even asking for an undertaking that it would be used for growing vegetables and not flowers. It is silly to allow coke to be used for growing flowers when we are short of coke to make steel for our exports.

Mr. Alfred Robens (Blyth)

It is not the same kind of coke.

Sir R. Acland

I went directly to our own gasworks in Gravesend and found that in my constituency the kind of coke which is going to greenhouses is the same kind of coke as that used for steel. In any case, if that coke were not suitable for the steelworks it would be suitable for some of my constituents in their Nissen huts and that would release some of the right kind of coke for making steel.

To come to something bigger, I would say that we cannot afford the Government's housing policy. There is another policy, more Socialist, which would cost much less in money, manpower and materials and would make a bigger bite into our housing waiting lists. If we concentrated all the men and materials that we could afford on building small accommodation units suitable for families of two, we could then move into those accommodation units such families, and if we then exercised public control over the private letting of the larger houses which would thus be left vacant and over such other privately-owned houses as fell vacant by death, removal, and so on, we should take a bigger bite out of our housing waiting list at less cost in men, money and materials than is the case now. That policy is not so nice as the one we are pursuing today, and if we were on "Easy Street," or ever likely to be again, I should not recommend it, but I suggest that the crisis with which we are confronted is so great that that policy should be considered on its financial merits.

I had intended to offer several more similar suggestions but for want of time I must content myself by concluding my remarks by saying that it is because the crisis with which we are confronted is not less severe than the Government thinks, but is much greater and much more permanent than they think, that this kind of Finance Bill, based on this kind of policy and on this kind of capitalist philosophy, is one under which this country is not going to be able to get through the next 25 years; and that to face the coming crisis we need a more thoroughly Socialist policy than ever before.

7.28 p.m.

Sir Arnold Gridley (Stockport, South)

I hope that the hon. Member for Gravesend (Sir R. Acland) and the other hon. Members who are present will not mind if I come back to the Finance Bill, which I understood was the main business with which we had to deal today.

I suppose it would be true to say that there is not an hon. Member in the House who does not feel that he or she has a great responsibility here. In framing legislation or dealing with financial matters we have, according to our judgment, to do the best we can in the national interest, and, subject to that, we then ought to give consideration to how these proposals for legislation or finance may affect our constituents.

When I first started in industry, tar too many years ago now, I little thought that I should ever live to see our country in the grave economic position in which it stands today, or in such difficulties in carrying on its industries. For many years, as I think hon. Members know, I have been engaged with others in the production of electrical and mechanical engineering equipments. In a position of that responsibility I must view this Budget in the light of whether its anticipations are likely to be realised if some of the proposals are not subject to amendments. The Chancellor of the Exchequer appreciates as much as any of us that his Budget is so finely balanced that, unless the increased production and exports can be achieved, his figures will not be reached.

Those of us who are engaged in the engineering industry know too well the difficulties with which we are faced in trying to increase production. There are many markets closed to us. We have seen the result of the decision of Australia, and we are suffering from interruption in production through lack of raw materials. But it is not only lack of raw materials; it is materials not coming along at the right time to enable the production flow to go steadily through the workshops.

Now we read with gravity that there is a threatened steel strike in the United States, and I am beginning to wonder what effect that may have in the supply of raw materials of steel, which is so essential to us in the engineering industry and about which we expected to be greatly relieved in the third and fourth quarters of this year. Thirdly, in increasing our production and exports we are faced with very severe and increasing competition. Having these facts in mind and looking at this Budget, I am driven to the conclusion that some of the proposals, unless amended, will still further hamper and not help us to get increased production.

I want to say a word about a matter which affects my own constituency, as it does of those of hon. Members in Lancashire, Cheshire, and Yorkshire, namely, textiles. Everyone agrees now, however they may have argued about it in the past, that the recession in the textile industry is not a British one only but is worldwide. I have heard in my constituency this week-end—and it is not to be compared with some other towns in Lancashire where cotton is the main industry—that there are something like 6,000 to 7,000 people engaged in the mills who are now being put on short time.

I know from my friends in Manchester that the warehouses and shops are full of unsold materials. The pipeline is choked, and for that reason I share the view with those who have advocated that the Chancellor of the Exchequer, if he possibly can, should give the most careful consideration to the proposals that Purchase Tax should be taken off textiles for a period of six months or a year, if it is not possible to remove it permanently, because I believe that if it were removed there would be reductions in prices. I am told that prices have already come down substantially, which has led someone to suggest that there is no need to remove the tax, but if the tax were removed prices would come down still further and there would be the greatest stimulus to people to buy. We should get the pipeline cleared and encouragement would thus be given to our manufacturers and designers to get on with increasing business and exports again.

I want to say a word about the Excess Profits Levy. It affects the industry of which I claim to know something. At a time when we are talking about incentives I look upon this tax as a definite disincentive for the production of increased engineering, textiles, cars and other products. Particularly when exporting is so vitally necessary, it adds difficulties to us in our operations. Taxes like the Profits Tax and Excess Profits Levy inevitably must deplete our resources when they are more than ever needed. They are needed, in the first place, because of the stocks we have to keep and also because of the work in progress. This is not often referred to, but, as everyone knows, many thousands of pounds worth of work is going through the workshops which may not be bought or paid for for many months. The cash required to keep double stocks, which one does not do in normal times, at two or three times the normal price, plus the expenditure on the work in progress, means that a manufacturer must have enormous cash resources in order to carry on and maintain his position.

This happens at a time when borrowing is severely restricted. That is our second difficulty. If we do not want to borrow but want to raise fresh capital, even if new capital were procurable, we have to pay a much higher price for it now. Speaking with half a century's experience of industry, I can say that all this frustrates expansion and damages our capacity to export to dollar countries.

I would not find so much fault with the Excess Profits Levy if there were no tax on undistributed profits. It is just stupid, and it is not economic sense, to tax profits which are not distributed but are retained in the business and are to provide that cash capital so necessary when there is such difficulty in raising capital or borrowing it because of the restrictions imposed in present circumstances.

One final point I want to make is that, subject to the national position, we ought to consider the welfare of our constituents. The year 1947, if that is to be taken as a guide, is going to hit very hard one of the industries in my constituency. I am thinking of the hatting industry. That industry was telescoped during the war, and it was not until 1947 that it began to get back into its premises and to get into touch with its customers. That year was not a normal one for that industry.

We all know—I have very painful memories of it—that in the last quarter of 1947 we suffered considerable diminution in production owing to the many cuts in the power supply. There was a very severe winter, which has often been referred to as "the great coal crisis." I do not know whether the word should be "coal" or "cold." [An HON. MEMBER: "Both."] It was a year during which manufacturers were frustrated in their attempts to get out their maximum production in the last quarter which so many strive to do.

I make a plea to the Chancellor to think again about adopting the years 1947–8–9 without giving an option to bring in the year 1950 and choosing three out of those four years; at any rate, without finding some better way which will be fair and just. I say emphatically that if 1947 is maintained I shall be bound to say that it is the most unjust action which a Chancellor could take in imposing this tax.

I have been rather critical of some of the provisions of the Budget. While at the moment hon. Gentlemen opposite may have grounds for believing that the Budget is not very popular, and while events in the county councils in the last few days have encouraged hon. Members opposite, I say, let us wait a year or two.[HON. GENTLEMEN: "If you can."] We shall all know better then than we do today the results of the Budget and of the policy which the Government are going to pursue. I say to them: Do not be too cheerful too soon. We are not going to be too gloomy too soon.

However easy it may be, and it is easy, for any of us to pick out things in the Budget and criticise them, or to say: "Oh, not me, not my industry. Let the blow fall elsewhere and not on me." We have to look upon the picture as a whole. Although I have criticised certain points in the Budget, I feel that the Budget is framed on the right lines and that, provided that certain Amendments are made during the Committee stage, we shall see in due time the good effects of it. Even if the Budget has not created confidence within this country at the moment, it has certainly created confidence abroad in the present Government.

7.43 p.m.

Mr. David J. Pryde (Midlothian and Peebles)

We always listen with great attention to the hon. Member for Stockport, South (Sir A. Gridley). He is certainly one of the elder statesmen, who speaks up for Lancashire. I agreed with him on many of his remarks. To the hon. Member who spoke before him I say that we give him an assurance that immediately after the next Election we will take over the private schools and run them in the interest of the nation.

I was very pleased to ascertain from the latter part of the remarks made by the hon. Baronet the Member for Gravesend (Sir R. Acland) that he is going to join me in the Division Lobby tonight. I regretted that he was not there on the previous occasion of which he spoke. I am willing to give him a little advice. I advise him not to boast of his bravado, because the organised workers of this country do not suffer fools gladly. If he had come up the hard way, as I came up, he would have made no mistake on that occasion; he would have been in the Lobby voting for the Motion of censure on the Government. The fact that he did not do it meant that he agreed wish the Government on that occasion.

I want to address myself to the Chancellor fo the Exchequer and to the Financial Secretary for some remarks they made, one when the Chancellor of the Exchequer presented his Budget and the other this afternoon, when the Financial Secretary opened the debate. The Chancellor of the Exchequer said that certain concessions would allow the workers to work overtime. The Financial Secretary said that this country requires to work for its living. The hon. Baronet the Member for Gravesend talked about the workers being featherbedded. If he knew anything about industry he would know that there is no featherbedding in this country.

I am going to set the Chancellor of the Exchequer a problem from my own constituency, and I hope that when he winds up the debate tonight he will give me the answer. Will he tell me how the carpet workers in my constituency can work overtime when 40 per cent. of their output used to be shipped to Australia? Their products are piled up in bales today. We have heard from the Despatch Box that every section of heavy industry is coming forward for an increase in wages to enable it to keep pace with the cost of living. We have a sound case for asking the Chancellor of the Exchequer for a reduction of Purchase Tax and a review of our relationship with Australia and New Zealand.

I understand that the carpets which were made on order for the Commonwealth countries cannot be sold in this country. The houses in Australia and New Zealand are specially suited for this type of carpet. We have heard that there are going to be moth balls in certain industries, but I do not want to see moth balls in the carpets that are made in Midlothian. The carpet workers today face a demand for a reduction in wages.

I do not interfere in arguments between trade unions and employers. My job is to come to Westminster to ensure that the wheels of industry are turning and that the workers have a chance of earning their living. In the Tweed Valley we have only one industry, which is tweed weaving. We fear that we are to be cut out of dollar markets altogether. It is clear that the D level must be raised. The Chancellor of the Exchequer spoke about our people desiring to work overtime. Let me point out that the paper-making industry in the Esk Valley is facing a notice that the largest mill will be going on to three days a week. How is it possible for our people to work overtime in those conditions? My hon. Friend has given us an instance.

I had a reply today from the Minister of Fuel and Power proving conclusively that in the Scottish coal division coal is produced in deep mines cheaper than anywhere else in Britain. Our men at the face there have been mechanised and speeded up to such an extent that old men of 70 are putting 20 tons on the conveyors a day. How can these men work overtime? If hon. Members would take a shovel to that amount of coal on the floor in Westminster Hall and try to turn it over, they would understand what a miner has to endure to earn his living. Therefore our miners are unsuited to working overtime and are working today at 9s. a day less than those in the neighbouring counties in England.

The Chancellor has told us that by doing away with £160 million of food subsidies our food costs will rise only by 1s. 6d. a week. Everyone knows that the average working-class family consumes more bread than any other of the essential foodstuffs and that when a child comes in from play, the first thing it asks for is "a piece." So what are we giving to the working class?

With regard to petrol, I suggest to the Financial Secretary that the tax which he and the Chancellor have put upon it is quite sufficient to pay for all the concessions granted in the way of family allowances, etc. While there are concessions in Income Tax, and hon. Members opposite admitted that they would be better off after the Chancellor presented his Budget, where will old people be better off?

I ask the Chancellor to think again. Second thoughts are always best. Grumblings will come not only from Lancashire and Yorkshire but from the whole of Britain. I do not know if a cut in the Purchase Tax will help Lancashire, because I doubt if this country has ever used the great cotton producing county of Lancashire as it should have done. If there were people in Lancashire who made a mistake at the last Election, they certainly will not do so next time. Let the Government remember that last year's cotton crop in Egypt is still unsold. Let them also remember that there are parts of Africa which could be a potential market for us and where cotton should be encouraged to grow. Let them also remember that in China there are 450 million people and that it requires 7 yards of cotton cloth every year to clothe the average Chinese man or woman, so there is another potential market.

After hearing all the criticisms of his Budget, I hope, as the hon. Gentleman the Member for Stockport, South, has said, that the Chancellor will be persuaded to think again. During the Committee stage we shall have a great deal to do in amending this Budget. If the Chancellor is well advised, he will not pursue the ordinary tenor of this Budget, because it will only set the stage for another industrial struggle if it follows the pattern of Tory economy prior to 1926. I warn the Government that the organised workers this time will not fall into the trap so easily. History repeats itself. Once it is a tragedy, the second time it is a farce. Any attempt to repeat 1926 would mean the end of the Tory Party for all time in this country.

7.55 p.m.

Sir Harold Webbe (Cities of London and Westminster)

I am sure that everyone here has listened with great pleasure to the extremely sincere speech made by the hon. Member for Midlothian and Peebles (Mr. Pryde). The hon. Gentleman has been heard with that respect which will always be accorded to one who, as he said himself, has come up the hard way—an honourable distinction which I am proud to share with him.

The hon. Member for Cardiff, South-East (Mr. Callaghan) issued a challenge to those of us who sit on this side of the House. He taunted us with having greeted the Budget speech with cheers, and suggested that by now we might feel a little less enthusiastic. I greeted the statement of the Chancellor with cheers, indeed with disorderly cheers, and I have not repented at all of what I did then. I am still convinced that this Budget is the finest Budget introduced for many years.

Mr. A. Edward Davies (Stoke-on-Trent, North)

For whom?

Sir H. Webbe

I am satisfied that the Chancellor has faced up to the state of economic chaos and near bankruptcy which was his legacy from the previous Government. He has faced up to it with realism and courage. We all know that the steps he has taken already in the monetary field and the proposals which he has made in the Budget have done a considerable amount to slow down the drain on our reserves and to regain the respect and admiration of the world.

There is another reason why I believe this Budget is a memorable one. For the first time for many years a Chancellor of the Exchequer has had the courage to treat the people of this country as intelligent, responsible human beings. For the first time we have a Chancellor who has begun the process of leaving the spending of the citizen's money in his own hands and on his own responsibility—

Mr. Mikardo

He has not done that at all.

Sir H. Webbe

The hon. Member may have his views. I am quite satisfied that the Chancellor has done that, and I am convinced that we shall see that process carried still further.

Mr. Mikardo

Will the hon. Gentleman allow me—

Sir H. Webbe

I am sorry, it is not worth pressing the point too hard. Because for the first time there is a definite challenge to that abominable and vicious doctrine that "the gentleman in Whitehall knows best," I believe this Budget is a turning point in our history.

Mr. H. Rhodes (Ashton-under-Lyne)

In what way?

Sir H. Webbe

I will leave hon. Members opposite to examine the Budget and their own consciences, where they will easily find the evidence. Now I want to say something about one proposal in the Budget which is calculated to do harm. The proposal to which I refer is the Excess Profits Levy. [HON. MEMBERS: "Oh."] I was quite certain that that would bring all the gullible fish up at once, and it did. Hon. Members would be a little wiser if they waited to bear what I have to say about it, because I think my approach to this subject is different from that of any other hon. Member who has spoken.

We have been reminded by the Financial Secretary to the Treasury and by the hon. Member for Cardiff, South-East that this proposal arises out of a pledge given in the party manifesto before the General Election. I want to read that again: … the vast Re-armament policy of spending five thousand millions in three years on Defence inevitably distorts the ordinary working of supply and demand. Therefore justice requires special arrangements for the emergency. We shall set our face against the fortuitous rise in company profits because of the abnormal process of Re-armament. We shall accordingly impose a form of Excess Profits Tax. I agree with my hon. Friend the Member for Stockport, South (Sir A. Gridley) that the taxation of company profits has already reached a level which seriously threatens the future of British Industry, because inevitably it depletes the reserves of industry to such an extent that the maintenance of efficiency becomes endangered. And yet, I believe that the pledge which I have just read was entirely justified and perfectly proper. After all, why was it given? It was given, as I believe, to meet a genuine and widely held feeling amongst people of all sorts and conditions that there was a good deal of easy money in the re-armament business and that those who were going to get the easy money should not be allowed to get away with it.

That is an arguable case, and although I do not believe that it has the force that some people think, because the contracts departments of the various Government offices are by no means easy picking for the contractor, I still believe that it was proper to show that that point of view was understood and to undertake to meet it.

The Financial Secretary made perfectly clear in his speech what is obvious to every Member of the House: that the tax which is now proposed is not a fulfilment of that pledge that, indeed, it is quite impossible to fulfil that pledge in the sense in which a great many people understood it. My hon. Friend told us that it was impossible to disinter the profits made arising from the re-armament drive and to distinguish them from profits made in other directions. As he said, one cannot distinguish between the profits made directly by a company engaged in big armament contracts and the profits which inevitably follow to all the traders and others in the neighbourhood who are affected by the prosperity of that armaments firm.

Therefore, the Chancellor of the Exchequer has sought to redeem that pledge, not literally by taxing profits arising from armaments or from armaments contracts, but by increasing the levy which he makes on the profits of companies of all kinds. It is a completely indiscriminate levy on profits, a levy which he anticipates will bring him a revenue of £200 million gross of £100 million net in the next two years, That is the measure of the additional burden which my right hon. Friend considers should be laid upon industry in order to emphasise that the injection of the heavy re-armament programme into our economy must inevitably lead to increased profits throughout the whole range of industry.

I believe that the pledge was justified. It follows, therefore, that I accept the justification for imposing such an additional burden on industrial profits. But, I submit, the manner in which the Chancellor of the Exchequer proposes to exact this additional contribution is the worst of all possible manners. It is the worst of all possible forms of tax.

