BUDGET PROPOSALS

HC Deb 15 April 1953 vol 514 cc208-328

3.47 p.m.

Mr. John McKay (Wallsend)

I am grateful for the tolerance of the House in allowing me to continue an interrupted speech. I sat yesterday in this Chamber from 2.30 until nearly 10 o'clock and I had about three minutes in which to make my speech, and in the circumstances I think I am justified in continuing my speech. Looking at the OFFICIAL REPORT of yesterday's debate, I find that the average length of the speeches was about 30 minutes.

There is no doubt that the eyes of the country are upon this Budget situation, and I want to consider the situation as expounded by the Chancellor from the point of view of its effect upon the people of the country. I do not intend to go into many details, but I should like to indicate how I think this Budget will affect various sections of the community.

The Chancellor announced that one section of the community, the old people, who have money invested and who are receiving further incomes in addition to their pensions, ought to get some concession, which will amount in total to £1 million. That is all to the good; I do not think there is much objection to it. Then there is another concession in respect of dependent relatives and housekeepers the allowance for whom is to be £60 instead of £50, and this concession is estimated to cost between £3½ million and £4½ million; let us say £4 million.

Then we come to what I call the neutral concessions, and here I include Purchase Tax. I call them neutral concessions because, while we may disagree on the articles in respect of which Purchase Tax has been reduced, nevertheless I think it will be admitted that these concessions apply practically to all classes of people. These neutral concessions will cost from £45 million to £60 million.

Next, we come to the reduction of 6d. in the lower rates of Income Tax; and here we are dealing with a section of Income Tax payers which includes a very large proportion of the workers. The total concession here amounts to £57 million. We can see, therefore, that all these concessions—to the old people receiving incomes from investment, or for dependant relatives and housekeepers, or reductions on the lower rates of Income Tax—amount to about £62 million to certain sections of the community.

Let us see what concessions are given to other classes in the country. First, let us take the Excess Profits Levy which is to be ended on 4th January. This concession amounts to about £100 million. Although the effect of the initial allowances does not operate now, it is admitted that these will cost on an average about £67 million a year, considered over the years 1954–55 and 1955–56.

Next, we come to the reduction of 6d. in the standard rate of Income Tax, which is to cost £64 million to £73 million. Let us call it £68 million. These concessions largely affect the well-to-do people of the country. When we take that broad view of the situation, we see that the Chancellor of the Exchequer is in a position to make concessions and that, generally, this is how he has made them: £62 million to the millions of workers in the country who have very little income and about £235 million to the people who, on the whole, are in a very comfortable position.

This policy is advanced, of course, with the claim that, while this concession of £235 million is made to these people, the ultimate effect on the country will be favourable and will react throughout the country and to everyone's benefit. That claim has yet to be tested and many of us have our doubts about it.

The question arises as to what are the real necessities which must be applied to meet the present economic position. Let us look at the position as examined by such people as the London and Cambridge Statistical Organisation. They tell us that, from 1938 to the present time, company profits have nearly trebled. Some hon. Members may say, "That may be so, but the amount of capital invested has increased tremendously." Let us therefore leave that point and consider the dividends which have been declared. In their statistical tables, the organisation tell us that, from 1938 to the present time dividends, have increased from 8 per cent. to 16 per cent. One would think, therefore, that companies are not in such a very bad position, after all.

I want to point out what seems to me another remarkable fact. It is recognised that the purchasing power of the £ is less than half its value. When we consider the question of the £ invested, instead of it going down in value, in money rates, the invested £ in industry has doubled its value. That seems peculiar to me. In the one case, the £ used by the people has fallen in value by half, yet the value of the returns on the invested £ has doubled.

That being so, one wonders whether there is any truth or reality in the general economic position which has been outlined and whether these industries needed the concessions which have been made. I have read various articles on these matters. When one has to do so, one finds that many of these financial articles are written with the idea of meeting the viewpoint of the people who employ the writers. There is no doubt that during the past month a general psychology has been created as a result of the attitude of traders in the country and as a result of the attitude of economists and financial writers, who have been trying to impress upon the country that whatever else is done, one of the things which must be done is to reduce Income Tax and give concessions in other respects to traders and companies.

I do not want to go into this in too much detail, but nevertheless I have a duty to perform to myself and my constituents. While I will not labour the point too much, I expect due attention to be given to the matters about which I am speaking and which are of interest to my constituents, if they are not to the Committee. One of the most amazing things which has been publicised a great deal in the North of England has been the suggestion that a Scottish millionaire came down to Newcastle trying to negotiate a sale with Binns, Ltd., who have a tremendous amount of property and who deal in clothing, drapery and other things. The amount of money which the Scottish millionaire was prepared to pay for Binns, Ltd.—for the original shares—was almost 20 times the original price. That begins to make us doubt whether there is any need to deal with the economic situation on the lines which the Chancellor has adopted.