I do not want to repeat the arguments which were put so vividly by the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), that any tax levied on additional or extra profits is in itself a direct discouragement and, indeed, penalises efficiency, energy and enterprise, and, on the contrary, definitely encourages and, in some cases rewards lethargy, inefficiency and extravagance. Those objections to any tax in this form have been commonly agreed amongst all parties and amongst people in every industry ever since the first tax of this kind was proposed.

The Chancellor in his Budget speech expressed the hope that he would be able to profit by the lessons of previous taxes of this kind. Frankly, I see very little evidence of any difference in its fundamentals between the present proposals and those taxes which have been levied in the past.

Other speakers have pointed out to my right hon. Friend the peculiarly unfair incidence of the tax on certain types of business. His attention has been called to the small business, to the business which was concentrated during the war and to the business operating overseas. I want to draw his attention to another group of businesses. It is common ground that the tax is undiscriminating but it is also grossly inequitable, and it is an essential part of my case that it falls much more heavily on people who have been praised and who are still being wooed by the Chancellor of the Exchequer than on those whom it was intended to hit.

The two groups of businesses to which I want to refer are those who have made a serious and successful attempt to carry out the behests of the previous Government, and, indeed, of both sides of the House, to expand and develop their export trade. The second group are those businesses who have endeavoured, as they should have done, to enlarge their field of operations by developing new industries or new sections of their industries.

Take, first, the exporters. At the end of the war our export trade was virtually dead. There was, however, a greedy market waiting for any goods which we could supply. There were two types of industrialist and two types of would-be exporter. There was one who took the easy way, who said that the markets of the world were so hungry that it did not matter what rubbish he sent out, they would buy it—and a great deal of rubbish was exported in those honeymoon days, greatly to the detriment of the reputation of British manufacturers. Those people, of course, immediately began to make profits. In other words, in the standard period they will come out not too badly.

But there was a much more serious type of industrialist, who lived up much better to his responsibilities, the type of industrialist who said, "I am not concerned with what happens this year. I want to build an export trade which will be permanent and developing, an export trade which will be a real asset to my business and to the country."

What happened to that type of man? He found his trade non-existent. He had to spend the years immediately after the war in re-opening export markets, in reestablishing export connections, in reexamination of the conditions in the countries to which he wished to export, in ascertaining the kind of goods they wanted, and then in preparing to meet the demand and to deliver the goods.

I want to give an example from a business with which I am connected and which, no doubt, many hon. Members will identify. This business in the last completed year before the war had an export turnover of £106,000. At the end of the war, of course, even that export market had been practically lost. I am quite ready to assume that they would have had a similar turnover in the year immediately following. What happened? They spent hundreds of thousands of pounds in the preliminary work I have described opening up new fields of exports in no less than 67 countries—practically every country outside the Iron Curtain.

Quite obviously, in 1947 they made not merely no profit, but substantial losses on that section of their business. In 1948, they made very little profit, in 1949 they began to reap the harvest of what they had sown, and in 1951, as against a prewar turnover of £106,000 the profit from the overseas trade of that company was £1,700,000.

Not one farthing of that profit was a fortuitous profit which arose in any way out of the re-armament programme. To anticipate what may well be in the minds of some hon. Members opposite, particularly the hon. Member for Reading, South (Mr. Mikardo), I would add that none of that profit was due to increased prices because the prices of that company's products remained within 10 per cent. of the pre-war figures.

The profit, therefore, was derived solely from increased physical trade in the export field. I submit that to treat a growth of profits of that kind as something undesirable is to run completely counter to the whole policy of the Government of encouraging the development of the export market.

I now want to take an example of the new industry. In giving an example from a company with which I am connected I am quite sure the House will realise that I do so simply because I believe it to be typical of a great number of other companies. In 1946, this company obtained the world rights for a new product and entered into an arrangement with the Government for the erection of a factory in one of the Development Areas. The construction of that factory began in 1946, and the company obtained possession of it towards the end of 1947, the first of the standard years. They produced the first article early in 1948. They accumulated a sufficient stock and had a sufficient production to put that article on the market at the end of 1948, so that the first year of selling was the third of the standard years.

In 1947, of course, all the money was going out. In 1948 there was a substantial loss. In 1949 there was a small profit, but in 1951 the profit was £346,000. I am convinced that that case can be paralleled in very many instances.

Mr. Ivor Owen Thomas (The Wrekin)

Would the hon. Gentleman indicate what was the subscribed capital on which that profit was made?

Sir H. Webbe

The subscribed capital of the company has nothing whatever to do with it. These new developments were financed out of the savings which had been ploughed back into the business in past years, but which are no longer being ploughed back owing to the high level of taxation.

Mr. Thomas

The hon. Gentleman has missed the point.

Sir H. Webbe

I do not want to give way to the hon. Gentleman because I am sure the point is immaterial. I am explaining what happened in this company during the period which is now said to be the standard period. I suggest that the incidence of the Levy in that case is the clearest possible evidence its undesirability from the point of view of encouraging initiative and the development of the export trade which the Government could possibly have devised. It is completely unsatisfactory.

I do not want to discuss the alternative methods of arriving at a standard because I do not believe that this form of tax can be made a good form of tax by any juggling with the conditions of it. While accepting the justice and the propriety, though perhaps not the wisdom, of imposing an extra burden on industry by making an extra levy on profits, I beg the Chancellor to consider whether there is not some other method of achieving what he wishes to do. I am quite certain that many other methods can be indicated to him of obtaining that extra contribution from industrial profits, which are less destructive and less harmful to the principles and to the policy which the Government are trying to follow.

8.16 p.m.

Mr. Charles Pannell (Leeds, West)

I do not think that the Financial Secretary mentioned the question of the petrol tax at all. That was a very significant omission. In 1950, of course, the duty on petrol was raised from 9d. to 1s. 6d., and in 1951 from 1s. 6d. to 1s. 10½d. Therefore, I would answer straight away hon. Members opposite who may try to argue that conditions are different or similar this year, according to their points of view. Surely it is very different to raise a duty from a low price level than it is to raise it from a high price level. In any case, we only raised it from 2s. 2d. whereas with the latest increase of 7½d. the price of petrol today is 4s. 2¾d. It has also to be borne in mind that the circumstances in which this increase takes place are very different from those of earlier years.

In the two previous years my right hon. Friends were attempting to peg the cost of living with food subsidies amounting to about £410 million. This year the subsidies have been slashed by £160 million and price have been allowed to rise. We know full well, as hon. Members opposite have admitted, that the increased cost of living will not stop at 1s. 6d. We also know that the most inflationary thing we can do is to increase the cost of transport. There is hardly any need to affirm that at all. Indeed, I have no need to use any arguments of my own because hon. Members opposite stated as much or even more in the far better circumstances that prevailed in the last two years, when prices were very much lower.

The other side put in a promising team to bat on this matter of the Petrol Duty. Their first eleven comprised the Colonial Secretary, the Leader of the House, the Minister of Fuel and Power, the Minister of Works, the Minister of State, the President of the Board of Trade, the Parliamentary Secretaries to the Ministries of Transport, Labour, Food and War, and the last man in, or the wicket keeper, whichever one likes—he may have been sent in to catch all the clichés—was the Leader of the Liberal Party.

Mr. Cecil Poole (Birmingham, Perry Barr)

What was the score?

Mr. Pannell

Last year, of course, the Leader of the House opened the batting. He did so with a few offensive strokes, but did not get many runs. The member of the team I want to quote later is the Minister of Works, who attempted to lift a few sixes over the Dome of Discovery. The ratepayers in the L.C.C. area gave their verdict on his speech last week. He was the third wicket batsman, the bright-eyed Bradman of the side.

I had a word with the Government Chief Whip. I said, "What does one have to do when one wants to indict so many hon. Members of the party opposite and give them the courtesy of notice of intention?" I suggested that I should write letters that they should be sent round with the Government Whip. I have sent five notices already.

The second eleven are rather a miscellaneous lot, as follows: the hon. Member for Gosport and Fareham (Dr. Bennett), who made a maiden speech without a maiden over, the hon. Member for Hallam (Mr. Jennings), the hon. Member for Croydon, North (Mr. F. Harris), the hon. Member for Ealing, South (Mr. Maude), the hon. and gallant Member for Down, North (Sir W. Smiles), the hon. Member for Chichester (Mr. Joynson-Hicks), the hon. Member for St. Marylebone (Sir W. Wakefield), the hon. and gallant Member for Perth and East Perthshire (Colonel Gomme-Duncan), the hon. and gallant Member for Macclesfield (Air Commodore Harvey), the noble Lady the Member for Aberdeen, South (Lady Tweedsmuir) and the hon. Member for Kidderminster (Mr. Nabarro).

They would not put the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) in the team at all because he had hit his own wicket a year or two before. He tried to have the best of both worlds because in 1948 he was in favour of an increase of two or three shillings when there was no proposal to increase the petrol tax. But he made a speech in 1951 against an increase of 4½d.; and the moral of that story is that even such a stern and unbending Tory as he is can sometimes do a double somersault.

The peroration of the speech of the Leader of the House was this: I also bear in mind the consideration that road transport, surely above all else, is the lifeblood both of the defence programme and of industry. It is the one industry which ought not to suffer specific impost. One of the other most quotable people is the present Parliamentary Secretary to the Ministry of Transport the hon. Member for Bristol, North-West (Mr. Braithwaite). After referring to the fact that this was food tax, and that it would bear most hardly upon disabled ex-Service men who have invalid chairs, he proceeded to say this: … I pass from that aspect of the matter to a somewhat wider one, and here I frankly do not expect to carry hon. Members with me even an inch of the way. It deals with the 'sacred cow' of Socialists—British Railways. As traffic has been more and more diverted to the roads, this increased Petrol Duty is once again a syndicalist action—that is how I described it a year ago—and is an attempt, by increasing the costs of road transport and distribution, to drive traffic back to the railways."—[OFFICIAL REPORT, 5th June, 1951; Vol. 488, c. 824–8.] This was from the present Parliamentary Secretary to the Ministry of Transport, whose chief has just confirmed an appeal which will stop 30,000 road users from travelling by coach and force them into a third-class railway carriage. But that was before he became the Parliamentary Secretary.

Perhaps the best contribution of the lot came from the Minister of Works, who said: As the cost of living goes up month by month, the situation becomes so dangerous that it must be wrong deliberately and as an Act of Government policy to add to the cost of an item like transport, which enters into the cost of re-armament both directly and indirectly through its effect upon other prices. A rise in the price of petrol will encourage rises in the prices of other fuels and in other forms of transport which use those fuels. Today, the whole complex of our prices is straining to break away, and is, therefore, exceedingly sensitive to any impulse in the fatal direction."—[OFFICIAL REPORT, 5th June, 1951; Vol. 488, c. 833.] I wish the right hon. Gentleman were here, because I should like to know how he can reconcile the following statement: Those who vote for this duty tonight will be voting for a depreciation in our money. They will be voting to increase the cost of re-armament. And they will be voting to increase those hardships which accompany a rising cost of living, and which press most severely on those with large families and small incomes. Whatever may be the politics in this Clause, I think it must be offensive to the consciences of every one of us."—[OFFICIAL REPORT, 5th June, 1951; Vol. 488, c. 837.] When my hon. Friend the Member for Stechford (Mr. Roy Jenkins) was making a speech the hon. Member for Kidderminster jumped in and said: Has the hon. Member forgotten that we are discussing also increased duty on oils—industrial oils—which, assuredly, must affect every industrial undertaking in the country and the cost of production of every article produced by British industry?"—[OFFICIAL REPORT, 5th June, 1951; Vol. 488, c. 847.] In his own speech, when he managed to catch Mr. Speaker's eye, the hon. Member for Kidderminster finished up with this rousing peroration, in that rich fruity voice for which he is distinguished: I shall vote with great joy against these measures tonight. I know that in recording my vote the overwhelming bulk of sensible and informed opinion in this country will be with me."—[OFFICIAL REPORT, 5th June, 1951; Vol. 488, c. 859.] Well, they are not with him now judging by the county council election results.

I think I have dealt with most of the relevant quotations and I am sure that you, Mr. Deputy-Speaker, will sympathise with me when I say that, after all that, there is nothing original to say. To sum up, dearer petrol will increase the cost of textiles. It is important at the present time, when we are all talking about wanting Purchase Tax removed, to remember that piece goods are sent to the weaver and that the woven goods are sent to the finisher, bleacher and dyer and that all this involves transport largely by road. The Anglo-American Productivity Committee said that we must reduce our handling cost. The Petrol Duty is a device to increase those costs.

This duty will also involve increased costs to doctors—though they may be able to afford it now—and surgeons, midwives and schoolteachers. It was the present Parliamentary Secretary to the Ministry of Food who said last year that the increased cost would be £15 to £30 per annum for each general practitioner. This increased duty will affect dyeing, cleaning, boot polish, paint, plastics, rubber, linoleum and the price of coal, and will increase the cost of re-armament. Hon. Members opposite said that last year. Where are they tonight?

I had a letter from a firm who employed me before I came to this House. It is the largest distributing organisation for food in South London. They have 289 commercial vehicles, 57 motor coaches and 27 vehicles used by the funeral furnishing Department—which may be fully employed if this Government remains in office much longer. Their transport manager estimates that the new petrol impost will represent an increase in petrol and oil charges of £11,500 a year this year or £14,000 in a full year. There is only one large co-operative society in the country under the control of the Tory Party and that is in the City of Leeds; and the members there had better watch out, for this duty means a farthing on their dividend.

The Road Haulage Association estimates that the additional 7½d. will add £5 million per annum to the running cost of 120,000 vehicles. It is interesting to note that, as near as we can work it out, it will mean 1 per cent. on building costs, 2¼d. per ton of coal for industrial distribution and 3¾d. on retail distribution. It is significant that the British Road Federation—and, after all, they are no friends of ours; they are friends of hon. Members opposite—called the attention of the Government to their statement which was released to the Press on 12th March. They say that the increase of 7½d. is inconsistent with the Government's statement disclaiming any responsibility for the increase in London fares. They say that this increase in the fuel tax must seriously prejudice the ability of London Transport to make an adjustment in London fares.

But what about the City of Leeds? One of the things which returned the Tory Party to power in the City of Leeds was the premature disclosure on the day of the Election of the increased bus and tram fares. It was the subject of an Adjournment debate in the House. It was apparently believed that the return of the business efficiency party would put the undertaking on its feet. What is the position now, after less than 12 months of Tory rule? The estimated deficit on the undertaking in Leeds at the end of March this year is £323,000 and the estimated deficit for March, 1953, is £531,000. The gross yield from the increased fares to operate from 23rd March, 1952, is estimated at £215,000. The net estimated deficit at the end of March, 1953, is £316,000, and the new increase of 7½d. per gallon in the price of petrol has to go on top of that. I am laying no bets, but I am sure that if we can win 23 seats in the county of Kent we shall have a pretty good win in Leeds. I am laying no wager, because it is the sign of a dishonest gambler to bet on a cert.

The cry last year was, "The Socialists will put up the fares." It is the Tory Government which has made the Tory majority in the Leeds City Council put them up before this year is out, and I have no doubt that the ratepayers of Leeds will take note of it. I have here a Press cutting from the "Yorkshire Evening News" dated Wednesday, 12th March, which says that the new increase will cost the City of Leeds £75,000 on their transport. I have a very long list of fare increases throughout Yorkshire, including such places as Wakefield, Halifax, Bradford and Dewsbury. They all tell the same tale, except the Leeds taxi-drivers. The Press cutting says: Leeds taxi fares will not go up, Mr. L. Coley, Chairman of Leeds Taximen's Association, said 'If we were to put up our charges any more, there would be no business left at all.' That is under a Tory Government.

Of course, the Chancellor of the Exchequer grossly misled the House. He said on 29th January that a good deal less than half the consumption of motor spirit is by private motorists and that not very much of this is used for pleasure motoring. In fact, 85 per cent. of motor fuel is used for industrial and commercial purposes. When they were in opposition, hon. Members opposite voted against the increases for just the very reasons I am voicing tonight.

In view of the Cabinet's concern about the rise in bus fares it seems to me quite astonishing that they have not considered a lower rate of tax for diesel oils, on which most public service vehicles now operate. This is a widespread practice in other countries of the Commonwealth and in Western Europe. About 1,150,000 tons of diesel oil are used for this purpose, and relief at the rate of 7½d. per gallon—the additional duty now imposed—would cost £9½ million. That at least might be some check on the rise in public transport fares.

We come now to the most serious part of the business; the question where this sort of thing will land us. It was not my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), this afternoon who was inciting the Trades Union Congress to action. They were in the field long before this. It was the Budget that decided that question. I have here a cutting from "The Times" of last week which indicates the position with regard to my own trade union who, in concert with the 38 other unions in the engineering and shipbuilding industry, are lodging a wage claim. They were lodging that wage claim before my hon. Friend made any speeches.

I came straight from the factory floor to this place. I was a shop steward. Hon. Members flatter themselves if they imagine that the great trade union movement is somehow motivated by the odd speeches one hears in the House. The trade union movement is largely motivated by economic conditions as they press upon the woman who is buying in the shops, and she has already noticed that prices are going up and up and up. There was some confidence in my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) and for Sir Stafford Cripps who preceded him; but there is no confidence at all in the present Chancellor that he will fairly hold the ring. As a matter of fact, it seems that just the reverse will take place.

The increase in fares will have its effect in price increases, and the price increases will bring forward the old regular cycle of workers to ask for a contribution towards the increased cost of living. The people who are hit most severely are not those people to whom these incentives apply, but the man with the broom, the unskilled labourer on the factory floor, the man who never has paid Income Tax, the railwayman in the yard. There is no question of incentives for those people at all; but everybody knows that it is the unskilled workers pressing from beneath, who move the machinery forward, and all the differentials have to go up with it.

I have worked in the transport industry for many years. The object lesson that is being seen by the workers is that from 1945 to 1951 all our troubles were political, according to hon. Members on the other side of the House. The Government of the day were always to blame, but B.B.C. jokes against the Government went off the air on 25th October.