Another fact which has been pointed out by financial writers, in connection with these companies concerns Swann and Hunter's, at Wallsend, which is part of my constituency. Financial writers have drawn attention to the fact that in 1951 this company paid 18 per cent. and that this year, their jubilee year, instead of paying 18 per cent. they are paying 28 per cent. This financial writer goes over the details of this company and indicates that it is in a very good position. Its reserves are sound and its future prospects exceedingly good.

The writer goes also into the details of Imperial Chemical Industries and points out how well they are doing, what great reserves they have created, what dividends they have paid, what their future prospects are, and how much capital they have invested and are intending to invest. He notes how Unilever, Limited, are spreading out in all directions and have apparently sufficient capital to carry on doing so while paying jolly good dividends. He concludes with this passage: Mr. Harry S. Broom, chairman of the engineering firm of Broom and Wade, has hit the right note. … He does not disagree with his fellow-directors over the alleged effects of high taxation. But he admitted recently in his annual statement to shareholders that, since the formation of the company in 1935, he had been able to leave profits exceeding £1 million in the business. That was more than the total sum paid up in cash on various issues to shareholders. He regarded this as a remarkable achievement, 'and without we should not have been able to build up the business to its present extent with up-to-date buildings and modern plant.' So there we have an admission by one of the great engineering firms that they have been able to modernise and maintain their plant on the proceeds of their business, despite taxation.

I want to deal with another aspect of the Budget. Many millions of pounds of reliefs have been conceded by it. It may be an electioneering Budget. It may be that these are the conscientious decisions of the Chancellor, and that these proposals are an absolute necessity. Nevertheless, while the Budget may give encouragement to big trading concerns, who are very happy about it, what the Chancellor has to consider is not only the position of the big proprietors of economic concerns, he has to consider the whole of the people in general. Let us see what is happening to them.

We all have regard to the aged pensioners. We all have regard to the sick. We all have regard to the needs of the unemployed. Yet while wages are rising with the cost of living, while the invested £ has doubled its value since 1938, what is the position of the aged pensioners, the sick, the unemployed, the injured, and the war pensioners? We all thought in 1946 that we had made a great step forward to help them. Both sides of the Committee agreed with what was being done. We were then dealing with the people of the country in general, with the people who were in difficulties and who had helped to produce the wealth of the country.

We decided in 1946, in all conscientiousness and justice, to give some benefits to those people. The London and Cambridge Economic statistics show that since 1946 the prices of commodities have gone up 48 per cent. One would have thought that when hundreds of millions of pounds were being conceded by the Chancellor of the Exchequer in reliefs something would have been done to help war pensioners, men injured in the factories, the sick, the unemployed, and the aged.

Had the Chancellor decided, in making these concessions, to keep the position of those people in proportion to that of the wage earners and the industrialists, things would be different. That is not the position, however. If it had been the position, to offset the 48 per cent. rise in the prices of commodities, the 42s. of sickness and unemployment benefit, and the married aged pensioners would be 62s. a week. The Army pensioner's 45s. a week would be about 66s. and injury's benefit would also be 66s. The Chancellor has ignored those people in making the concession. He has ignored those who need concessions most while giving concessions to people who can fight through the economic struggles fairly well.

Anyone who analyses the position knows that there are nearly 12 million people who do not reach the standard level of Income Tax, and the people who are getting real benefit by the Income Tax concessions are those with annual incomes of thousands of pounds, not the people with £5 or £6 or £10 a week.

Hon. Members on that side of the Committee and on this side have agreed in principle that equal pay for women is a justifiable thing. Here are concessions costing hundreds of millions of pounds, but the women are ignored. Are we hypocrites? We ought to have been doing something for the women in these concessions. The invidious distinction made between men and women in the payment of wages and salaries has an historical growth. The idea was that a man had extra payment because he had a family to keep.

But what is happening? First, women are handicapped in that, while doing the same work as men, they get less pay for it, but further to that, the married man gets allowances for his wife and allowances for his children, before paying tax. A man married with two children gets the extra wages above the woman doing the same job, but the Government give him extra allowances for his wife, £90, and for his two children £170, which, if he is being taxed, relieves him of £260 at say, the 5s. rate which would be a net gain in addition of £65. Then he gets £21 family allowance, making a total net gain of £86; and women are being taxed to provide this.

The position requires serious consideration, and, whether this is an election Budget or otherwise, I am satisfied that the mass of the people, to the extent that they apply their minds to these matters, are bound to come to the conclusion that, in making concessions amounting to a tremendous sum of money, the Government have ignored all the people who require aid and help. There are great and invidious distinctions made which I feel sure will not receive the support of the masses of the people, no matter how much financial writers in the various newspapers attempt to build up the Budget.

The truth is that it is a rich man's Budget, as one would expect to come from the other side of the Committee. We hope that as time goes on the people of the country will be able and sufficiently interested to go into these matters and understand them better. To the extent that they do so, there is no question about what their judgment will be. They will come to the conclusion, as they did in 1945, that their hope of real justice, in consideration of the wealth they produce, lies with the Labour Party rather than with the Conservative Party.