Mr. Mikardo

They have gone to the same place as the Housewives' League.

Mr. Pannell

The curious thing is that in 1945 the Labour Party came in and, after what "The Times" is prepared to call "six harrowing years" they emerged from the last Election still commanding the largest number of votes. What about the Government? They have no answer after the county council elections. After six months they are already on their way out.

Take the neighbouring constituencies, near to where I live—Bexley, Chislehurst and Sidcup—places like that, like the Medway Towns and Gillingham, they have all come our way. Why, we are even winning seats in Margate and Ramsgate; we are even winning the votes of seaside landladies, the last bulwark of entrenched privilege. Do hon. Gentlemen opposite think they could face any constituency in industrial Lancashire with less than a majority of 5,000? They know they could not. Up to now, they have been very lucky in their by-elections—and I am not going to say that we did not have our share of luck in our time.

There seems to be one text running through the Chancellor's Budget, and I believe it comes from St. Matthew—"Let not your right hand see what your left hand doeth"—provided that your left hand is moving faster than your right.

Mr. Poole

"Let not thy left hand know what thy right hand doeth."

Mr. Pannell

Well, some people take a cock-eyed view of the texts.

The common people will contrast the implemented promises to this Government's paymasters, the steel barons, the road hauliers, the bankers and the brewers, with the broken promises of good red meat and a reduction in the cost of living. There is no red meat and very little red blood left in the party opposite. [HON. MEMBERS: "Blue blood."] They are fairly well dehydrated by now.

There they are—the party of missed opportunities, blasted hopes and bungled undertakings, turning again in its dilemma to its traditional policy of deflation, with resultant unemployment. Now we have a D scheme as given by the party of the D's—doomed, damned, despised and discredited; a party which, at the General Election, whenever it comes, will be discarded and disinherited by a disgusted democracy.

8.43 p.m.

Mr. David Ormsby-Gore (Oswestry)

We have listened to a very entertaining speech from the hon. Member for Leeds, West (Mr. Pannell). No doubt all his arguments about the petrol tax will be refuted by quotations from the speeches made by his right hon. Friends last year. I thought the end of his argument was not precisely related to the financial position in which this country finds itself, because there is an obvious difference between a tax imposed at a time when the balance of payments position is satisfactory and that imposed at a later stage, when we are running into a very severe deficit in our balance of payments. That, I think, together with the loss of Abadan, largely explains the reason why my right hon. Friends have changed their views about the petrol tax.

Mr. Pannell


Mr. Ormsby-Gore

I cannot give way. Many of these detailed points will, of course, occupy us throughout the Committee stage of the Bill.

The point which is of supreme importance is whether the Bill and the other actions taken by the Chancellor will bring about stability in the £ sterling. That is the main consideration. Until we have achieved stability for the £ we cannot go forward to the more ambitious and expansionist policies which we should all like to see.

It was obvious for some time before my right hon. Friend introduced his Budget that it was not going to be an exactly comfortable Budget. We had all kinds of forecasts, and I think we had a fairly accurate forecast of what kind of Budget we might have expected from a Socialist Government in the pamphlet "One way only" which was published last summer. In that pamphlet, on the assumption that the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) would be introducing the Budget, the authors had this to say: The prospect for 1952 looks gloomier still. Another £200 million will have to be taken from civilian expenditure. Some of that, as the Chancellor"— that is, the right hon. Gentleman the Member for Leeds, South— has already told us, is going to be obtained by restricting capital development for civilian industry and building, agriculture, and the universities, local government services, and the Health Service, but a good deal of it will also have to come from the consumers in the form of higher taxes, higher prices, and further cuts in the real value of the social services. The other half … of teeth and spectacles will not be nearly enough. From that forecast by the authors of "One way only" we can see what a Socialist Budget would have been like this year.

Of course, the Bevanites would have had the solution of cutting down our rearmament programme to an even greater extent than we ourselves have cut it down, but that solution is not available for the large majority of the party opposite, because they committed themselves to an even larger re-armament programme than we are, in fact, carrying out. As we are committed to that programme they must realise that some room has to be made in our economy for carrying it out, and that is bound, of course, to be very unpleasant.

What I want to speak about tonight is the kind of policy we ought to pursue after these necessary and obviously unpleasant adjustments have been made in our economy. I am convinced that the action that has been taken will stabilise the value of the £ by the end of this year, and I think we ought to consider for a few minutes the kind of economy we shall find operating then, and not get completely tied down to thinking only about what is to happen in the next few months.

The kind of economy we shall have at the end of this year will be, of course, a mixed economy. We shall have an economy which as to 80 per cent. will be run by free enterprise and as to about 20 per cent. by the nationalised industries. At the same time, we shall have a planned economy to the extent that—I was going to say all parties in this House, but after hearing the speech of the Leader of the Liberal Party I do not think he will agree with this—both parties now agree that we must have a planned economy to the extent that it is the responsibility of any Government in a large, modern, industrial State to regulate the economic climate in which trade and industry are to work.

I am aware that there is a certain section of the party opposite comprised of real, old-fashioned Socialists who believe in the complete Socialist State, and still regard it as very important that the private sector of industry should gradually be reduced even further, but I am glad to say that I gather that that view is not held by the leaders of the party who are in the saddle at the present time. Indeed, there were some interesting remarks on this subject made by the right hon. Gentleman the Member for Ipswich (Mr. Stokes) and the right hon. and learned Gentleman the Member for St. Helens (Sir H. Shawcross) at the time of the last General Election.

They, in various election speeches, said that it was absurd for Conservative candidates to go round suggesting that any large body of opinion in the Labour Party any longer wanted a large-scale extension of nationalisation. So we have, in fact, a general consensus of opinion throughout the House that we shall have to go on operating a form of mixed economy.

It is our duty, on both sides of the House, to see that mixed economy works to the maximum efficiency. We on the Conservative side have accepted the nationalisation of the coal mines, the railways, electricity, gas and the postal services—[HON. MEMBERS: "Steel?"] No, not steel—and it is up to us to forget old battles over these issues and do our part to see that this sector of our national economy works to the maximum efficiency.

Mr. Mikardo

Then why always nag about the nationalised industries?

Mr. Ormsby-Gore

I do not.

Mr. Mikardo

The hon. Gentleman's hon. Friends do.

Mr. Ormsby-Gore

I am speaking for myself, not for my hon. Friends.

In the same way, I think that it is up to the Labour Party to recognise that the 80 per cent. of our economy which will be working under free enterprise must work to its maximum efficiency also, and it is worth considering what are the conditions for the maximum efficiency in its working. I suggest that there are three main conditions: first, an absence of inflation; second, genuine competition; and, third, an acknowledgment that the profit motive is a driving force in the industry of this country, and that under certain safeguards it can bring immense benefits to our people.

Mr. Mikardo

Is the hon. Gentleman really saying that those are the only requirements for efficient operation in industry? Does he overlook the fact that industry might also require some materials, some machines and some men to work them?

Mr. Ormsby-Gore

I was coming to that in a later part of my speech. I said that these were the three main conditions. These conditions are all related, one to another. If there is inflation, then there is, on the whole, a sellers' market; with a sellers' market there is restricted competition to a certain extent, and restricted competition makes profits too easy to earn, and also tends to make the line between the efficient and the inefficient firm dangerously blurred.

Let me say a few words about these three conditions. I do not think we accept the belated view of the right hon. Member for Leeds, South, that there has been no inflation in this country for the last six years, because the evil effects of the inflationary pressure have been referred to by every Chancellor of the Exchequer in every Budget Statement since the war. I suppose it was also the pressure of inflation that the right hon. Member for Lewisham, South (Mr. H. Morrison), was talking about when he spoke of the "dangers of over-full employment."

I think it is generally agreed at the present time that the excess of demand over supply is far greater in the capital goods industries than it is in the consumer goods industries. In fact, there is considerable evidence that there is at present no inflation in the consumer goods industries, and it is, therefore, in the field of capital investment that the main reductions must take place this year. That is a theme which runs through the whole of this Finance Bill and the whole financial policy of my right hon. Friend.

As it is in the sphere of capital investment that our main reductions must take place, I am convinced that the stiffer fiscal policy which the Chancellor has put into action is essential to our recovery and to the well-being of the country. Of course, in a period of a rapid switch to a large-scale defence programme physical controls will also be needed, but those physical controls will work far more smoothly and efficiently if the fiscal policy of the Government is tending to work in the same direction.

This point was made extremely clearly by Professor Arthur Lewis in his "Principles of Economic Planning." When he was summing up the evils of suppressed inflation in our economy under the previous Government, he had this to say: First, even if prices are controlled, inflation causes profits to rise more than wages and salaries… Secondly, suppressed inflation causes resources to be sucked away from essential industries, which are tightly controlled, to inessential industries… Thirdly, the inflation reduces productivity. Stocks of raw materials and work in progress are run down, and the smooth flow of production is impeded… Fourthly, inflation brings external bankruptcy. Some of the extra money is spent on buying imports, and some is spent on attracting to the home market resources that should be working for export… Administrative controls are not and cannot be an efficient substitute for controlling the level of monetary circulation. The task of such controls, on the contrary, is made all the more difficult by inflation. This is the plain lesson not only for our own experience in the last three years, but also of Soviet Russia in the nineteen thirties. Professor Lewis is a distinguished Socialist economist, and non-Marxist Socialist economists are extremely rare birds nowadays. [Laughter.] Hon. Members may laugh, but I remember before the war when one could go into any bookshop and find large numbers of books by non-Marxist Socialists available. When I go into bookshops now and ask for books by non-Marxist Socialist economists, they are very few and far between. I think that Professor Arthur Lewis is a most admirable author on the subject, and I hope hon. Members opposite will pay attention to what he has to say.

Mr. Roy Jenkins (Birmingham, Stechford)

Surely the hon. Gentleman has answered the point he is making in advance, because he was advancing the theory, before he delivered his quotation, that the striking thing about our economy at the present time was the split between the deflationary conditions in the consumer goods industry and the inflationary conditions in engineering and capital goods. This is a very different situation from what we have been accustomed to in the recent years. Surely in this situation it is peculiarly inappropriate to apply general deflationary measures affecting both groups of industry generally, and not to apply physical controls which can discriminate between one side of industry and another.

Mr. Ormsby-Gore

I said that physical controls will be necessary, but in my view a strong fiscal policy has more effect on the capital investment of the country than it does on the amount that is taken up by consumers in the country. That is the very point which I think the hon. Member tried to bring out. I therefore welcome this policy of making money scarcer and dearer at the present time. I believe that it was because of the Labour Party's absolute refusal to face up to this that so much of their planning was bedevilled and led them from one financial crisis to another.

My second consideration was with regard to competition. Here, I have one or two things to say which perhaps will find support on the other side.

Mr. I. O. Thomas

Does the hon. Gentleman mean unemployment?

Mr. Ormsby-Gore

No, I do not. First of all, the reduction in inflation in the economy will bring to an end what remains on the sellers' market and this will in itself tend to increase competition but I suggest that there is another aspect of this question of competition which we ought to consider, and that is the important problem of monopoly practices. I am therefore looking forward with great hope to the introduction of the Bill to extend the size and the power of the Monopolies Commission.

Those who believe in a free competitive system cannot expect that system to work properly alongside restrictive antisocial monopoly practices. I think that problem has an important psychological side to it. If we are to get that new atmosphere in the industry of this country which has been referred to in Anglo-American Productivity Council reports time and time again, we shall have to try to break down restrictive practices on both sides of industry.

In my view, it is the employers' side which ought to give a lead in this respect, because, in the first place, the employers will suffer far less hardship if any hardship comes from adopting this new policy and, secondly, I believe that in the end it is entirely in their own interests. Unless they display a new spirit they will not get the confidence of their employees, they will not get the trade unions to abandon restrictive practices and we shall not get that higher productivity which many of us know is possible. I hope to see this enlarged Monopolies Commission operating in the fairly near future.

I have spoken so far of the actions which are necessary and are being taken to get our whole economy into a healthier and more stable condition, and I should now like to say a few words about the stage after that. It seems evident that we must give priority to the expansion of the supplies of raw materials. It is really useless to go on expanding our total industrial capacity when already insufficient raw material is available to keep that industrial capacity fully employed.

Therefore, I welcome the Clauses in the Finance Bill, though they are rather meagre, which refer to certain concessions to mining development companies. I hope that this is only the beginning of what will be a much more far-reaching policy, because I am convinced that the development of greater resources of raw materials is the most vital need of our economy at the present time.

The hopes of a higher standard of living in this country largely depend on an expansion in world trade. We shall have to fight for our share in that total world trade, and our industries will not be able to win that fight if, owing to lack of raw material supplies, the industries themselves are not working to full capacity, our people are working short-time and we are not achieving the efficiency we ought to achieve.

Mr. Mikordo

Then why cut the stockpile?

Mr. Ormsby-Gore

That is only a temporary measure. I am trying to look further ahead and see the kind of policies that we should pursue when we have put our balance of payments right. I suggest that the most vitally important matter at the moment is to increase our supplies of raw materials.

I believe that in carrying out a policy for building up and developing raw material supplies throughout the Commonwealth and Empire we shall at the same time achieve another very important objective, and that is that we shall be investing money in the under-developed countries of the world. We certainly hoped to be getting on with that at the present time, but, owing to the re-armament programme which we have very reluctantly had to undertake, the surplus of capital investment in this country has had to go into the re-armament programme and has not been available for investment overseas.

This has been explained to the underdeveloped countries who have had their hopes raised, and at some early date we shall have to see that those hopes are realised. At the present time we say that we have to re-arm to see that the free countries of the world remain free. I find that, on the whole, the leaders from the under-developed countries understand that argument. Obviously they are not very enthusiastic about it, but they accept it with a certain amount of fortitude and courage.

But there is not the slightest doubt that the teeming millions of people whom they represent are bringing terrific pressure upon them to try to get more capital investment and capital goods poured into these under-developed countries. Therefore, I am convinced that we must be prepared, as soon as we are over the hump of re-armament, to go forward with far-reaching plans for investment in the overseas production of raw materials.

It may well be that our determination to be strong and to resist the expansion of Communism will cause the Soviet Union to call off the cold war sooner than any of us could have dared hope or expect. Should that happen we must be ready immediately to switch our resources and to channel them away from the unproductive making of armaments towards the productive exploitation of the riches of the world for the benefit of mankind. I believe that a future policy of investment overseas will bring not only a better and more stable society to many of those under-developed countries, but I believe, also, that it is essential to our survival as a great trading and manufacturing nation.

Mr. Rhodes

On a point of order. Matters of importance which are vital to Lancashire and Yorkshire are being discussed tonight, and for the first time for four hours a Minister from one of the productive Ministries is on the Front Bench.

Mr. Deputy-Speaker (Mr. Hopkin Morris)

That is not a point of order.

9.7 p.m.

Mr. I. Mikardo (Reading, South)

I must confess that until this evening the hon. Member for Oswestry (Mr. Ormsby-Gore) had not impinged himself on my consciousness, and when he began to speak several of my hon. Friends and I—I say this with a little shame—had to have recourse to the reference book to see who he was and which constituency produced him and inflicted him upon us. The reference book states that he is specially interested in economics.

May I express the hope—and I do so in all friendliness and because a great deal of what he said struck me as similar to what comes usually from this side of the House rather than from the other side—that he might carry his interest in economics a bit further than book reading, because when he came to talk about industry I thought he did so, on a far too theoretical basis? The subject of what is happening in industry and whether we shall get greater industrial production is not something which we can take out of textbooks. I do not know whether in his youth the hon. Member learned any of the facts of life at his grandmother's knee or any other low joint.

Mr. Osborne

Cheap and nasty. That is no joke.

Mr. Mikardo

If the hon. Member for Louth (Mr. Osborne) has recovered his normal composure, perhaps I can go on. I do not think he is as shocked as he pretends to be. It takes a lot to shock that tough baby.

A great many of the things we need to take into consideration in dealing with our industrial problems at the present time cannot readily be got in textbooks. The Financial Secretary to the Treasury, when he opened the debate, quite rightly said that what a Budget ought to do at this moment is to create the physical conditions and the mental climate for national recovery. He is absolutely right about it, and the judgment we form about the Budget and the Finance Bill should be based almost entirely on whether we think or do not think that the Budget creates the physical conditions and the mental climate for a great national effort.

The Chancellor of the Exchequer has based almost the whole of his economic plans for the coming year on an estimate of a 3 per cent. increase in national output. Almost the whole of his arithmetic depends upon his getting that 3 per cent. If he does not get it, almost the whole of the arithmetic will be broken down. We need to consider whether in the economic policies which he has put before us there lies any hope of his getting it.

The hon. Member for Oswestry listed three conditions for high industrial output, all of which were financial considerations. It was that which led me to say, perhaps with a little unnecessary overemphasis, that he was being theoretical about it. The conditions for getting the Chancellor's 3 per cent. and for the efficient operation of industry are dependent upon three quite different things from those listed by the hon. Gentleman. They are sometimes called "The three 'Ms,'"—materials, machines and the morale of the workers. It is worth while looking to see how far we can get those things out of the policies of the Chancellor of the Exchequer.

On materials, the hon. Member for Stockport, South (Sir A. Gridley), to whom we listened, as we always do, with very great interest, because he speaks of industry with great practical knowledge and first-hand experience, gave a vivid description of how industry was at present being dislocated, not merely by the shortage of materials but by the fact that the supply of them is intermittent. We get very great dislocations in that way, not merely because of actual stoppages in production but also because of the distortion in the ratio between work in progress and the work finally turned off the assembly line. I have nothing to add to what was said by the hon. Member for Stockport, South. He produced convincing evidence that we are facing at the moment a great test of our industrial efficiency.