4.12 p.m.

Mr. Hugh Gaitskell (Leeds, South)

In presenting his Budget yesterday, the Chancellor tried very hard to establish two propositions. The first was that the improvement in our balance of payments was in the main due to the efforts and sacrifices of the British people, under the guidance of Her Majesty's Government. The second was that this improvement was entirely in accordance with the plans laid down in last year's Budget. If there is any doubt as to what I am saying about the Chancellor's view, perhaps I might dispel it by quoting from his broadcast, when he said, speaking of this improvement: Much of it springs directly from the hard decisions we took a year and more ago.… He spoke later of the "strict and unwelcome measures" that had been adopted. He further said: Our efforts, during last year, have shown there is something worth striving for; that effort and sacrifice can bring results. As to the second proposition, that it was all according to plan, the right hon. Gentleman said, in his speech here: The developments of 1952 have indicated the strategy of the last Budget."—[OFFICIAL REPORT, 14th April, 1953; Vol. 514, c. 41.] And in the Economic Survey, the following words occur, in paragraph 59: Thus the changes in the economy during 1952 were broadly in line with the main objectives of Government policy as set out in the Budget. I think, therefore, we might accept it that those were the two major themes.

The reason the right hon. Gentleman tried to establish those two propositions was in order to provide himself with a politically watertight excuse for the concessions in the Budget. If he could show that we had all worked very hard, that we had all tightened our belts, that everything was going splendidly, then there was, of course, a case for a reward for the people who had done so well, and for the Government who had helped them so greatly and guided them so wisely. He wanted, I would say, to hide the fact that the real justification for Budgetary concessions this year is not the flourishing state of the economy but the stagnation into which production has fallen.

I submit that neither of the two propositions I have mentioned will stand up to serious examination. Before we can pass judgment on the merits of the Budget concessions, we must clear away the jungle of "phoney" propaganda which surrounds the whole background. We must show what is the real situation which exists today. Were the efforts and sacrifices of our people the cause of the improvement in our balance of payments?

Obviously at least one part of it shown in the figures cannot be so ascribed. I mean, of course, the £120 million of defence aid which is included in the balance of payments figures. I very much regret that the Chancellor has included that sum in that way. When we received Marshall Aid—and we were very grateful for it—we always left it out of our balance of payments figures and showed it as a capital grant which helped us, in some cases, to increase our surplus, in other cases to cover a deficit or transform a deficit into a surplus, but it was always treated as a capital item. I cannot see the justification for treating defence aid as though it were a normal part of our exports. It not only misleads our own people; it also misleads the American public. That is a silly thing to do.

There are two other points about the figures, minor ones perhaps, to which I wish to refer. First, it is interesting to notice that the figures for last year's deficit have been substantially modified. I think they were originally £530 million; they are now £390-odd million. Second, there is another peculiar feature of the figures for this year, namely, the extraordinary difference in the improvement in the balance of trade as calculated by the figures published by the Customs and Excise Department of imports and exports and the figures of payments as calculated by the Treasury and the Statistical Office.

The difference in the improvement as between those two methods of calculation is, as the Economic Survey clearly shows, no less than £250 million, so that if we were to calculate the balance of payments on the Customs figures we should presumably, after deducting defence aid, not be in surplus at all. I am not questioning the method of calculation; that is a technical point which we could discuss at some other time. It is interesting, however, to notice the extraordinary difference between these two methods.

Still, accepting the method of calculating on the basis of payments, we have an improvement of £570 million, a very substantial one. How was it done? Was it really the result of a buoyant economy, with output expanding, exports booming, and a complacent population sitting there, holding their belts very tightly? Of course, in a way, that picture is a very natural one to propagate. The ordinary man no doubt thinks that if his spending is outrunning his income, the only way to put things right is either to work harder, do more work, earn more money or consume less—to cut his standard of living. That is what I suppose we would all expect.

The facts are, however, that this was utterly remote from the reality. Did we work harder in 1952? Of course we did not. Production was down, employment was down, there was more short-time, there was less over-time. Almost every index we can take was down, except, as an hon. Member reminds me, the cost of living. There was less investment. I am not blaming our fellow countrymen or ourselves for this. The fact is that people were not allowed to make the effort. There was not the demand there; there was not the requirement for their services. The figures are well-known. There was a net fall of 3 per cent. in our industrial production, falling for the first time since the war, which is calculated as implying a decline in total output of £100 million. I accept that figure for the moment, although there are questions which, if I had more time, I would have asked about it.

The second question is: Did we consume less? Here the Government are in some difficulty because it very often suits them to claim that we are in fact all much better off now as a result of their efforts, and, if that were the case, obviously we would not have cut consumption at all. That is the propaganda tack which is sometimes followed. Let us look into it.