I would remind the hon. Member for Oswestry that it is not good enough to say: "We can cut down stockpiles this year, because we are thinking about the future." This is the year in which we are fighting for our economic survival. It really does not make sense to create material shortages by cutting into stockpiles and going around delivering pretty-pretty textbook lectures to industry asking them to keep the wheels turning when they have no materials with which to do so.

Let us look at the second "M," machines. We had a very great increase in output and individual productivity in the years between 1945 and 1950. I must remind some hon. Members of that, because they talk as though those five years were years of bad industrial output in which the initiative of the people was inhibited by lack of incentive, and in which, to quote the Prime Minister, "the mainspring of production was broken." I must remind hon. Gentlemen that in those years we achieved an average increase in the national output over the previous year greater than at any previous time in the history of this country, and greater than was achieved in the same period by any other country, including the United States of America. One of the reasons that was achieved, and not by any means the only one, was that during that period we invested on capital account, including investment in industry, at the rate of about one-and-a-half times as much, in real terms, as we did in the years before the war.

We began to see the old machines—some of the rickety lathes, and machine tools with a lot too much play and tolerance—gradually being replaced. We began to see 60-year-old looms at last beginning to vanish through the shed doors. Perhaps, most important of all, we began to see the mechanisation not only of productive processes but of ancillary processes, particularly of the handling of materials. We started learning to use trucks and stillages and fork trucks, and we began to stop using for the movement of materials that one motive force which is the most wasteful, the most expensive, the most irreplaceable of all, namely the human muscles.

Between 1945 and 1950 we began to see the effects of all this in increased production but now, for the first time, we are reversing that. The Chancellor is cutting down expenditure on capital account, including expenditure on industrial investment. What is the good of going around telling people that they have to produce more efficiently when we slow down the flow of machinery and tools which is the only way we can produce more efficiently? It makes a joke of the thing.

Now that we can see the abject failure of that Commonwealth Economic Conference which was so greatly hailed at the time, now that we can see we have to go out into other markets and compete furiously for our exports, one asks how are we to compete with the Germans, whose industry is being rapidly recapitalised, to a large extent with American money; how are we to compete with the Japanese, whose industry is being recapitalised largely with American money, when we are slowing up the rate at which we are replacing obsolescent and even obsolete machinery?

At this moment the Americans are investing in industrial equipment at a rate five times as great per worker as we are in this country, and this year the increase in American industrial investment will be equal to one half of our total national income. And we reckon we shall compete with them in their own markets at a time when, under the direction of the Chancellor, we are slowing down our replacements of obsolescent and obsolete machinery with new machinery. Yet we are making it more difficult, through the higher Bank rate and through credit restrictions, for the small business, above all, to re-equip itself.

Of course, big business will not be worried about the higher Bank rate or about the credit restrictions. They can always get their money. Mr. Speaker, I do not know if you have ever had occasion to do this as an ordinary capitalist, but the easiest thing is to borrow £1 million. It is difficult to borrow £10,000, and I have known occasions when it was difficult to borrow half-a-crown. Yet it is always easy to borrow a million, and the big chaps will not be worried about their industrial investment. It is the small chaps who need re-equipping.

All the evidence goes to show that the reason British efficiency is, on the average, less efficient than American is not because our best is less than their best. Our best is as good as any in the world. Our biggest are as good as any in the world. It is the little chaps who lower the general average. It is they who need re-equipping, those small men whom the Conservative Party always say they are looking after. It is they who will be most hit by a high Bank rate and by capital restriction, and it is they who will not be able to re-equip.

Finally, I come to my third "M," the question of worker morale. I do not think anyone in industry will dispute that it does not matter what else we do—how we juggle with the overall economic mechanisms about which the hon. Member for Oswestry was talking; it does not matter what arithmetic we do at the financial end of the scale; it does not even matter what we do about materials and machines—we shall not get high operational efficiency unless we have a united working force with a very high working morale. One has got to ask oneself whether the Chancellor is creating for himself any hope of getting this in British industry. This is what the Financial Secretary called the "mental climate"—at least, that is what I judge he had in mind. He felt that there ought to be the mental climate in the country that we are all in this together and that we all need to have a real good bang.

But the first essential for the creation of a high level of working morale is trust in one's leadership. It is that the men on the shop floor should trust not only their foreman, their manager and their managing director in their own factory, but that they should also trust the managers and the managing directors of the national factory, that is, the Government.

We may take a bit of party satisfaction out of seeing county council election results which indicate that the country has lost confidence in the Government, but from that narrow party satisfaction I find it serious to contemplate a situation in which this country has to face grave economic problems when the rank and file have no confidence in their leaders. It really is a sad blow, which transcends all questions of party advantage and disadvantage.

Nor do we get a high level of working morale out of what has been, and is, clearly a violent public reaction against the regressive nature of the Budget, which amongst its other bad effects has intensified the division of interest and the division of view between the lower paid workers and the higher paid workers, and hence has led to this large spate of wage claims from lower paid workers.

A little while ago an hon. Member, speaking from the benches opposite, said that my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) had incited the trade unions to make wage claims. They do not need inciting at present. [Interruption.] If the hon. Gentleman who interrupts were a £6 a week railwayman, would he need any inciting to get relief? Let him put himself in the other fellow's place.

Look what the right hon. Gentleman has done. He has said that he is going to alter the tax structure to give an incentive to the people in the middle ranges of incomes. But what has he done? The average married man with a couple of children now pays no tax until his income approaches between £8 10s.—£9 a week. But there are many millions of men who are much below that figure.

Sir Albert Braithwaite (Harrow, West)

How many?

Mr. Mikardo

I do not know the figure. I am perfectly prepared to hazard a guess and to find out tomorrow whether I am right or wrong. I should think that out of the 23 million wage earners in the country, there are certainly more than 12 million and, perhaps, more than 15 million who are under that income level. [Interruption.] I have just been given the figure by my hon. Friend the Member for Cardiff, South-East. There are 16 million wage earners who have less than £10 a week.

Sir A. Braithwaite

The hon. Member's figure was beneath that.

Mr. Mikardo

If the hon. Member will not get heated, I will tell him what I said. I said that there were several millions who were below the tax limit, and so there are. If I may speak for my own constituency, I have a very large number of railwaymen who are certainly well below the tax limit.

Look what the Chancellor has said to those fellows. He has said to them, "There are some nice juicy tax rebates going, but you married men with a couple of children will not get them until you get into the £9 or so a week class. Therefore, if you are earning only £7 a week, the best thing you can do is to put in a wage claim for £2 in order to get into the class where you get the incentive of the tax rebate." That is what he is saying. The Chancellor has given the low paid worker an incentive to put in a wage claim in order to get more money so that he may have the incentive of a tax rebate.

And look what else he has done? He has said to the £6 or £7 a week railwayman, "Look, old man, I know there are some rises in the cost of living, but we are in a crisis, and we have all got to bear some sacrifice. I expect you to stand the burden of the extra prices without putting in a wage claim as your contribution to the national sacrifice. But, of course, if you are a doctor earning £40 a week then I do not expect any such thing. Under those conditions, I will compensate you for every penny of the price rise since 1939, and, what is more, will give you three years back pay to date."

Mr. R. A. Butler

I have never said any such thing. The position of the doctor was left as a legacy from the late administration who failed to administer the Health Act. The question of the doctor's remuneration remained outstanding. The last Government left us the legacy of an arbitration, and all that remained for us was to appoint the arbitrator. In all moral faith we had no other course to take. I do not approve of the system of relegating such questions to arbitration.

Mr. Mikardo

Nor do I, and that is why I say that Parliament should have the last word. If the right hon. Gentleman agrees, I do not see what he is complaining about because the terms of reference under which the arbitration was made was that the decision should be subject to the control of Parliament. Will the right hon. Gentleman bring it before Parliament, because, if he will, and as we are both agreed that we are against it, we can then go into the same Division Lobby?

Mr. Butler

I am sorry to interrupt the hon. Gentleman's very thoughtful speech, but I think I am morally bound to the course set by the late Administration, and it is just as well to respect these decisions when one is morally bound.

Mr. Mikardo

The right hon. Gentleman feels morally bound by the decision of the late Government that this should be subject to the control of Parliament. But we can argue that on another occasion. I want to confine myself to the question of the Finance Bill, and to make one last point on the general subject of incentives because really what the Government have told us is that they are mucking up the material situation, running down the machine, getting the workers thoroughly fed up with unemployment and all that, but that they have a magic formula for overcoming all this—the mumbo-jumbo of the word "incentive."

Let me say at once that I think they are here showing a lamentable ignorance of working-class psychology. I wish they would get to know how the minds of ordinary working men work, because, if they did, they would realise that they ought not blindly to imagine, as they always seem to do, that with workers financial incentives are always sufficient to overcome moral disincentives. They really are not.

The real problem at the moment is not the creation of positive incentives. The real problem, if we want industry to move faster, is the removal of incentive disincentives—the taking off of the brake before putting the foot on the accelerator. The biggest brake at the present time is the growth of unemployment. It does not matter what men are paid by way of incentive; they will not work harder for any amount of tax rebate if they believe that by working harder they are going to work themselves or their workmates out of a job.

Mr. Walter Fletcher (Bury and Radcliffe)


Mr. Mikardo

I am sorry I cannot give way to the hon. Gentleman, but I have been too long already.

One saw about 1947 or 1948 the beginnings of a feeling on the part of the men in the factories that "maybe full employment has come to stay and we can take our coats off and go to it." Previously when one went to talk to them about full employment they always said, "We have heard that before, in 1920. It is a post-war movement that will disappear." But after two or three years one began to find that they were saying. "Perhaps it is right after all. Perhaps I shall not be working myself out of a job. Perhaps I can get rid of some of those restrictions." It was a slow growth and a tender plant which could easily be blasted; and it has been blasted by 100,000 unemployed in two months. Nothing the Chancellor can do by way of financial incentive will overcome that great disincentive.

To what proportion of the workers does the right hon. Gentleman think he has given an incentive? There are a great many workers whose hours are fixed. We do not want the railway signallers, for example, to work more hours for their concentration might be affected and accidents might follow. That also applies to lorry drivers. There are many workers who cannot work faster because they are machine paced, and there are some workers whose type of work does not allow them to increase output.

Going back to the shunter in my railway goods yards in Reading, earning £6 or £6 5s. a week, if he is to receive the incentive of a tax rebate to enable him to earn £9 a week, by how much has be to increase productivity? If he ran up and down the yard like MacDonald Bailey, he could not do it, and that incentive does not apply to him at all.

Nor does it apply to the textile worker who has no incentive to work faster, because there is no demand for his goods; nor to the motorcar engineers, because their loss of productivity is not due to unwillingness to work but to the shortage of steel; nor to the carpet weaver or to the steel worker who cannot get the coke. The Chancellor of the Exchequer ought to go to Coventry one day and talk to the motor boys about increased productivity. They would say, "If we produce faster the only effect will be that instead of running out of steel every Thursday morning we shall run out of steel every Wednesday afternoon, and where will that get us or you or anybody else?"

What is left? A relative handful of workers, mostly single men, because they are the great beneficiaries. There is the young miner we always hear about who says, "No, I will not work six shifts. I have no incentive. I am too well off already." The Chancellor's way of making him work six shifts is to give him an extra 10s. for his five.

The Financial Secretary to the Treasury quoted some figures. If one goes through the Financial Statement one can find figures that will prove any sort of case one can make, and no doubt the Financial Secretary selected his figures advisedly. I should like to draw his attention to other figures, because really at many levels of earnings the incentive to additional overtime is very small indeed.

I do not know where the Financial Secretary obtained his figures, but I am taking mine from the Statement the right hon. Gentleman presented to the House with his own fair and lily-white hands. The man married with two children and earning £600 a year may have an opportunity of doing overtime and working on Saturday mornings. It is said that at the moment he will not do that because the wicked Socialist Government took such a lot away in P.A.Y.E. and, therefore, he would not bother to do any extra work.

Let us look at the facts. At the moment if a married man with two children earning £600 a year puts his earnings up to £700, he pays out of the extra £100 £22 in tax. Therefore, for his extra work he is left with £78 which is exactly 30s. per week. It is said that the man will not do it for that, and that he will say "Why should I do all this overtime for a mere 30s. per week? I will stay at home and do the gardening instead." What does the new tax scale do for him? If his earnings go up from £600 to £700, his tax goes up by £18 5s. 7d. a year, so that instead of being left with only £78 for himself, he is left with £81 14s. 5d. for himself. Instead of getting a measly 30s. a week for the extra overtime, he will now get 30s. 10d. I see the Minister of State is smiling at this. He realises that the chap who said "No, I will not work a lot of overtime for 30s.," will get up early Saturday morning and rush like fury when the rate is 30s. 10d.

Let us take the case of the young single man, in whom the hon. Member for Edinburgh, South (Sir W. Darling), is so interested.

Sir William Darling (Edinburgh, South)

I was speaking of miners generally.

Mr. Mikardo

The generality, as the hon. Gentleman knows, is made up of a lot of particulars. Let us look at one or two of these particulars. Let us take the common case of a single man earning £350 a year. This man has an opportunity of doing a few hours overtime and his earnings go up from £350 to £400. But he will not do it; he has no incentive because so much goes in P.A.Y.E. According to page 27 of the right hon. Gentleman's Statement, if his wage goes up from £350 to £400, out of the extra £50 he pays £11 in tax and he is left, therefore, with only £39. That is not enough incentive for him to do it. That sum of £39 is 15s. a week.

Let us see what the right hon. Gentleman now proposes. On the new tax tables a single man whose earnings increase from £350 to £400 will pay out of the extra £50 £10 13s. 11d. So that instead of being left with a measly £39, he is now going to get £39 6s. 1d. In the past he would not do this overtime, because all he would get paid was an insignificant, unworthy 15s. a week. Now, of course, he will stay and clock on all the hours which are available, because instead of getting 15s. a week he is going to get 15s. 1½d. Those are the figures, and it is the Financial Secretary who has published them.

The reason why I oppose the Second Reading of this Bill, apart from reasons of social justice, is that it does not do what the Financial Secretary said it ought to do, and that is to create the physical conditions and the mental climate for a great national effort. It fails, in fact, to measure up to the criterion which the hon. Gentleman himself set for it, and on those grounds I cannot think why he should think anyone would vote for it.

9.39 p.m.

Colonel L. E. Crosthwaite-Eyre (New Forest)

We have heard two remarkable speeches from hon. Members opposite. One was from the hon. Member for Leeds, West (Mr. Pannell), who tried to make out that the duty on petrol was due entirely to the Conservative Party, that it was something which the Socialist Party had never accepted and which was disastrous to the whole of our economy. No doubt he had not heard that it was under hon. Members opposite that we lost Abadan and all that it meant to our petrol resources.

Equally, he tried to make out that we were to blame for all the increases in fares. No doubt he remembers the Transport Act which hon. Members opposite put through, and which took away from the House all control of fares, so that we were unable to do anything about it. Hon. Members opposite have cashed in on that in the county council elections, but it was their Act which took the responsibility from us and I hope that in the very near future one of my right hon. Friends will introduce a Bill to give back to us the power to look into the question of fares to see whether they are just.

The hon. Member for Reading, South (Mr. Mikardo), is called a technologist—one of those people who, in their spare time, try to help businesses to promote their profits. Tonight he has done nothing but mischief with what he has said. He has tried to make trouble as between one set of workers and another. He has tried to pretend that wage claims now are far more necessary and understandable than they have been in the last few years. [HON. MEMBERS: "Of course they are."] I am glad hon. Members opposite agree. If they will look back they will see that in 1949 and 1950 there were great reductions in what those poorly paid workers to whom hon. Members opposite have paid so much attention tonight could expect. Not one single relief was given.

I know that the ex-Chancellor of the Exchequer is very keen to distinguish between a cut and a ceiling and he seems to find some gratification in that distinction; but may I remind him that at that time his Financial Secretary, the right hon. Gentleman the Member for Colne Valley (Mr. Glenvil Hall), admitted that there were cuts in the food subsidies. If I may quote from HANSARD of 7th April, 1949, he said: The reduction in the food subsidies … is in the region of £103 million."—[OFFICIAL REPORT, 7th April, 1949; Vol. 463, c. 2334.] At least there was one hon. Member opposite who was honest and ready to face up to the situation and not merely take refuge in the word "ceilings" or "floors" or whatever other term one might use.

I want to refer to another point which has been raised by hon. Members on this side of the House, because I think it is one of considerable importance. It is the question of the Excess Profits Levy. That is something with which I think we all agree should be put into force in principle. But we are all agree that out of re-armament there should not be fortuitous profits. We want to see that any such tax which was superimposed on the commercial life of this country should be one that would not do it harm as a whole but would merely take away whatever might be the excess profits made through re-armament. I think that there can be few of us in any part of the House who would welcome the present disposition of the Excess Profits Levy.

The right hon. Gentleman the late Chancellor of the Exchequer, on 12th March last, although reserving judgment on his details, did say, when he was talking about the Excess Profits Tax that we had during the last war and what it had achieved in relation to our economy that it was a thoroughly bad tax. The right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), speaking on behalf of the Liberal Party, was equally critical. He said it was bad for management and that it would not help us in the future of our industrial life. There have been other criticisms by hon. Members on this side of the House.

If we are to tax industry any further let us do it on a fair basis. I cannot believe it is fair to take the standard years of 1947, 1948 and 1949. In the first place, in those years we had not seen the full effect of devaluation, or the result of the conflict in Korea. I am not trying to put the blame on any part of the House, but there are two major economic circumstances which are not reflected in those basic years—the rise in the price of raw materials and the rise in wages; and in those years, taking June, 1947, as 100, wages rose from 107 to 127.

Apart from the general outlook, there are certain industries and certain companies which will suffer quite out of pro- portion to what they should contribute. I do not think it is necessary for me to remind the House of the situation of the rubber companies. Here is a great industry which I think we all admit has contributed more to our balance of payments problem than any other industry. The companies have produced rubber under appalling conditions, fighting not only Communist terrorists but also all the difficulties of the rehabilitation of their plantations after the Japanese occupation. In those basic years the rubber companies will show no profits at all, and after all they have done for us surely it is unfair to say that this tax shall be imposed upon them in full.