The figures of food consumption published in the Economic Survey are very interesting. They occur on page 21 of the Survey, where they are all set out in Table 16. There we find that the average daily intake per head of protein, whether animal or vegetable, is down. The average daily intake per head of fat is down. "Visible fat," whatever that may be. as contrasted with "fat from all sources"—we could think, of course, of some ways of describing it—is also down. The total energy value, measured in calories, falls to 2,950, below 3,000 for the first time at any rate for several years.

And if we take the consumption of foods per head, it is the same story: dairy products, less per head; fish, less per head; eggs, less per head, oils and fats, less; sugar and syrups, less. Only meat has increased at all. We must concede that to the Government, and the reason for it is, of course, the very great difficulty we got into in the previous year because of the refusal of the Argentine to supply the meat.

Pulses and nuts were up 1 per cent. per head and, I think, vegetables by a very small percentage as well. Every other item in this table shows a decline. I must say that perhaps that is where the belt tightening comes in. But, of course, as the Chancellor pointed out yesterday, if we take consumption as a whole, apparently in the fiscal year there was no change and in the calendar year only a very slight decline. What has happened, I am afraid, in this. As a result of the higher food prices caused directly by last year's Budget, some people have consumed less and have been forced to consume less—those people who did not get the benefit of the tax concessions and have not had sufficient wage increases to make up the difference since then.

On the other hand, the people who got the benefit of the tax concessions, large benefits in some cases, have, of course, consumed more. So there has been a redistribution in favour of people who are better off. But we must accept—1 do not question the Chancellor's figures here— that, taking it as a whole, there has been no reduction. If that is so, it is really a rather remarkable fact. We have produced less, we have not consumed less, yet the balance of payments has improved by £570 million. That is not all. Government expenditure—real expenditure— is up, according to the Survey, by £325 million, most of it, of course, on defence —although I cannot help commiserating with the Chancellor that even his little mouse of £50 million real savings, which he produced last year so proudly, seems to have been completely washed away in the flood of additional expenditure.

Well, then, we have this situation: a switch of £570 million in the balance of payments and an increase of £325 million—pulled, so to speak, towards defence and other purposes by the Government— a total burden on the economy of no less than £900 million. This is very puzzling. How is it done? Where does the answer lie?

Part of it, of course, as the Chancellor said in his speech yesterday—and, if I may say so, more clearly than the Economic Survey shows—is due to the improvement in the terms of trade. We shall do well to remember the extraordinary differences that changes in the terms of trade can and do make to our fortunes. In 1951, as the Bulletin for Industry, published by the Treasury, has now shown, we lost in that year on account of adverse terms of trade no less than £500 million. That accounts in itself for the deficit for that year, for the change, or practically all of it. In 1952, on the other hand, we had a gain of something like £350 million. That was very nice. But I think that the Chancellor would probably agree that it was fortuitous—it was something certainly not under our control, it was simply the movement of world prices at that particular phase of economic history. It is true, on the other hand—I want to be perfectly fair in going through these figures—there was a loss of £85 million on invisibles as against the hoped for improvement of £100 million.

The improvement in the terms of trade is clearly part of the answer, but it is not the whole of it, and it cannot be the whole of it. We have to explain how somehow or other £900 million was conjured up, and a gain of £350 million partly offset by a drop of £85 million in invisibles does not go far towards that. The answer can only be that it comes from a decline in investment. The truth of the matter is that last year, in 1952. investment in total in this country in real terms fell by close on £600 million.

The figure now given for the increase in stocks and work in progress in 1951 is £450 million. In fact, 1951 was a year in which we were stockpiling at a very rapid rate. I do not know whether the Leader of the House remembers some of the curious remarks he made after the Election about bare cupboards and skeletons hanging from chandeliers. He has probably learned a little since then. I remember that not long ago—I think that it was in one of our summer debates —he did not seem to understand this point about stocks and work in progress, but the Economic Survey makes it very plain, and I hope that he will read it this year.

In 1952, as we know, there was no increase in stocks and work in progress in this country. There was no increase at all, but there was something else. There was a decline in stocks on their way to and from this country, but under British ownership, of £100 million. If I may say so to the Chancellor, he was less than frank with the Committee yesterday when he emphasised that stocks in this country had not fallen, because we are dealing with balance of payment figures which, after all, are based on payments and which take into account what is owned by British citizens and traders in ships coming to or going from this country.

Therefore, it is perfectly plain that, if we are talking in terms of explaining the balance of payments situation and all these figures, we must admit that there was a decline of £100 million in stocks as against a build-up of £450 million in the previous year. That is £550 million, and there is the extra £35 million decline in fixed investment. So I repeat that the extent of the fall in investment is close upon £600 million.

The conclusions that I draw from this are the following. First of all, the release of resources by the fact that we did not build up stocks, and, indeed, drew them down slightly, last year was only possible because of the accumulation which we had made in 1951. If it had not been for that, the Government could not have drawn the stocks down and got the relief.

Secondly, I think it is worth pointing out that if—as I should have thought was a reasonable proposition—we take with the balance of payments figures the changes in the stock position—because most of us know that a cash account does not reveal a great deal and we also want to know at least what is happening to the stocks—then a rather interesting result comes out. In 1950, when there was a decline in stocks but a large surplus, larger than the surplus minus defence aid for 1952, there was, roughly speaking, a surplus of £100 million. In 1951, again bringing stocks into the account, there was a surplus of £50 million, and in 1952 there was a surplus of about £70 million. In other words, taking the two things together, there is not all that difference between the three years.

One must therefore conclude—this is my third conclusion—that there has been no effort and sacrifice as a whole in 1952 and that the improvement in the balance of payments position has come wholly from the favourable terms of trade and from the fall in investment. Of course, that is why it has all been so painless, but it is also why it is so precarious.

The second proposition which I mentioned at the beginning of my speech is that all this was done in accordance with the plan of the Budget. I find it hard to understand how the Chancellor can seriously put forward any such proposition. After all, he had to admit to us yesterday that the Budget surplus which had been planned at £510 million turned out to be £88 million, not exactly what one would call "according to plan." Incidentally, I cannot help saying that I believe that if the Labour Party had turned out such a short-fall on a surplus, the Conservative Opposition would have made the most terrible fuss about "Socialist extravagance" and, indeed, as my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) reminds me, their newspapers would have had a lot to say about it, too.

Apart from the budgetary position, what about the plan for the economy? Let me say at once that here I must com- pare the calendar year 1952 with the fiscal year 1952–53, because we have not the figures for the later fiscal year, but I do not think there will be any very great divergence. The plan was, first of all, that production should rise by £250 million worth; the outcome was a decline of £100 million. So we were minus £350 million on that. The plan was that Government expenditure would increase by £150 million; it actually increased by £325 million, a substantial difference of £175 million. The plan was that the terms of trade would improve by £150 million; they actually improved by some £350 million. The plan was that invisibles would improve by £100 million; they actually worsened by £85 million. The plan was that fixed investment would decline by £100 million; it declined by £35 million.

I particularly ask the Committee to notice the next figure. The plan was that investment in stocks would be lowered to the extent of £150 million; in other words, that there would be an increase in stocks of £300 million. The reality was a decline of £550 million in investment in stocks. All I can say is that these figures speak for themselves and if it really is true that the Government intended all these results, then they stand convicted at the very least of grossly misleading the public.

The Economic Survey and the Chancellor's speech this year give a rather different impression of the Government's attitude to their monetary policy. We found it very difficult to understand last year and we tried several times to get the Chancellor or one of his colleagues to explain to us just how the monetary policy assisted the balance of payments situation. Now we have the Economic Survey very much bolder on the subject and we have the Chancellor explaining to us what really happened. Unfortunately, there is no one place in the Survey where one can say that the whole position is set out, but I will draw to the attention of hon. Members paragraph 31, where the Survey says: Exports, personal consumption and fixed investment are all estimated to have fallen slightly in real terms, but these falls were more than offset by the rise in the current expenditure of public authorities, which was almost wholly on account of defence. It continued: The immediate explanation of the fall in output must therefore be sought in changes in investment in stocks of finished and semi-finished goods and work in progress. In other words, according to the Survey, the decline in output is due to the decline in stocks.

I now turn to paragraphs 55 and 56. Here the same point is made and elaborated. In paragraph 55 the Survey says: The check to production in the middle of the year appears to have marked a phase of readjustment, in which stock changes were a major factor. In the following paragraph we are told: … consumption of imported raw materials was considerably reduced because of the lower level of industrial activity "— indeed, that is so— which was itself largely associated with the movements in stocks and finished and semi-finished goods and work in progress. Thus the disinflationary developments at home, in which monetary policy was an important factor, played their part in restoring our overseas position. What exactly does this mean? It means just this, that the monetary policy worked because it brought production down. The link between monetary policy, the improvement in the balance of payments position and the cut in imports is simply the fall in production. I am glad the Government have at last admitted it. Of course, it is no doubt the case to a certain extent, though I shall have some comments to make on it later on.

I ask myself these questions. What precisely had the Government in mind? What was the aim when they, apparently, on their own admission, tried to reduce investment in stocks? Was it that they wanted to throw out of work the people who had previously been making these stocks? Did they want those people to be left out of work or did they want them to be re-absorbed, and, if so, did they want them to be employed somewhere else in the country? I could see the argument there. I could visualise the Chancellor coming forward and saying, "We cannot afford this year to go on accumulating stocks and we must put the labour previously doing this sort of work into something more important, such as into exports or fixed investment." But where did the labour go?

Let me say, in elaborating that, that I am not arguing that we should have continued the stockpiling that we had in 1951. On the contrary, I repeat that the fact that we stockpiled in 1951 gave us the opportunity to release resources. However, my question is not merely "Were they released or not?", but "Were they employed elsewhere? Were they used for an effective purpose from the point of view of the economy?"