I pass to other examples. There are, for instance, the estate companies, building and development companies and people in that category. Hon. Members opposite passed the Town and Country Planning Act in 1948, under which all the rights of development of land were taken away from those companies and a global sum of £300 million was set aside, and will be available next year for payment to them in some fashion for the rights they have lost. I believe they will be paid 16s. in the £1 or thereabouts.

What is to happen to those companies? They lost all those rights in 1948 and had to show a considerable loss. They will be paid out next year at whatever rate is practicable and they will have to pay Excess Profits Levy on the sum they receive. May I give a case of a company which lost £60,000 through losing development rights, which is the equivalent of £20,000 on its standard three years, and which will have to pay Excess Profits Levy on that £20,000 in 1953 merely because it receives back in some form the cash which it lost in 1948?

Take the case of shippers. There is one great company which I think hon. Members will agree has done well—the Peninsular and Orient line. They did not receive a single ship back from the Government until 1947 and the last one was de-requisitioned in 1949. Under those conditions, how can the basic years be fair to that company in any way or to the other shipping companies which were in the same position? Next, take the case of mining. This affects companies abroad and at home. At home, despite the concessions allowed by the Chancellor, the company will have to pay twice as much as if it were domiciled abroad. I want to return to that in a moment because it will make a great difference, as has been said by many hon. Members on both sides of the House, to the future of the development of our colonial resources.

The tax affects things which I am certain the Chancellor does not want to affect. One small company were engaged on such important war work that in 1945 they were told they must pursue those activities, and they did so; and then they found that the war had ended and, because of their task of producing war materials, it took them such a long time to rebuild their position that, instead of being able to compete with their competitors, they were under a severe disadvantage.

May I pass to one or two smaller points? For the first time the Chancellor of the Exchequer proposes to tax franked income. That is something which I think should not be done. It has always been a basis of our taxation that, if income has paid tax once, it should not be called upon to pay again. That is an argument which we have heard many times and which has always been upheld by the House. I suggest, too, that we should try to get back to the standard of using the capital employed in a company, not merely the nominal capital. Hon. Members in all parts of the House will know the difference between the two, and I need not elaborate the point.

This tax, with those taxes introduced by the ex-Chancellor of the Exchequer, as "The Times" says, adds £350 million to the direct taxation of industry. There is no one in industry today who does not want to pay his proper share towards meeting our national needs, but we do want to see that we do not cripple and penalise industry beyond what it can bear while meeting present needs, so as to leave us very bare and unfortunate for the future. I do suggest that, unless we review this tax, at least in part, we are going to do something which, in a few years, hon. Members in all parts of the House will regret very sincerely.

There is no one who does not want to see, as the Chancellor said, fortuitous profits, made because of the injection into our economy of re-armament, properly taxed and dealt with, but we do not want to cripple industry, we do not want to cripple management, we do not want to cripple profit sharing schemes and all those bonus schemes which in the last few years have been encouraged by both sides of the House to see that both management and labour have a fair share of the profits of industry.

I hope that the Chancellor tonight will be able to remedy some of the smaller points I have mentioned. I hope that he may be able to meet us about franked income, that he may be able to meet us about the mining allowance, and that he may be able to meet us about estate and property companies. On the major points, of course, I cannot expect any answer tonight, but I do hope that he will consider the inclusion of the basic year 1950 into this tax. That is something that will meet most of the objections that have been made not only from this side of the House but throughout the industrial world. I hope, also, that he will be able to consider the position of rubber and shipping companies which have done so much to help us, and which are to be so exemplarily penalised by the tax as it stands at present.

There is no one—I am certain—in the House who would refuse to accept the just burden of tax on those parts of our economy into which accidental profit comes, but I hope that it does not become a burden which hits those hardest who have done most to meet our needs by exports, and my providing raw materials, and so, in one way or the other, providing the major solution to the problem of our balance of payments.

9.53 p.m.

Mr. Hugh Gaitskell (Leeds, South)

The striking feature of this debate has been the extraordinary change in the attitude of Conservative Members to the Budget. We knew before the debate started that the British people had seen through it. We knew that because of the county council elections. [HON. MEMBERS: "Oh."] Now we know that the Conservative back benchers are—to put it mildly—extremely uneasy about this Budget.

What we have had, with monotonous regularity, from the other side, is speaker after speaker getting up and patting the Chancellor on the back in a perfunctory manner and then proceeding, in the most treacherous way, to jab him firmly in the stomach about the Purchase Tax and finish up with an uppercut to the jaw about the Excess Profits Levy. I want, a little later, to come to that, but I congratulate the Chancellor of the Exchequer at least on this—on doing what the Prime Minister is so enthusiastic about—securing all-party unity: we are all agreed that this is a thoroughly bad Bill.

Before we come on to these matters, I should like to turn for a moment to the background of the Budget, which is now clarified by the Balance of Payments White Paper. In passing, I should like to console the right hon. Gentleman by saying that we on this side at any rate are glad that we are eventually to have an Economic Survey. I think it is obvious that the delay in producing this document is due to the fact that there has been some controversy in the Government as to whether it would be wise to have an Economic Survey, and I am glad that the right hon. Gentleman has managed to defeat the more obscurantist Members of the Government, and also, of course, their supporters on the Government back benches.

Turning to the background of the Budget, my contention is, first of all, that the United Kingdom balance of payments position was not nearly as serious as it was made out to be; second, that the Chancellor's policy shows that this is the case; but, third, that our position has, for reasons that I will come to in a moment, become a good deal more difficult during the last few weeks. The balance of payments White Paper shows that the major causes of our deficit in 1951—a deficit of £500 million as against the £100 million which we anticipated—were, first of all, the decline in invisible exports, and secondly, the enormous increase in the bill for imports. This latter was partly due to very high prices, particularly in the earlier part of the year, and, secondly to a much greater volume of imports.

Now the Chancellor has, in his assumptions behind this Budget, taken it for granted that most of these adverse factors are temporary. That is, in fact, the meaning of the three assumptions upon which he based his Budget. It was on account of these three assumptions, which I will detail in a moment, that he was able to conclude that we did not have to reduce our standard of living at all this year. In the first place, he assumes an increase of £100 million in invisible exports; in other words, an automatic recovery from the decline in invisibles last year.

Second, he assumes again an automatic increase in the value of our exports from an improvement in the terms of trade of £150 million. That is £250 million taken together. Neither of these things have anything to do with Government policy; they are simply what he expects—and I am not in any way disagreeing with this—will happen. Third, he argues that we can save £150 million by not accumulating stocks this year at the same rate as we did last year.

Now that, it may be said, is, in part, a Government policy decision, but the plain fact is that even if there had been no policy decision it is very unlikely that stocks would have gone on accumulating at the same rate as last year. The interesting thing, therefore, is that we have no less than £400 million to assist us, which does not result from anything the Government have done, and which is really due to the fact that the adverse factors last year were purely temporary.

This left us, of course, with £200 million to cover out of the £600 million the Chancellor mentioned originally, and he proposes, as we know, that we should increase exports by £50 million and reduce the consumption due to import cuts by £150 million. When one takes into account that even after the £200 million for defence is added, that we are not having to reduce consumption at all, and that the whole affair is being taken care of either by these assumptions which I have mentioned or by a cut in investment plus the increase in production—a relatively small one—I am bound to say that, when the Chancellor speaks of sacrifices being involved in this, he is really misleading the country. There is no sacrifice. We do not have to cut our standard of living. It is not based on reality. The only sacrifice is the sacrifice imposed by an unfair Budget on those least able to bear it.

Before we come to the details of this unfair Measure we have, I think, to ask ourselves: Is the Chancellor right in taking all these risks, as they have been called? Can we feel, therefore, that we shall be able to get into balance on the basis of no cuts in consumption and a cut of £100 million in investments?

I would have been inclined to say until very recently that there was a fairly good chance that we should be able to. But since the cuts imposed by other sterling countries upon our export trade, I am much more doubtful than I was before, and this is, I submit to the House, the new factor which is going to make our whole position much more difficult this year than we might have expected it to be.

If we look at the February trade figures—I am a little surprised that no one has drawn attention to them—we find a gross deficit of £53 million between visible exports and imports, and when we adjust in the usual way to get the probable f.o.b. figures, the deficit cannot have been more than about £25 million in February. If we add the expected rate of invisible exports it is clear that in February we were, at any rate, very nearly in balance. Unfortunately, that was before the influence of the cuts by Australia and the other sterling areas could be felt. Neither, therefore, the trade figures, so far as they go, nor the unemployment figures in Lancashire and Yorkshire today reflect the consequences of these cuts.

The "Economist," the other day, gave some very interesting and, I think, extremely alarming estimates of just what these cuts would mean to us. Their estimate was that, in total, Great Britain would lose no less than £280 million of exports as a result—£75 million in vehicles, £100 million in textiles, £65 million in other consumer goods and £40 million in capital goods and raw materials. These are most formidable totals, and they mean, of course, that it is not a question of increasing exports by £50 million, it is a question of increasing them by nearly £350 million.

Not only that: there is no possibility now of increasing exports again, unless some change can be made to what, after all, have been our natural markets in the sterling area. We have to search and find markets for these goods, which we can no longer sell in Australia, New Zealand and South Africa, in the dollar area or in other non-sterling countries. One is bound to ask whether this will be practicable. For example, have we really much hope of increasing our sales in Europe? I believe that the cuts we have had to impose on imports from Europe may set up a chain of reaction there which will certainly not make it any easier for us to increase our exports again.

Now I come back—I make no apology for doing so—to the Sterling Area Conference where, I think, all these matters should have been thrashed out more satisfactorily. I believe that the real weakness and the real cause of what I have no hesitation in describing as the "failure" of that Conference was that each country seems to have been encouraged there to concentrate on its own balance of payments instead of all the countries concerned looking at the total dollar balance of payments in the sterling area.

I was astonished to read a reply given by the Secretary for Overseas Trade to my right hon. Friend the Member for Battersea, North (Mr. Jay), on 1st April. That may have been an appropriate day. My right hon. Friend … asked the President of the Board of Trade what representations he has made to the Australian Government as to the need in imposing import restrictions to ensure that cuts in imports from sterling countries are proportionately less than in those from the dollar area. The hon. Gentleman's reply was, "None." He went on to say: I am sure that the Commonwealth Governments are fully aware. …—[OFFICIAL REPORT. 1st April, 1952; Vol. 498, c. 111–2.] and so on.

It really is amazing to me that at the Conference in January nothing was said about the desirability of cutting dollar imports more than sterling imports. If it was, why did we have that answer? After all, these replies are prepared with some care, and I should be very surprised if the officials of the Board of Trade made out that there were no such representations if there had been.

There are other features in this situation which are really extraordinary. It will be within the recollection of the House that four days before the Budget the Prime Minister of Australia, Mr. Menzies, announced the Australian cuts on imports from the United Kingdom, and, of course, gave rise to a great deal of anxiety and disturbance here. It was not until 21st March, after the debate had taken place in this House, that Mr. Menzies said anything about dollar imports into Australia, and he then, belatedly it seems to me, said they would look again at the administrative controls under which dollar imports are controlled.

In the case of New Zealand there seems at least to have been a definite desire to discriminate against dollar imports and in favour of sterling imports, but, even so, we find that the European Payments Union area is treated as though it were part of the sterling area. We are paying 80 per cent. in gold for our deficit with Europe in the present circumstances, and it is to all intents and purposes in almost exactly the same position as the dollar area. Can the right hon. Gentleman give any explanation why this was done? Was not this kind of problem discussed at the Conference?

Finally on this matter, I am bound to say that if we fail as a country to achieve our overall balance because of this extraordinarily difficult problem of having to find non-sterling imports for another £300 million worth of goods it will not only be bad itself for us, but it is almost certain to mean that the dollar problem of the sterling area is not solved. We are supposed to balance our account with the dollar area, and balancing that account involves that diversion into the dollar market of all these commodities.

May I say one word about the dollar problem? We are relieved to see that the rate of loss had declined in March, but I think the right hon. Gentleman would agree that, while we will probably obtain some temporary improvement in the situation from capital payments, from the fact that people who have been delaying paying their bills for imports from the sterling area in the hope of devaluation will at last be paying, and while we shall probably get in the next quarter a certain amount of dollar aid which was not in the figures for the first quarter this year, it seems to me that there is very little sign that the underlying problem of the sterling dollar balance has been solved at all.

Therefore, I hope that the figures will probably improve and I shall be extremely disappointed if, at the end of the second quarter, we do not get an improvement in our reserves; but I am afraid that unless we can have a clear and definite Commonwealth policy, which we understand as well as the other countries in the Commonwealth, we shall be running again into another dollar crisis later in the year or early next year.

I want to say a word now on Purchase Tax, because there is a close connection between the two. Our view on this subject was very clearly stated by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) in a very brilliant speech this afternoon. We approach this problem of the Purchase Tax in a responsible spirit, and I want to assure the right hon. Gentleman of that. We realise that it is an important and valuable source of revenue, and I may say at once that I have no patience with those people who cheerfully say, "Scrap Purchase Tax altogether," and do not tell us in the least where we will get the money to replace it.

We have always said that this was a tax that should be used in the interests of economic planning. Just as we cut down consumption deliberately when it is necessary, so if we want to encourage consumption we should be prepared to take it off. I believe that the time has come when we definitely ought to encourage the home consumption of textiles, and that is the first question which must be answered. Is that the view of the Government, or does the right hon. Gentleman think that the level of unemployment in Lancashire and other areas is only just what he wants to secure the turnover to defence? [HON. MEMBERS: "Oh."] It is a perfectly serious question.

Mr. Butler

I consider it to be an insulting question.

Mr. Gaitskell

I am astonished at the right hon. Gentleman. If he has not used the argument many of his hon. Friends courageously have. [HON. MEMBERS: "Who?"] The hon. Member for Barnet (Mr. Maudling), the hon. Member for Louth (Mr. Osborne)—

Mr. Osborne

I have not spoken in this debate.

Mr. Gaitskell

I am not speaking of this debate but, of correspondence in "The Times," for instance. I do not know what hon. Members are getting so excited about. They are continually saying that they must have a switch over to defence, and we have not denied the need for a switch over.

I am glad to hear that apparently the Chancellor of the Exchequer is now satisfied that unemployment in Lancashire has gone much too far. In that case, we must raise home consumption. How can we do that? One of the main methods of doing it is, of course, by removing the Purchase Tax. I would draw the right hon. Gentleman's attention, in this connection, to the leader in the "Manchester Guardian" today, with its serious warnings about what is happening.

I repeat what my hon. Friend said, that we are not saying that it should be scrapped for good or anything like that. We are saying that here is a case where we want increased consumption, and that there is a case for its temporary removal. If, on the other hand, at a later stage a seller's market returns and we get to a position where we want to hold up consumption there will be a case for its re-imposition.

My hon. Friend has also made the position quite clear in the case of boots and shoes, among other articles. There is no reason to suppose that the unemployment position will get as far as it is in Lancashire but, it is troubling the industry very seriously. In those circumstances it is nothing less than folly to increase taxation on that industry. That is what the D scheme, with its particular value for D in the various types of boots and shoes, is bound to do.

Quite apart from the employment issue, we take the view that taxation should not be imposed on articles which were previously free of tax. We shall, therefore, unless we get a complete statement from the Chancellor tonight that he will abandon the whole thing, move Amendments when we come to the Committee stage—we give fair warning—on the value D in the Fourth Schedule, to force the Government to put up its value and relieve from tax what was previously Utility.

It may be said, "That is all very well, but look at the amount of revenue which we shall lose." That is not a thing which the Chancellor can fairly say to us, when he is giving away large sums of money to fairly-well-to-do taxpayers. [HON. MEMBERS: "No."] He is. [HON. MEMBERS: "Where?".] He is giving substantial relief to those earning more than £15 a week. [An HON. MEMBER: "The miners are earning that."] I do not know why hon. Gentlemen opposite get so excited. What I am proposing is a change-over which does not give away large reliefs of taxation to fairly-well-to-do people, but will remove Purchase Tax from a number of articles. I am proposing that because I believe that it is necessary to relieve unemployment in Lancashire.

We shall be very interested to see whether hon. Members, particularly if they sit for Lancashire constituencies, are prepared to stand up to their constituents and go into the Lobby against us on this matter. Quite apart from the Chancellor's taxation proposals, he has, quite unnecessarily, in our view, increased expenditure on the National Debt to the tune of something like £75 million a year.

I turn to the Excess Profits Levy. That is certainly a tax which has no friend. I think that the Financial Secretary was the only speaker in the debate who put up any defence for the tax at all. Though he did his best I have no doubt, in as solid and thorough as way as he could, I found his arguments utterly unconvincing. The right hon. and gallant Member for Leicester, South-East (Captain Waterhouse), feeling that the tax was lacking in friends, tried to put the parentage on to me. We are accustomed to the Conservative Party's defending their policies all the time with the queer sort of inferiority they have of saying, "We are only doing what you did before." We are accustomed to hearing them say that because we set up a committee not only are we responsible for what the committee reports but responsible for the present Government's accepting the report as well.

This time they have gone a bit far. I may occasionally have annoyed the Prime Minister, or have made him angry once or twice in the past, I am afraid, but I can assure the right hon. Gentleman that I have never bounced him in my life. The Government must take fairly and squarely the responsibility for a thoroughly bad tax. It is the more remarkable, coming from a party which is supposed to believe in incentive and in the profit motive. It is made even worse by the fact that not only the Government's Excess Profits Levy but the basic rate of profit have been put down.

In order to raise £100 million—while there are companies, unenterprising ones, who are stagnant, are not expending and not increasing their profits at all, and who will actually be better off as a result of this tax, the money has to be found by those who are trying to get on by following exactly the precepts which hon. Gentlemen opposite are always preaching at us. They are doing their best to expand and make more profits, and in the process of doing so are getting more turnover, reducing their costs, and all the rest of it. Any number of examples have been given by hon. Gentlemen from both sides of the House, and I very much hope that the Chancellor will study them.