What happened, in fact, to the movement of labour? Again the Economic Survey helps us. In page 41 there is a table setting out the movement. We know, of course, that during the year there was a reduction of the numbers employed of 145,000 in civilian employment, but as between the different industries I can see one industry only where I will concede, whether it was due to this or not is very hard to say, a very welcome improvement has taken place, and that is coalmining. But as against that, where there was an increase of 22,000, there is in agriculture, which I venture to say is almost equally important, a decline of 22,000. If one looks to see where the biggest increases are to be found, they are in the distributive trades and the professional, financial and miscellaneous services. There is there an increase of 40,000 men. That is the re-deployment that is taking place as a result of the release of these resources.

The Chancellor yesterday referred to the aircraft industry, and, of course, there has been some increase there, but a very large part of that increase occurred by the middle of 1952, not long after last year's Budget. I must also point out, as far as engineering as a whole and vehicles are concerned, the really striking increase that took place there of 200,000 —in my view a very necessary increase— between June, 1950, and December, 1951. Since then there has been no increase at all in this vital, important group of industries.

How are we to explain this failure, as it must be admitted, of re-deployment? I would venture the following explanation. The truth about the changes in investment, in stocks and stock-building is, I think, that monetary policy has not had such a decisive effect. I think a far more important point is the expectations of businessmen and traders all along the line, and the level of demand itself. I believe these play a much more important part than credit and interest rates. I will concede straight away—indeed, it is part of my indictment of the Government—that the Bank rate policy created, and I say was deliberately intended to create, an atmosphere of pessimism and uncertainty, which was calculated to discourge the accumulation of stocks. It did more than that; it created this atmosphere throughout the whole of the economy.

The result was a fall in stock-building, much of which I think was inevitable, and which I would not myself say was regrettable in the circumstances. But I repeat that the important point is that re-deployment of labour should have taken place but has not taken place. I believe the reason for that was that we have not got in those industries, particularly the investment industries, the climate of opinion which at the moment is inclined to take on more labour.

In other words, there is pessimism, uncertainty, general worry and anxiety about future prospects, which it was the explicit purpose of the Bank rate policy to create. As a result, resources have been released but not taken into the vital services, and, therefore, we have a situation where production is stagnant. It is not enough for the Chancellor to say, as he said on various occasions, "We have released resources for export," or to say, as the Survey does, The economy … is in a better position to respond to any increased demand for our goods in overseas markets. That is all very well if there is any increase in demand, but if there is none, of course it does not help us at all. Nor is it any good for the Chancellor to say, "We have created room to expand exports," unless they are really going to expand.

It is not only a matter of exports. The Chancellor is really saying, "We have created unemployment. That is a fine thing to do. Now the people can come along and employ the labour." But they are not employing the labour; they are not coming along. Exports are not expanding and investment is not going up. All that is largely due to the Governments' policy. I draw the attention of the Committee to one other important sentence in the Survey, that we are now dependent simply and solely on the expectations of businessmen in a way that we have not been when there was a high level of demand on which we could rely for an expansion taking place. Now we are at the mercy of what businessmen may think may happen some time.

I believe that in his heart of hearts the Chancellor has some recognition of the dilemma in which he finds himself. Indeed, if he had not this recognition it is very hard to see how, on the basis of the balance of payments figures, he would still be pressing for more exports; it is difficult to see why he would not be satisfied with the position of £300 million, including the defence aid; it is difficult to see why he should be so concerned to stimulate a demand for investment and how this should be done.

In other words, I think in his heart of hearts he realises what this Budget does not face up to, that it is not a booming, flourishing economy progressing in a splendid way, but a stagnant economy with production flagging which had to be given a shot in the arm. That is the real background to the Budget proposals in the light of which we have to judge their importance. We have to ask ourselves: do the proposals match up to the needs— the needs, I say, which are very different from those described by the Chancellor?

There is one aspect of this which I do not propose to touch on. If we are thinking in terms of expansion of exports —and we are all agreed that that is vitally important—a large part of it must depend on international factors, and the policy being followed in the international field. I leave that to my right hon. and hon. Friends to develop, saying, only briefly, that it is not good enough for the Chancellor to come along and say, "It is an awful thing, but I am afraid that other Governments keep on shutting out our goods." Why do they do that? Because we shut out theirs. There is a process taking place in the dollar world, which is described euphemistically as disinflationary, which involves people continuing to buy less and less from each other, and unless we can change the climate of opinion and policies in the non-dollar world the prospect is extremely bleak.

Let me add one other thing. There is a good deal of talk about making sterling scarce, and I understand the arguments, but let us bear this in mind—sterling can be made just a bit too scarce, so scarce that people have not got it and will not buy our goods in consequence. I would urge the Chancellor to watch that point, otherwise he will not find much opportunity for expanding exports.