I thought the Financial Secretary's remark that it was not intended to increase the staff of the Inland Revenue to deal with the tax most extraordinary. Where are the bureaucrats to come from who have to administer this tax? The hon. Member is not going to tell me it is an easy tax to administer with the 26 Clauses in the Finance Bill. I suppose he will take them off collecting arrears of Income Tax and Profits Tax. That is a great pity, because they will be far better employed in that way than in troubling about this tax.

It is all very well in war-time conditions, when a very large part of our economy is turned over to war production, when virtually everybody is affected, when it is fair to say that profits become extremely fortuitous. In those circumstances I think we would all agree that an Excess Profits Tax is appropriate. But I suggest that in present circumstances the scale of re-armament is not such as to produce that consequence, and it is our view that it would have been far better to have raised this £100 million by increasing the ordinary Profits Tax, particularly by discriminating further, if the Chancellor wished, against distributed profits.

If he still had any fears about the inflationary consequences—as he may well still have—he should have followed our proposal and introduced dividend limitation. I was pleased to see that the Father of the House lent his weighty support to our proposal for that this afternoon. It is at least a perfectly logical thing to do, because then we should be stopping increased expenditure, which is what we want to do.

I come to what is the most controversial item of all in the Budget, the proposal to cut the food subsidies—I say "proposal" because we have not had the effect of this yet—and the reductions in Income Tax. The first point I must make to the right hon. Gentleman is that we have heard a great deal about Lord Woolton's pledge. I shall leave him alone tonight because I think the Chancellor has something to answer for here. After all, my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), in his winding-up speech in the Budget debate, quoted what the right hon. Gentleman himself said in a statement which was circulated, so I am assured, to all Conservative candidates as the gospel. This is what the right hon. Gentleman said: In present circumstances, while we fight and strive to reduce the cost of living, we shall maintain the food subsidies."—[OFFICIAL REPORT, 17th March, 1952; Vol. 497, c. 2043.] We really are entitled to an explanation from the Chancellor of the Exchequer. [An HON. MEMBER: "Or a resignation."] My hon. Friend says "or a resignation." I would prefer to hear the explanation first, because that would be fair to him. This is a gross contrast between a pledge given during an Election campaign and something the Chancellor himself has done of major importance. [HON. MEMBERS: "Read on."] There is nothing to read on. If the right hon. Gentleman has an explanation, we shall listen to it, but why have we not had it? It is some time since the Budget debate. At that time it created a good deal of interest on all sides of the House. I hope we shall have a full explanation this evening of this rather extraordinary contrast.

I must refer at this stage to something the noble Lord, Lord Swinton said in another place recently.

Mr. Assheton

The right hon. Gentleman must not.

Mr. Gaitskell

I shall not quote what the noble Lord said; I shall only refer to it in general terms, as I think I am entitled to do. After all he was, by implication, criticising me personally. He was defending Lord Woolton and as my noble Friend, Lord Pakenham, said, no doubt in his passionate loyalty to another colleague, he went rather far. He said, as an excuse for this, as an excuse for the Government changing their minds about food subsidies, that they had been kept very much in the dark about the economic situation. [Interruption.] I am a little surprised at the noble Lord expressing approval of that, because I made a fairly full speech at the Mansion House. [HON. MEMBERS: "Oh."] We all know that the Chancellor of the Exchequer very generously said that he was satisfied that, after hearing my speech, nobody could have had any doubt about the seriousness of the situation. If the noble Lord still has any doubts, I refer him to the "Economist "this week, which said that I did not minimise the difficulties of the situation.

But I am not so much concerned with that this evening. I think it more extraordinary that Lord Swinton should have thought that such a defence was convincing at all, because of what was said in the Conservative Party manifesto "Britain Strong and Free"—about this subject. It has been quoted before, but it will bear repetition. I quote from page 20: In present circumstances, when we are facing severe financial and economic difficulties and while we are engaged in a full scale attack on the cost of living, it would clearly not only be unwise but impossible to make any radical change. We know, of course, that the whole idea of a full scale attack on the cost of living has gone by the wind, but the fact remains that the defence of not touching the food subsidies was that we were in such economic difficulties. Therefore, how Lord Swinton thinks that that excuses this broken pledge, I cannot imagine.

There is one other possibility, about which I must say something. There has been a tendency in some quarters, although I do not think it has been referred to quite explicitly, to suggest that it was necessary to cut the food subsidies to obtain a greater measure of confidence in the £. What does that mean exactly? Does it not really mean, in effect—because there is no question of deflationary influence here the Chancellor has given away more money than he is saving—if it is true, that foreign speculators are dictating the policy of Her Majesty's Government? [Laughter.] I am quite serious about this, because this is being put around. I hope that the Chancellor will deny it and will assure us that that was not his reason for breaking the pledge and cutting the food subsidies. If it were to be so, we should certainly be faced with a very grave situation indeed.

When I read these things in the paper, I naturally get worried about it, and I am surprised—[An HON. MEMBER: "The 'Daily Worker'"?] No, not the "Daily Worker." As a matter of fact—[HON. MEMBERS: "The 'Daily Herald'"?] No. As a matter of fact, "The Times" has hinted at this several times, and the "Economist," also. Hon. Members had better study these things and see whether they like the way their Government are going. I am hoping that that is not the explanation. I think that the real explanation is quite simple.

We will leave the broken promises for a moment. In essence, this policy is simply a pure Tory policy. The hon. Member for Aberdeenshire, East (Mr. Boothby), gave it away in the course of the Budget debate, when he said, "Well, of course, some redistribution is needed in order to give incentives." In other words, to give incentives to better off people, the party opposite must take it away from poorer people. [Interruption.] That is exactly what hon. Members opposite have been brought up on.

Mr. W. Fletcher

A stupid remark.

Mr. Gaitskell

My hon. Friend the Member for Reading, South (Mr. Mikardo), in a very able speech, disposed most adequately of the Tory belief in incentives for industrial workers.

Nobody would deny, of course, that there are some isolated cases where, if a big change in the rate of tax is made on the last £ that is earned—the "overtime £," it might be called—it might have some effect. For instance, if a man has been previously paying 7s. 6d. and now pays nothing, it might have some effect. But these changes do not do anything of the kind. In many cases, as my hon. Friend has pointed out, they make a difference of 2½d. in the £ It is only in cases where a man is moved from one band of Income Tax rate to another that we get the bigger change which amounts to 1s. 6d. or 2s. in the £ The fact is that the major factors which determine output today are whether we have got enough materials and whether the demand is there or not.

A great deal has already been said about the redistributional effects of these proposals and I only want briefly to sum them up. I think the Chancellor of the Exchequer gave us a rather wrong impression in his winding-up speech in the Budget debate. He seemed to imply that very few people were worse off as a result of this. I have taken the trouble, as best I can, to work it out, and, according to my calculations, I find that something like half the population are worse off and something like half the population are better off. If we take the 20 million persons who are assessed to tax—and there is no dispute about that figure—14¶ million of them are earning below £500 a year, and with those 14¼ million there go a similar number of dependants, taken as a whole, giving us 28 million of the population in that group.

According to my calculations, very nearly 20 million of these people will be worse off. I would be prepared to give the Chancellor the full basis of these calculations. I have no reason to suppose that there is anything wrong with them. To the 20 million we have to add¾ million earning over £500 a year and who are, nevertheless, worse off. Finally, we have the remainder of persons below the tax level altogether, many of whom—I am not counting old age pensioners as worse off for this purpose—many of whom are also worse off. The fact remains that two out of every three of the persons belonging to families where the earnings are less than £10 a week are definitely worse off as a result of the Budget. These are the facts, and I challenge the Chancellor to refute them.

We intend to divide on this Bill. It has not always been the custom for the Opposition to divide on the Finance Bill, but I may say that the Conservative Opposition, in totally unjustifiable circumstances, divided in 1946 and 1947 in the face of very substantial reductions in taxation and no increase in food prices. This year, while we admit that there are, of course, some things in this Bill which are harmless and some things which are desirable, the two major features of it—the Purchase Tax and the Excess Profits Levy—are, in the one case, quite inappropriate today and, in the other case, thoroughly bad in their consequences.

At the same time, the central feature of the Budget which lies behind this Bill is no more than a shabby device for taking money away from the poorer wage earners and handing it over to better-off taxpayers. We on this side of the House will not accept this policy, and we are quite satisfied that the country will not accept it either.

10.34 p.m.

The Chancellor of the Exchequer (Mr. R. A. Butler)

The hon. Member for Cardiff, South-East (Mr. Callaghan), opened the debate with a breezy and racy oration which, I am sure, we all enjoyed. He said that the Budget and the Finance Bill had nothing to do with the balance of payments. I am glad to say that his remarks have already been somewhat disproved, with that lack of cohesion to which we are so accustomed in the Opposition ranks, by the speech of the right hon. Member for Leeds, South (Mr. Gaitskell).

In fact, if I were to use some general language, substantiated by fact, about both the Budget and the Finance Bill—and here let us pause from our controversy and take a national view of this matter—if I were to say what the result was, I should say that at long last, after five most anxious months, we have succeeded in seeing, thanks a great deal to the policies which have been adopted, a slight improvement in our balance of payments.

We have also seen, as the right hon. Gentleman acknowledged, for the first time at the end of March, that the losses in our reserves have for the time being—and I hope for some time—been brought to a stop. Hon. Members on both sides of the House realise, as did Sir Stafford Cripps, what it would mean if our reserves were to continue disastrously to fall. They would know that that would mean the most severe unemployment and the greatest difficulty in buying food and raw materials for our people. It can be said that despite the sacrifices; despite the unpopular measures, and with the hard labour that has been put into this job, we have achieved something for our country, and I believe our country to be grateful.

The right hon. Gentleman then proceeded with an economic survey of his own, which I thought did him far less than justice. He seems to have dropped, in the salad days of his present Opposition, much of that economic learning which clung to everything he said in his earlier incarnation. He is no less attractive in the role of a party agitator than in that of an economist, but the approach he makes to our economic problems has now suddenly become immensely simplified; but I was glad that what did appear to be another mark in favour of our policy was his appreciation of the fact that our February import-export figures are nearly in balance. Surely that is another good thing for our country.

He then went on with one of his disquisitions about the sterling area. When the right hon. Gentleman talks about the sterling area we know that he wishes to plan the whole of our free Commonwealth from Whitehall, like his right hon. Friend who was his Financial Secretary. I may say that our conception of the Commonwealth is one of a free series of nations and that we are obliged, by tradition and by sentiment, to leave them to manage their own affairs.

If I may say so, that part of the right hon. Gentleman's speech which was related to criticism of the policies of the Government of Australia had far better not be made in this Parliament. In relation to the Commonwealth, I should like to remind the House how touched I am sure we all were by the immense contribution made by South Africa to our particular gold reserves problem. I said on Friday last: These transactions include the special sale to us of gold by South Africa amounting to 28 million dollars. This is a contribution from South Africa towards meeting our present difficulties, and I express our warm thanks to the South African Government and to Mr. Havenga."—[OFFICIAL REPORT, 4th April, 1952; Vol. 498, c. 2163–4.]— their very senior and experienced Finance Minister. To say, in face of a step like that which, as far as I know, is unprecedented, that the Sterling Area Conference failed, is really a disgraceful statement to make.

Mr. Mikardo

It is in payment for Seretse Khama.

Mr. Butler

The right hon. Gentleman went on to make various other economic remarks. The Economic Survey will, he will be glad to hear, appear shortly after the Easter Recess. It will, in fact, appear at about the time when the Budget might normally have been introduced.

The right hon. Gentleman went on to ask whether our policy in both the Budget and in the Finance Bill was governed by a desire to please the foreigner—whether in framing our policy, particularly about food subsidies, we had deliberately framed it with a desire to please the foreigner. I may say that neither this Government—nor, I hope, the previous Government—are governed by the views of either foreign bankers or foreign speculators; nor are they governed by the views, nor shall we follow the policy, of any other nation but our own; nor shall we have respect to the views of anybody but our own people. [HON. MEMBERS: "Oh."]

The right hon. Gentleman was kind enough to refer to a remark of mine on the subject of food subsidies, and to read out an extract, with which we are all very familiar, from the party programme in the last Election. Well, it was with a view to this that I made the Budget speech, and I used the following phrases which, I must say, exactly represent what I feel and think: I should on some grounds have liked to have postponed any action about the food subsidies until we had had more time to grapple with the severe economic problems of the time. Perhaps, the right hon. Gentleman recognises these words. But the very intensity of our situation makes it essential to lighten the burden on the economy to bring back the sense of reality to which I have referred."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1298.] That was my definite motive, and entirely on the basis of patriotic considerations.[HON. MEMBERS: "Oh."] This happens to represent the line I took, and it was, moreover, for that reason that the Budget was framed on the lines presented, namely, by alteration of taxes and the alteration in the family allowances, and in other ways, to give help to the insured, the pensioners, and by this means to offset the reduction in the subsidies.

Mr. Gaitskell

Will the right hon. Gentleman allow me? In that case, how can he really reconcile what he has just said with the words in this famous pamphlet? [HON. MEMBERS: "Read the manifesto."] It is the manifesto—"Britain Strong and Free." I do not mind reading on, but it does not make the slightest difference. I am glad to see the Prime Minister back. He probably wrote it. It said: In the present situation, when we are facing severe financial and economic difficulties"— in other words, "because we are facing" those difficulties— and while we are engaged in arresting the scale of the cost of living"— very like what the right hon. Gentleman said at North Berwick— it would clearly not only be unwise but impossible to make any radical change. How can the right hon. Gentleman now say that it was because of those difficulties he made the change?

Mr. Butler

All I can say in reply to the right hon. Gentleman is that I was fully aware of those words, and, of course, I had something to do with them myself. I do not wish either before this House, before the country, or before by own constituency, to take any different line, and I deliberately put that expression in the Budget speech in order to explain the reasons which has caused me to introduce this Budget.

I would further say, because I am glad that the right hon. Gentleman has raised this—as a matter of fact, I had a private word with him about it, and I am very glad he has raised it in public, because that was what I should have desired—that the policy I have recommended to the Government and to the country has so far been successful in the most vital of all Britain's problems, namely, in the saving of the drain on the balance of payments. I can tell the House that anybody who occupied the position I now occupy—as the right hon. Gentleman did occupy it for a short time—would feel his responsibility, as I do, lying heavily on him—as I have done; and I am glad to see that my labours have so far been rewarded.

Mr. Woodrow Wyatt (Birmingham, Aston)


Hon. Members


Mr. Deputy-Speaker (Colonel Sir Charles MacAndrew)

Order. If the right hon. Gentleman does not give way, the hon. Gentleman must resume his seat.

Mr. Butler

There were two other matters raised in the earlier speech. One was the very important statement made by the hon. Gentleman for Cardiff, South-East, namely, that we had thrown overboard the T.U.C. Well, I regard that as most irresponsible and ignorant statement. I had the honour of meeting the T.U.C. leaders only last week—

Mr. Gaitskell

Not before?

Mr. Butler

The right hon. Gentleman says "Not before?" That is what shows his ignorance. I had met them on two occasions before that, one a public and one a private occasion. I did not meet them before the Budget because I thought it undesirable to talk about Budget secrets to anybody in this country.

The position about the T.U.C. leaders was, however, summed up in good words by the hon. Gentleman the Member for Cardiff, South-East, when he referred to the statesmanship of the T.U.C. and its leaders. Speaking from this Box, perhaps I might say that my last meeting with them showed me exactly the qualities of that statesmanship. I would only say that if I or my colleagues in this Government can gain as much experience and wisdom as I did from that meeting, I hope that together and between us we may help to solve the country's problems.

I will further say this, that the T.U.C. leaders would not expect me not to say at the same time that there are profound differences of opinion between us. That should be said because the basis of this must be sincere. But I think it is also clear that they realise the policy which is inspiring us at the present time and upon which we are now embarked. [Interruption.] My business is to reply to this debate, and a little debate does nobody any harm.

The most anxious task for any Government to deal with properly is the labour side of the problem. We cannot get more production unless we have the right climate for labour, and that is why it is so tragic that there should be in England a pocket of unemployment in the textile industry at the present time.—[HON. MEMBERS: "A pocket?"]—I mean by "a pocket" wherever there is unemployment, as there is in my own constituency and in my own home town. I am very sorry to say that there is a pocket of textile unemployment, which we all so deeply regret. That is the answer to the intervention of the right hon. Gentleman. It really is a disgrace to say that anybody wants to see or use unemployment as an economic weapon.

There is one other matter before I come to a rather duller part of my speech, duller from the point of view of technique but not dull from the point of view of bitterness of feeling. I wish to refer to a point raised by the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies). It is a point which I have noticed has been raised all over the country and in almost every family, and that is why we did not introduce a provision to help the first child in the family. The reason for that, putting it quite shortly, was that, as Lord Beveridge pointed out in his original report, to introduce the first child is probably the most expensive social reform of all and would cost now in the neighbourhood of £128 million. One of the main reasons, apart from the social considerations put forward by Lord Beveridge, why we did not introduce it was because of the very great expense to the Exchequer.

Mr. H. Hynd (Accrington)

Would that be at 8s. or 5s.?

Mr. Butler

That would be at 8s.

Mr. Clement Davies

Is that £65 million at 5s.?

Mr. Butler

No, a little bit more than that.

I wish to refer as shortly as I can to some very serious and technical considerations about the Excess Profits Levy. I want, first of all, to pay a tribute to the speech of my right hon. and gallant Friend the Member for Leicester, South-East (Captain Waterhouse). The Government feel that at a time when additional burdens are being imposed and when people are being asked to work harder, it would be wrong for some people to make and to retain excessive profits. In answer to all the "hoohah" from the opposite side of the House, I would remind hon. Gentlemen opposite that the Budget and the Finance Bill have been most carefully balanced and that, while this is a tax on profits and it has hurt, there are also sacrifices all round and benefits all round in the Budget and in the Finance Bill.