Turning to the measures themselves, let me say one word about the food subsidies. The right hon. Gentleman has avoided a frontal attack upon them, and I suppose that in the light of what was said in the Tory Press and of the arguments pressed upon him by reactionary people and journalists, we must be slightly relieved. We must be glad that the Trades Union Congress this time has been listened to, and that the arguments which were put forward very forcibly from these benches last year not only about the unfairness of the cuts but the dangerous effect on the costs in the export trade have now been taken to heart.

Indeed, I wish they had been taken a little more to heart, because the fact remains that in a quiet sort of way the Chancellor has cut the food subsidies by at least another £30 million, to which we have to add the reduction in the sugar subsidy which he claims will not put up prices. I hope he is right, but we should be wise to assume that something like another £40 million is going on to the consumers in other prices.

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

I do not want to interrupt, but for the sake of accuracy may I point out that I said it was not clearly necessary for the price to go up.

Mr. Gaitskell

I can understand the uneasiness of the right hon. Gentleman. There were certain remarks in the speech of the Chancellor about housing subsidies which have given rise to much concern on these benches. The right hon. Gentleman seemed to imply that having made it very difficult for people to buy houses by putting up the rate of interest, he was now going to put up the rents and cut the subsidies so that they could not become tenants of houses either. That is one way of cutting a housing programme, if that is what he is trying to do. [Interruption.] Do not let hon. Members imagine, from the figures we have had, that there has been any great response to the proposal that people should buy a lot more houses. The figures that the Minister of Housing and Local Government gave the other day show that very clearly, and we all have experience of it in our local authorities. However, I will leave that point to be developed by others.

There are two things that the Chancellor has done which have our approval. I think it was right to restore the initial allowances. When the suspension was announced it was recognised as a temporary measure and one that had to be brought in at the beginning of rearmament. But why has the right hon. Gentleman limited the restoration to 20 per cent.? Why not put it back to 40 per cent.? After all, there is quite a lot to be said for giving people encouragement, to equip themselves, is there not? We want to increase investment.

If he will not increase the figure to 40 per cent. for everybody, may I suggest this to him? He has put it at 40 per cent. for mining concerns and has introduced thereby an interesting development, a discrimination in the use of initial allowances so that he can encourage one type of development rather than another. I suggest that the right hon. Gentleman might consider going a bit further with that if he wants to encourage exports and a certain type of investment. Why not give higher initial allowances, as I think was suggested by the Millard Tucker Report, to industries in which the Government want to encourage investment?

The second proposal with which we agree, so far as it goes, is the removal of the absurd and bad Excess Profits Levy. Our views on this, unlike those of the Chancellor, have never changed; we always thought it was a bad tax. But what a performance! He brings it in one year, we spend hours and hours of Parliamentary time on it. Hon. Gentlemen opposite really must be feeling rather fed up about the time they spent in trying to persuade the right hon. Gentleman to make concessions. And goodness knows how much time has been spent by accountants and lawyers, and will still be spent. And then the Chancellor announces its withdrawal next year. I suppose we must write it off as the price of the Prime Minister when an Election is on.

There is one important comment I have to make in this connection. When the Chancellor brought in the Excess Profits Levy, he reduced the Profits Tax. He has not said anything about replac- ing this Profits Tax when he takes off the Excess Profits Levy. I ask him straight away: Does this mean that there is to be no replacement at all; that, in fact, not only are we to have the removal of the E.P.L. but a lower level of Profits Tax than existed before it was imposed?

There are a number of concessions, some not very important, some quite important, and we shall go into those when the Finance Bill comes along. However, I must refer to one, and that is the predeliction of the Chancellor for cricket. This, of course, represents a victory for the Parliamentary Private Secretary of the Chancellor. No doubt, as I encouraged the hon. Gentleman last year to do his best, I suppose I ought not to complain, but the hon. Member for Chelmsford (Mr. Ashton) should remember that he was not only a cricket blue but a soccer blue and a hockey blue as well. I do not mind telling the Chancellor that on this side of the Committee there are a large number of people interested in all sorts of other sports. There are champion swimmers and champion boxers and very good rugby players, and we shall be after him, when the Finance Bill comes along, to get this concession extended to all sports.

Now I turn to rather more serious considerations. The major change consists of the reductions in Purchase Tax and Income Tax and the purpose of those reductions is fairly clear. It is to increase demand, to give the economy a boost, as I think the Chancellor called it in his broadcast. We have to ask three questions about this. First, is it desirable that there should be this release of extra purchasing power? Secondly, is it going to the right places from the point of view of the economy? Thirdly, are the beneficiaries of this the right beneficiaries? In other words, is the largesse distributed fairly?

As to the first, I do not think there is much doubt that the stagnation into which the Government have allowed industry to fall produces the need for more spending. I want to ask the Chancellor, or whoever is replying, this question: Do the Government wish to increase consumption? I should have thought that with the state of the economy as a whole the prime need, apart from expanding exports, was an expansion in investment. I do not know and I want to know, does he think we can afford more consumption as well? Of course, it may be said that we need a little more consumption in order to encourage investment—a sort of pump-priming operation. Indeed, it is a part of the dilemma of a private enterprise economy that to persuade people to invest one has to give them good immediate prospects, which, incidentally, makes it harder to draw resources away from consumption.