The critics should remember that I coupled with the introduction of the Excess Profits Levy a substantial cut in the rates of the existing taxation charged upon industry. I know that all the proposals taken together, the new rate of the Profits Tax and so forth, will impose a very heavy additional burden on industry and that the burden is already high enough.

While we are anxious that nobody shall profit from our present emergency, I am equally anxious that our proposals should be just and fair, and I will, therefore, deal with one or two points that have been raised. The first concerns the standard years. My hon. Friend the Financial Secretary, in his excellent and clear opening speech on this Bill, gave some figures to illustrate the nature and extent of the profits made in these three years, and the long and short of it is that the big rise in profits took place between 1946 and 1947. The profits of 1947 itself were about 5 per cent. less than the average for the three years, and for about one-third of the companies we have been able to examine 1947 was the best year of the three.

There has, therefore, been a reason for including 1947. I agree that for some companies, including those who were concentrated during the war and have not had time to get independent again, 1947 may have been a bad year, and I therefore do not wish to give the House the impression that I have a closed mind on this question. While I am determined that the Excess Profits Levy shall be maintained, I am anxious that we should examine any just claim that can be put forward, particularly by developing companies, to whom reference has been made on both sides of the House. This is a matter which I think we can best consider in Committee, with all that that means.

There has also been a reference in some speeches, including those of my hon. and gallant Friend the Member for the New Forest (Colonel Crosthwaite-Eyre) and my right hon. Friend the Member for Antrim, North (Sir H. O'Neill), to the difficult position in which the Malayan rubber and tin companies found themselves in the standard period as a result of the devastation of their property by the enemy. I am fully conscious of their difficulties, which have already been put before me. I shall examine all their material, and again we shall have to deal with that matter in Committee.

There has also been some controversy about the fact that we took nominal capital instead of capital employed as a standard. I should like to say to my hon. and right hon. Friends that I fully understand the principle which they feel in their minds on this matter, but I must say—and this is the answer to a question put by the Opposition—that our present proposal is administratively a good deal simpler than the old E.P.T. however alarming this Bill looks both in its Clauses and its Schedules. As It is, they are far too complicated enough.

Let us just look at the new company, the business which began on or after 1st January, 1947. Such a company will be given a standard of 10 per cent. based on the total of its paid-up share capital, any share premiums it received and the total of its undistributed profits since the date the business began, or the 1st January, 1948, whichever is the later. Apart, therefore, from borrowed money, which is a separate issue—with which I will deal—this is a more generous standard than was given for the Excess Profits Tax of the last war. The percentage rate is higher—namely, 10 per cent. instead of 8 per cent.—and we do not propose excluding from the allowance any part of the company's funds which are not technically employed in the business.

As for the company set up after 1st January, 1948, it will be given an allowance on every penny of capital, which has ever been at its disposal. That is again excluding borrowed money. I really do not think that the design of this can be considered as unfair.

In the case of the old business which was making little or no profits in the standard period there are two alternatives. It can take a standard based on the average of the profits of any one or two of its standard years and bring in a figure of 8 per cent. of its paid up share capital for the remaining year or years; or it can take a standard of 10 per cent. of its paid up share capital for all three years. The important point to remember is that this standard comes into play only where little or no profits were being made. Our experience in the last war, when a substituted standard was given on the basis of capital employed was that in over half the cases the capital employed was less than the nominal capital. That is what one might expect in certain businesses In proposing this new standard the intention was to be generous to companies in the particular category I have mentioned. I think it now rests upon hon. Members to show that companies in this category would get a better standard under the old E.P.T. relating to the capital employed than they would get under the simpler proposal I have now put forward.

I have no desire, however, to be hard or unfair to those companies which have been passing through difficult times and I am prepared to explore, between now and the Committee stage, the possibilities of providing a third alternative standard based on the net assets of the business valued, broadly speaking, on the basis that they were for E.P.T. purposes, after deducting debts and liabilities. I must make it clear that in that event I should have to reconsider the percentage offered.

Mr. Callaghan

Will the right hon. Gentleman need extra staff?

Mr. Butler

There will be no extra staff in the Inland Revenue to work this out, nor, I believe, to operate it, either.

Before I leave this subject, may I remind the House that these companies, in common with those on an ordinary profits standard, will be given an allowance of 10 per cent. on any new share capital raised on all undistributed profits since 1st January, 1948. I must apologise for that excursion into the technicalities of E.P.L., but it will prepare the House, and the Committee later, for the complications which this will entail in the course of the debates, and I only hope that my knowledge will become level with the subject.

Mr. Roy Jenkins

Before the right hon. Gentleman leaves E.P.L., may I ask a question? He, and particularly his hon. Friend the Financial Secretary this afternoon, were very explicit that E.P.L. was only for the duration of the re-armament programme. May I ask whether the associated reduction in the Profits Tax will be equally temporary or whether that is something which will stand independently of the E.P.L., so that in a short time we shall be left without E.P.L. and with a much lower Profits Tax?

Mr. Butler

That is a very interesting question to which nobody can give an answer tonight. I should have thought that the whole thing would be reviewed together. I am glad that the hon. Member envisages that we shall be in power so long that we shall be able to cope with it. [HON. MEMBERS: "What about the county council elections?"] I am not going into the details of borrowed money, and I hope the House will excuse me the details on this, but there are a great many people outside who are interested in what I have to say.

As regards the total, there has been a certain amount of criticism about the total amount involved. I would simply say this. Cases occurred during the last war when, subject to the post-war refund subsequently given, 90 per cent., or even 95 per cent., of the total profits were taken in taxation. This cannot happen now. A company which pursues a reasonable policy on dividends cannot pay more than 72 per cent. or 73 per cent. of its profits in taxation—that is, Income Tax, Profits Tax and E.P.L. combined. The figure of 84½ per cent. which has been mentioned applies only to the highest tranche or bit in relation to the Excess Profits itself. I hope this answer will be welcome to those who have been anxious about the matter.

I turn to the all-important question of textiles which has, I am sure, been concerning the House and all of us more than anything else. This was discussed in the House on 26th March. Weighty representations have been made to me that I ought to do something to alleviate the position. I hope I may have something helpful to say before I close. Certainly I, like many hon. Members who are deeply involved in their own districts with the sorrows of either half-time or degrees of unemployment, am involved in this.

I would first remind the House that the Budget was designed to assist the country in dealing with a most serious balance of payments situation. The surplus at which I aimed, though certain critics said it was not enough, was in my judgment the measure of the purchasing power which had to be withheld at home if we were to free sufficient resources for the export trade and other vital purposes. I purposely did not make my Budget more deflationary, for which I was criticised at the time, because I feared and foresaw developments of this character; I even took into account the cuts from Australia to which reference has been made.

The right hon. Member for Leeds, South said we should approach this textile question in a most responsible spirit, and I respect his spirit and I hope he will respect mine. It can well be said that the textile industry is a very special case, and all the Government wishes to achieve is that, in any proposal put forward, either the money we spend or the policy we adopt really has some definite effect on the textile or wool areas where there is unemployment. And that is the background against which we approach the subject.

As the hon. Member for Stockport, South (Sir A. Gridley) said, this recession has not been confined to Lancashire and Yorkshire. It is, for the moment, almost world-wide. Whether it was caused by over-buying at the time of Korea, or by an expansion of production in other countries in excess of what may prove to be the stable demand, must be a matter of opinion.

One thing is certain to me after spending many hours on this subject and consulting most of the experts I can find from Lancashire and here, that Purchase Tax really cannot be singled out as the prime cause for the sharp recession which is, I hope only for the present, attacking the textile industry in the United Kingdom. I also feel sure that the spirit of co-operation and sacrifice which has been shown in the north-west and elsewhere will cause the industry to continue working out the adjustments which are required to enable it to play its great part again in trade at home and abroad.

One suggestion has been made, that we should totally remove Purchase Tax from the textile and allied field. This would cost between £80 million and £100 million. This release would, to my mind, mean abandoning the general design on which our economic appeal has been based and might prejudice the struggle for external solvency. But even if we did remit Purchase Tax, leaving aside those big figures in this field, would it have the effect which is claimed by the advocates of the proopsal?

Two other suggestions have been thrown up during the last few days. The first is a tax-free holiday for a limited period and, secondly, a series of adjustments and reductions in the Purchase Tax or D scheme, taken together or separately. The idea of a tax-free holiday is supported by the view that it would lead to a buying boom by the public. But we feel that, if it did, the trade would be faced at the end of the buying boom when the taxed goods are back in the shops with the prospects of another slump, sharper and more intractable than the present recession.

Many sections of responsible opinion in Lancashire and here are, therefore, against the tax-free holiday. And my right hon. Friend the Member for Blackburn, West (Mr. Assheton), who interjected earlier in the debate, took the view against it. So did the deputation from the Cotton Board which saw my right hon. Friend the Minister of State for Economic Affairs, and one of the most important organisations of retailers has written in to us urging strongly that such a proposal would be disastrous. The right hon. Gentleman mentioned the possibility of this in a speech in Yorkshire, but I hope that on reflection he will share the views we have against the proposal.

Mr. Gaitskell

Would the right hon. Gentleman allow me to make this clear? I did not suggest a tax-free holiday in the sense in which he was using the term, that is to say, for a definite period. I said that the tax should temporarily be removed completely, on the understanding that the Government might put it back again when the sellers' market reappeared.

Mr. Butler

I am afraid that the majority of opinion we have consulted would be against any such move, because one thing appears certain, whether in Lancashire or here, and that is that if uncertainty continues about what the policy is or may be, that will be the worst possible thing for the cotton trade or the woollen trade.

We must now consider for a moment or two whether there is any real substance in the claim that it is the Purchase Tax which has been holding up buying for some months past and is likely to hold up buying in future. We must see the matter in perspective. On very close examination we find that the largest part of textile production is already entirely outside the tax—exports, Government contracts, children's clothing, industrial cloth, upholstery cloth—possibly about two-thirds. So the application of the Purchase Tax to the problem, at any rate in so far as textiles are concerned, can only be said to apply to one-third of our problem. Further, for months past the large volume of tax-free goods in the shops has not been extensively bought.

As far as I can ascertain, tax-free textiles in the shops have been suffering equally with the taxed goods. Therefore, I do not think we can say the trouble either lies with the Purchase Tax or is likely to be cured entirely by that method. There has been very little evidence also to show that the present D list will be very unfair to the public or the removal of the few shillings involved will result in a buying boom.

In the case of shirt wear, on the better kind of Utility shirts now costing 30s. to 35s. in the shops the tax now ranges from 6d. to 1s. 8d. In the case of women's leather shoes costing £3 3s., the tax is 2s. On a pair of leather gloves costing 21s. the tax is 1s. 4d. Under the Budget proposals the burden of the tax only becomes important with the most expensive articles, normally bought by the better-off members of the community, and I find it really difficult to make a substantial concession to them at the expense of the Revenue.

Let us look further at the D scheme. In fact, an object of the D scheme was to assist exports in the range immediately above Utility, and to that extent it has made things slightly better for the higher grade articles than before; and that is the answer to some of the very valuable points put forward in the "Manchester Guardian" leading article of this morning. No doubt there are further problems with regard to the finer counts and more expensive articles, which we shall have to consider at later stages of the Bill.

The Financial Secretary has explained all about the scheme, and the House knows we brought it in largely for the sake of international commitments in which we were honouring a statement made by the previous President of the Board of Trade. I believed the scheme was right in principle for the difficulty it was meant to attack, and was also a vital part of the machinery for keeping up the morality of our international trading relations, and I am still of that opinion.

I said that what trade wanted was removal of uncertainty and therefore I should like to play my part, however unpopular it may be, by being absolutely clear. The general policy of the Government is that it does not propose a tax-free holiday for the textile industry. We are not prepared to withdraw Purchase Tax permanently from textiles and clothing. We consider the recommendation of the Douglas Committee as to the general lines of the D scheme should stand, and that is, I think, as far as we can go on Second Reading.

But I will say this—that when we come to the Committee stage it will be up to hon. Members to put down their Amendments, as I am sure they will—and there are ample opportunities for them. I shall spend most of my time between now and then mastering the intricacies and details of the various fabrics and articles and the problems that arise. We shall then have to apply our minds to making the Bill a better thing.

We must not rest there in relation to the textile industry. We can leave to the Committee stage consideration of detail and amendment, but we must not rest there. We must now consider how the expenditure of Government money in any other way can best help these areas of unemployment at the present time. I therefore turn to a more immediate method of getting value for money in helping the textile industry in its present condition.

The method the Government are now going to propose is designed so that every penny put in this area, not just one-third as remission of Purchase Tax was, can attack the problem and provide employment at the present time. First, the immediate need in the textile areas is for orders. The Government themselves are buyers of textiles for the Armed Forces and for some other Services on a significant scale, and every £ spent in Government orders goes straight into textiles and secures employment. Ten million pounds spent secures employment for 10,000 to 15,000 people, according to the general calculations we have been able to make.

I have therefore examined, together with the President of the Board of Trade, the Minister of Supply, the Home Secretary and the Secretary of State for Scotland, how many of the orders for textiles for the Services and others, which in any case have to be placed, could with advantage be placed now when the capacity is waiting and men and women are anxious to work.

This is a question to which it is not easy to give an absolutely precise answer. A large proportion of the orders are for woollen cloth for uniforms, and it would not, I am advised, be possible to place at once anything like the whole of the woollen cloth which is included in the latest defence programme. We certainly must not place orders for goods of various kinds which we see no prospect of needing for re-armament and other approved demands.

Taking all these factors together, the Government have come to the conclusion that it would be right and advantageous to bring direct assistance to those areas most severely affected by the current recession, and by the lack of available opportunities for alternative employment, by authorising the placing of additional orders on Government account to the order of between £20 million and £25 million. In order to concentrate these orders as soon as possible in the worst affected areas, we shall have to accept some lack of balance in the items we buy, as for example between cotton and woollen goods.

To give a human example, we may help a cotton area if we order and hold stocks of linings before we order the cloth. All the details will come out as soon as possible. All orders will be such as will be required by the end of the re-armament programme. If all this is to work out with speed and efficiency we must bring the maximum benefit, and we therefore need two things. The first thing we need is to adopt some unconventional methods as regards the placing of contracts.

The President of the Board of Trade is therefore inviting the Cotton Board, the Wool Textile Delegation and the Ministry of Commerce in Northern Ireland to join with the regional controllers of the Board of Trade, the Ministry of Supply, the Ministry of Labour, and the Admiralty where appropriate, in forming groups to carry out the task to which I have referred. These groups, I hope, will have the benefit of trade unionists who are experienced in these matters. The departments in London will likewise collaborate to manage the whole operation in the most effective way possible, and they will draw on the regional bodies for advice and assistance. The Government are sincerely convinced that this direct method of injecting orders into the industries concerned—and that is what they particularly need now—is the best method open to us at the present time.

There are special circumstances which have led us to take this very special action. Some adjustments would be too violent, some would not be effective, and some would not go to the root of the problem. I do not say that this device, which I think will help very much the human problem we have in mind, goes to the root of it, or solves the whole problem of this industry, but where orders are placed, and they will work for a considerable period ahead—although I cannot give a definite figure—they will give help where it is most needed. This help is both special and limited, and it is designed to give the industry time to

adjust itself and try and work out its future to meet the new conditions in the world markets, which we all sincerely and most devoutly hope will bring better days for Lancashire and the districts concerned.

After that serious statement, which is designed in a national spirit to help where help is most needed, I do not think it would be appropriate for me to revert to the more controversial note of the beginning of my speech, or to enter all the other arguments. I will conclude by saying that this Budget and Finance Bill were framed, as one hon. Gentleman said, on the lines of the policy which my hon. and right hon. Friends believe, namely, to give help where help is needed, to go ahead with social reform in assistance, insurance, pensions, disability pensions, and family allowances, to give a man the chance to make more by incentive where he is given the opportunity and can take it, and to make our country stronger and better to face the undoubted problems which now lie ahead.

Question put, "That the Bill be now read a Second time."

The House divided: Ayes, 309; Noes, 274.

Division No. 64.] AYES [11.15 p.m.
Aitken, W. T. Brooke, Henry (Hampstead) Drewe, C.
Allan, R. A. (Paddington, S.) Brooman-White, R. C. Dugdale, Maj. Rt. Hn. Sir T. (Richmond)
Alport, C. J. M. Browne, Jack (Govan) Duncan, Capt. J. A L.
Amery, Julian (Preston, N.) Buchan-Hepburn, Rt. Hon. P. G. T. Duthie, W. S.
Amory, Heathcoat (Tiverton) Bullard, D. G. Eccles, Rt. Hon. D. M.
Anstruther-Gray, Major W. J. Bullock, Capt. M. Elliot, Rt. Hon. W. E
Arbuthnot, John Bullus, Wing Commander E. E. Erroll, F. J.
Ashton, H. (Chelmsford) Burden, F. F. A. Fell, A.
Assheton, Rt. Hon. R. (Blackburn, W.) Butler, Rt. Hon. R. A. (Saffron Walden) Finlay, Graeme
Astor, Hon. J. J. (Plymouth, Sutton) Carr, Robert (Mitcham) Fisher, Nigel
Astor, Hon. W. W. (Bucks, Wycombe) Carson, Hon. E. Fleetwood-Hesketh, R. F.
Baker, P. A. D. Cary, Sir Robert Fletcher, Walter (Bury)
Baldock, Lt.-Comdr. J. M. Channon, H. Fletcher-Cooke, C.
Baldwin, A. E. Churchill, Rt. Hon. W. S. Fort, R.
Banks, Col. C. Clarke, Col. Ralph (East Grinstead) Foster, John
Barber, A. P. L. Clarke, Brig. Terence (Portsmouth, W.) Fraser, Hon. Hugh (Stone)
Barlow, Sir John Cole, Norman Fraser, Sir Ian (Morecambe & Lonsdale)
Baxter, A. B. Colegate, W. A. Fyfe, Rt. Hon. Sir David Maxwell
Beach, Maj. Hicks Conant, Maj. R. J. E. Gage, C. H.
Beamish, Maj. Tufton Cooper, Sqn. Ldr. Albert Galbraith, T. G. D. (Hillhead)
Bell, Philip (Bolton, E.) Cooper-Key, E. M. Gammans, L. D.
Bell, Ronald (Bucks, S.) Craddock, Beresford (Spelthorne) Garner-Evans, E. H.
Bennett, F. M. (Reading, N.) Cranborne, Viscount George, Rt. Hon. Maj. G. Lloyd
Bennett, Dr. Reginald (Gosport) Crookshank, Capt. Rt. Hon. H. F. C. Glyn, Sir Ralph
Bennett, William (Woodside) Crosthwaite-Eyre, Col. O. E Godber, J. B.
Bevins, J. R. (Toxteth) Crouch, R. F. Gomme-Duncan, Col. A
Birch, Nigel Crowder, John E. (Finchley) Gough, C. F. H.
Bishop, F. P. Crowder, Petre (Ruislip—Northwood) Gower, H. R.
Black, C. W. Cuthbert, W. N. Graham, Sir Fergus
Boothby, R. J. G Darling, Sir William (Edinburgh, S) Gridley, Sir Arnold
Bossom, A. C. Davidson, Viscountess Grimond, J.
Bowen, E. R. Davies, Rt. Hn. Clement (Montgomery) Grimston, Hon. John (St. Albans)
Boyd-Carpenter, J. A. Deedes, W. F. Grimston, Sir Robert (Westbury)
Boyle, Sir Edward Digby, S. Wingfield Harden, J. R. E.
Braine, B. R. Dodds-Parker, A. D Hare, Hon. J. H.
Braithwaite, Sir Albert (Harrow, W.) Donaldson, Comdr. C. E. McA. Harris, Reader (Heston)
Braithwaite, Lt.-Cdr. G. (Bristol, N.W.) Donner, P. W. Harrison, Col. Harwood (Eye)
Bromley-Davenport, Lt.-Col. W. H. Doughty, C. J. A. Harvey, Air Cdre A. V. (Macclesfield)
Harvey, Ian (Harrow, E.) McKibbin, A. J. Russell, R. S.
Harvie-Watt, Sir George McKie, J. H. (Galloway) Ryder, Capt. R. E. D.
Hay, John Maclay, Hon. John Salter, Rt. Hon. Sir Arthur
Head, Rt. Hon. A. H. Maclean, Fitzroy Sandys, Rt. Hon. D.
Heald, Sir Lionel MacLeod, Iain (Enfield, W.) Schofield, Lt.-Col. W. (Rochdale)
Heath, Edward MacLeod, John (Ross and Cromarty) Scott, R. Donald
Henderson, John (Cathcart) Macmillan, Rt. Hon. Harold (Bromley) Scott-Miller, Cmdr. R.
Higgs, J. M. C. Macpherson, Maj. Niall (Dumfries) Shepherd, William
Hill, Dr. Charles (Luton) Maitland, Comdr. J. F. W. (Horncastle) Simon, J. E. S. (Middlesbrough, W.)
Hill, Mrs. E. (Wythenshawe) Maitland, Patrick (Lanark) Smiles, Lt.-Col. Sir Walter
Hinchingbrooke, Viscount Manningham-Buller, Sir R. E. Smithers, Peter (Winchester)
Hirst, Geoffrey Markham, Major S. F. Smithers, Sir Waldron (Orpington)
Holland-Martin, C. J. Marlowe, A. A. H. Smyth, Brig. J. G. (Norwood)
Hollis, M. C. Marples, A. E. Snadden, W. McN.
Holmes, Sir Stanley (Harwich) Marshall, Douglas (Bodmin) Soames, Capt. C.
Hope, Lord John Marshall, Sidney (Sutton) Spearman, A. C. M.
Hopkinson, Henry Maude, Angus Speir, R. M.
Hornsby-Smith, Miss M. P. Maudling, R. Spence, H. R. (Aberdeenshire, W.)
Horobin, I. M. Maydon, Lt.-Cmdr, S. L. C Spens, Sir Patrick (Kensington, S.)
Horsbrugh, Rt. Hon. Florence Medlicott, Brig. F. Stanley, Capt. Hon. Richard
Howard, Gerald (Cambridgeshire) Mellor, Sir John Stevens, G. P.
Howard, Greville (St. Ives) Molson, A. H. E. Steward, W. A. (Woolwich, W.)
Hudson, Sir Austin (Lewisham, N.) Monckton, Rt. Hon. Sir Walter Stewart, Henderson (Fife, E.)
Hudson, W. R. A. (Hull, N.) Moore, Lt.-Col. Sir Thomas Stoddart-Scott, Col. M.
Hulbert, Wing Cmdr. N. J. Morrison, John (Salisbury) Storey, S.
Hurd, A. R. Mott-Radclyffe, C. E. Strauss, Henry (Norwich, S.)
Hutchinson, Sir Geoffrey (Ilford, N.) Nabarro, G. D. N. Stuart, Rt. Hon. James (Moray)
Hutchison, Lt.-Com. Clark (E'b'rgh W.) Nicholls, Harmar Studholme, H. G.
Hutchison, James (Scotstoun) Nicholson, Godfrey (Farnham) Summers, G. S.
Hyde, Lt.-Col. H. M. Nicolson, Nigel (Bournemouth, E.) Sutcliffe, H.
Hylton-Foster, H. B. H. Nield, Basil (Chester) Taylor, Charles (Eastbourne)
Jenkins, R. C. D. (Dulwich) Noble, Cmdr. A. H. P. Taylor, William (Bradford, N.)
Jennings, R. Nugent, G. R. H. Teeling, W.
Johnson, Eric (Blackley) Nutting, Anthony Thomas, Rt. Hon. J. P. L. (Hereford)
Johnson, Howard (Kemptown) Oakshott, H. D. Thomas, P. J. M. (Conway)
Jones, A. (Hall Green) Odey, G. W. Thompson, Kenneth (Walton)
Johnson-Hicks, Hon. L. W O'Neill, Rt. Hon. Sir H. (Antrim, N.) Thompson, Lt.-Cdr. R. (Croydon, W.)
Kaberry, D. Ormsby-Gore, Hon. W. D. Thorneycroft, Rt. He. Peter (Monmouth)
Keeling, Sir Edward Orr, Capt. L. P. S. Thornton-Kemsley, Col. C. N.
Kerr, H. W. (Cambridge) Orr-Ewing, Charles Ian (Hendon, N.) Tilney, John
Lambert, Hon. G. Orr-Ewing, Ian L. (Weston-super-Mare) Touche, G. C.
Lambton, Viscount Osborne, C. Turner, H. F. L.
Lancaster, Col. C. G. Partridge, E. Turton, R. H.
Langford-Holt, J. A. Peake, Rt. Hon. O. Tweedsmuir, Lady
Law, Rt. Hon. R. K. Perkins, W. R. D. Vane, W. M. F.
Leather, E. H. C. Peto, Brig. C. H. M. Vaughan-Morgan, J. K.
Legge-Bourke, Maj. E. A. H. Peyton, J. W. W. Vosper, D. F.
Legh, P. R. (Petersfield) Pickthorn, K. W. M. Wade, D. W.
Lennox-Boyd, Rt. Hon. A. T. Pilkington, Capt. R. A. Wakefield, Edward (Derbyshire, W.)
Lindsay, Martin Pitman, I. J. Walker-Smith, D. C.
Linstead, H. N. Powell, J. Enoch Waterhouse, Capt. Rt. Hon. C.
Llewellyn, D. T. Price, Henry (Lewisham, W.) Watkinson, H. A.
Lloyd, Rt. Hon. G. (King's Norton) Prior-Palmer, Brig. O. L. Webbe, Sir H. (London & Westminster)
Lloyd, Maj. Guy (Renfrew, E.) Profumo, J. D. Wellwood, W.
Lloyd, Rt. Hon. Selwyn (Wirral) Raikes, H. V. White, Baker (Canterbury)
Lockwood, Lt.-Col. J. C. Rayner, Brig. R. Williams, Rt. Hon. Charles (Torquay)
Longden, Gilbert (Herts, S.W.) Redmayne, M. Williams, Gerald (Tonbridge)
Low, A. R. W. Remnant, Hon. P. Williams, Sir Herbert (Croydon, E.)
Lucas, Sir Jocelyn (Portsmouth, S.) Renton, D. L. M. Williams, R. Dudley (Exeter)
Lucas, P. B. (Brentford) Roberts, Peter (Heeley) Wills, G.
Lucas-Tooth, Sir Hugh Robertson, Sir David Wilson, Geoffrey (Truro)
Lyttelton, Rt. Hon. O. Robinson, Roland (Blackpool, S.) Wood, Hon. R.
McAdden, S. J. Robson-Brown, W. York, C.
McCallum, Major D. Rodgers, John (Sevenoaks)
McCorquodale, Rt. Hon. M. S. Roper, Sir Harold TELLERS FOR THE AYES:
Macdonald, Sir Peter (I. of Wight) Ropner, Col. Sir Leonard Brigadier Mackeson and
Mr. Butcher.
Acland, Sir Richard Beswick, F. Burton, Miss F. E.
Adams, Richard Bevan, Rt. Hon. A. (Ebbw Vale) Butler, Herbert (Hackney, S.)
Albu, A. H. Bing, G. H. C. Callaghan, L. J.
Allen, Arthur (Bosworth) Blackburn, F. Carmichael, J.
Allen, Scholefield (Crewe) Blenkinsop, A. Castle, Mrs. B. A.
Anderson, Alexander (Motherwell) Blyton, W. R. Champion, A. J.
Anderson, Frank (Whitehaven) Boardman, H. Chapman, W. D.
Attlee, Rt. Hon. C. R. Bottomley, Rt. Hon. A. G. Chetwynd, G. R.
Awbery, S. S. Bowles, F. G. Clunie, J.
Bacon, Miss Alice Braddock, Mrs. Elizabeth Cocks, F. S.
Baird, J. Brockway, A. F. Coldrick, W.
Barnes, Rt. Hon. A. J. Brook, Dryden (Halifax) Collick, P. H.
Bellenger, Rt. Hon. F. J. Broughton, Dr. A. D. D. Cook, T. F.
Bence, C. R. Brown, Rt. Hon. George (Belper) Corbet, Mrs. Freda
Benn, Wedgwood. Brown, Thomas (Ince) Cove, W. G.
Benson, G. Burke, W. A. Craddock, George (Bradford, S.)
Crosland, C. A. R Johnston, Douglas (Paisley) Reid, Thomas (Swindon)
Crossman, R. H. S Jones, David (Hartlepool) Reid, William (Camlachie)
Cullen, Mrs. A. Jones, Frederick Elwyn (West Ham, S.) Rhodes, R.
Dalton, Rt. Hon. H. Jones, Jack (Rotherham) Richards, R.
Darling, George (Hillsborough) Jones, T. W. (Merioneth) Robens, Rt. Hon. A.
Davies, A. Edward (Stoke, N.) Keenan, W. Roberts, Albert (Normanton)
Davies, Ernest (Enfield, E.) Kenyon, C. Roberts, Goronwy (Caernarvonshire)
Davies, Stephen (Merthyr) Key, Rt. Hon. C. W. Rogers, George (Kensington, N.)
de Freitas, Geoffrey King, Dr. H. M. Ross, William
Deer, G. Kinley, J. Royle, C.
Delargy, H. J. Lee, Frederick (Newton) Schofield, S. (Barnsley)
Dodds, N. N. Lee, Miss Jennie (Cannock) Shackleton, E. A. A.
Donnelly, D. L. Lever, Harold (Cheetham) Shawcross, Rt. Hon. Sir Hartley
Driberg, T. E. N. Lever, Leslie (Ardwick) Shinwell, Rt. Hon. E.
Dugdale, Rt. Hon. John (W. Bromwich) Lewis, Arthur Short, E. W.
Ede, Rt. Hon. J. C Lindgren, G. S. Silverman, Julius (Erdington)
Edelman, M. Lipton, Lt.-Col. M Simmons, C. J. (Brierley Hill)
Edwards, John (Brighouse) Logan, D. G. Slater, J.
Edwards, Rt. Hon. Ness (Caerphilly) Longden, Fred (Small Heath) Smith, Ellis (Stoke, S.)
Edwards, W. J. (Stepney) MacColl, J. E. Smith, Norman (Nottingham, S.)
Evans, Albert (Islington, S.W.) McGhee, H. G Snow, J. W.
Evans, Stanley (Wednesbury) McInnes, J. Sorensen, R. W.
Ewart, R. McKay, John (Wallsend) Soskice, Rt. Hon. Sir Frank
Fernyhough, E. McLeavy, F. Sparks, J. A.
Field, W. J. MacMillan, M. K. (Western Isles) Steele, T.
Fienburgh, W. McNeil, Rt. Hon. H. Stewart, Michael (Fulham, E.)
Finch, H. J. MacPherson, Malcolm (Stirling) Stokes, Rt. Hon. R. R.
Fletcher, Eric (Islington, E.) Mainwaring, W. H. Strachey, Rt. Hon. J.
Follick, M. Mallalieu, E. L. (Brigg) Strauss, Rt. Hon. George (Vauxhall)
Foot, M. M. Mallalieu, J. P. W. (Huddersfield, E.) Stross, Dr. Barnett
Forman, J. C. Mann, Mrs. Jean Summerskill, Rt. Hon. E
Fraser, Thomas (Hamilton) Manuel, A. C. Swingler, S. T.
Freeman, Peter (Newport) Marquand, Rt. Hon. H. A. Sylvester, G. O.
Gaitskell, Rt. Hon. H. T. N. Mayhew, C. P. Taylor, Bernard (Mansfield)
Gibson, C. W. Mellish, R. J. Taylor, John (West Lothian)
Glanville, James Messer, F. Taylor, Rt. Hon. Robert (Morpeth)
Gooch, E. G. Mikardo, Ian Thomas, David (Aberdare)
Gordon-Walker, Rt. Hon. P. C. Mitchison, G. R. Thomas, George (Cardiff)
Greenwood, Anthony (Rossendale) Monslow, W. Thomas, Iorwerth (Rhondda, W.)
Greenwood, Rt. Hon. Arthur (Wakefield) Moody, A. S. Thomas, Ivor Owen (Wrekin)
Grenfell, Rt. Hon. D. R. Morgan, Dr. H. B. W Thorneycroft, Harry (Clayton)
Grey, C. F. Morley, R. Thurtle, Ernest
Griffiths, David (Rother Valley) Morris, Percy (Swansea, W.) Timmons, J.
Griffiths, Rt. Hon. James (Llanelly) Morrison, Rt. Hon. H. (Lewisham, S) Tomney, F.
Griffiths, William (Exchange) Mort, D. L. Ungoed-Thomas, Sir Lynn
Hale, Leslie (Oldham, W.) Moyle, A. Viant, S. P.
Hall, Rt. Hon. Glenvil (Colne Valley) Mulley, F. W. Wallace, H. W.
Hall, John (Gateshead, W.) Murray, J. D. Watkins, T. E.
Hamilton, W. W Nally, W. Webb, Rt. Hon. M. (Bradford C.)
Hannan, W. Neal, Harold (Bolsover) Weitzman, D.
Hardy, E. A. Noel-Baker, Rt. Hon. P. J. Wells, Percy (Faversham)
Hargreaves, A. O'Brien, T. Wells, William (Walsall)
Hastings, S. Oldfield, W. H. West, D. G.
Hayman, F. H. Oliver, G. H. Wheatley, Rt. Hon. John
Healey, Denis (Leeds, S.E.) Orbach, M. White, Mrs. Eirene (E. Flint)
Henderson, Rt. Hon. A. (Rowley Regis) Oswald, T. White, Henry (Derbyshire, N.E.)
Herbison, Miss M. Padley, W. E. Whiteley, Rt. Hon. W.
Hewitson, Capt. M. Paget, R. T. Wigg, George
Hobson, C. R. Paling, Rt. Hon. W. (Dearne Valley) Wilcock, Group Capt. C. A. B.
Holman, P. Paling, Will T. (Dewsbury) Wilkins, W. A.
Houghton, Douglas Pannell, Charles Willey, Frederick (Sunderland, N.)
Hoy, J. H. Parker, J. Willey, Octavius (Cleveland)
Hudson, James (Ealing, N.) Paton, J. Williams, David (Neath)
Hughes, Cledwyn (Anglesey) Pearson, A. Williams, Rev. Llywelyn (Abertillery)
Hughes, Hector (Aberdeen, N.) Peart, T. F. Williams, Ronald (Wigan)
Hynd, H. (Accrington) Plummer, Sir Leslie Williams, W. R. (Droylsden)
Hynd, J. B. (Attercliffe) Poole, C. C. Williams, W. T. (Hammersmith, S.)
Irvine, A. J. (Edge Hill) Popplewell, E. Wilson, Rt. Hon. Harold (Huyton)
Irving, W. J. (Wood Green) Porter, G. Winterbottom, Richard (Brightside)
Isaacs, Rt. Hon. G. A Price, Joseph T. (Westhoughton) Woodburn, Rt. Hon. A.
Janner, B. Price, Philips (Gloucestershire, W.) Wyatt, W. L.
Jay, Rt. Hon. D. P. T. Proctor, W. T. Yates, V. F.
Jeger, George (Goole) Pryde, D. J. Younger, Rt. Hon. K
Jeger, Dr. Santo (St. Pancas, S.) Pursey, Cmdr. H
Jenkins, R. H. (Stechford) Rankin, John TELLERS FOR THE NOES:
Johnson, James (Rugby) Reeves, J. Mr. Bowden and Mr. Holmes.

Question put, and agreed to.

Bill accordingly read a Second time.

Committed to a Committee of the whole House for Tomorrow.