If, however, one is to judge by the Purchase Tax concessions, I suppose the idea is that consumption should go up. Can we have some more light on this? What are the intentions of the Government? Do they want, for example, more cars to be sold on the home market? Have they given up all hope of an expansion in the export of cars? The industry, apart from the regrettable strike at Austins, has been producing fairly near capacity recently or certainly has every prospect of doing so.

We want to know exactly where we stand here. I am not saying that there may not be some case here, but I am saying that if we are to increase consumption and are aiming at full employment as well, then we cannot at the same time have an expansion of exports.

Mr. Arthur Colegate (Burton)

Of course we can.

Mr. Gaitskell

If there is only a limited amount available then, and if more comes to the home market less goes to export. If the hon. Member does not remember the early stages of the controversy between Sir Stafford Cripps and the motor car industry, I recommend him to look it up. First, they said they could never export more than 50 per cent. and demanded an enormous home quota. Then they were refused, and eventually exports went up to 80 per cent.

Our main criticism of these measures is that if we want to stimulate demand we believe it should have been done in a way which would help poorer people. We would like to have seen, and we think the Government should have seen to it, that the Purchase Tax should have become more and more of a luxury tax, as we were gradually making it. It would have been far better to have taken off the tax altogether from a number of semi-necessities or near necessities than it was to reduce the tax quite substantially on what are plainly and simply luxuries—jewellery, furs, and so on.

I turn to the Income Tax. The first striking feature of the Income Tax concessions is, of course, the great benefits which are to accrue to shareholders; £45 million of the £117 million will go to undistributed profits—I do not know how much goes to distributed profits, but there must be a certain amount there as well. What is the reason? Is it that the Chancellor does not want this money spent? If it is not meant to encourage additional spending, does the Chancellor think that because it will go to undistributed profits it will be put to reserve and saved in the ordinary way? If that is his view, and if he thinks that this will not have any effect on dividends, he is quite wrong. It is almost and I would say quite certain that the effect of this concession will be an increase in the rate of dividends. [Interruption.] As my right hon. Friend the Member for Bishop Auckland says, we should look at the Stock Exchange.

Why did the Chancellor make no reference to dividends? Does he still hold the view that he expressed at Question time recently that dividend increases were undesirable? Does he still believe that it is necessary to put a brake on them, and what does he think the effect of dividend increases will be on the wage situation? He may have thought a little more carefully about food subsidies, but he does not seem to have thought more seriously about the repercussions of dividend increases. The right thing would have been to sweep away the Excess Profits Levy, reimpose the Profits Tax and introduce dividend limitation at the same time.

Let me, however, take the case of the tax concession money which is not distributed and which has, in fact, increased the capital assets of shareholders. The argument put forward by the Chancellor of the Exchequer is that it is needed for investment. It is an argument that we have heard again and again from the other side of the Committee in previous debates of this kind. I should have thought that the figures shown in the National Income White Paper this year were conclusive evidence that there is no case whatever for giving shareholders extra money on the ground that companies were short of capital. As the White Paper shows clearly—the Economic Survey refers to it—no less than £800 million last year was available, after taxation, after payment of dividends, after deducting the actual capital invested in the business. That was £800 million available to repay debt and to pile up financial assets.

The argument that we have to give companies still more, and that by putting still more into their pockets you get them to invest more, seems completely and entirely unconvincing. There is nothing In history or logic to suggest that this concession will make the slightest difference to investment. Before the war taxation was at a very much lower level, but did we have a very high rate of investment? We had a very low rate of investment, which we regretted, in steel, coal and many other industries.

Speaking more generally, if it is more spending that is wanted, we must ask, "Who is to do the spending?" Surely the Chancellor must have asked himself that question. He had some relief to give, and I would have thought that in the circumstances he would ask, "How can I give this relief in a way that will ease where the shoe pinches most, where it will help people who need it most? "If that is the principle, let us look at the application. I make these comments. First of all, the particular concessions that the Chancellor has chosen to make here involve that nobody below Income Tax level gets a penny, so that virtually the whole of the old-age pensioners and lower-paid workers whom the Chancellor is so proud of having left out of paying Income Tax, are without any benefits whatever.

Secondly, within the Income Tax range, there are three undeniable propositions. The first is that the richer you are the far greater concessions you get. The second is that the fewer children and dependants you have the bigger the concession you get. The third is that the more your income consists of unearned income the bigger the concessions you get. I could give any number of examples, and I have no doubt that the right hon. Gentleman and his friends will hear some from all sides of the Committee. There are examples from the Financial Statement.

We can take what examples we like. Let us take the case of a married couple with two children at £500 a year. They get the magnificent sum of 4s. 6d. in the year as a result of this concession, or about a penny a week. Take, at the other end of the scale, that fortunate individual the eligible bachelor, with £100,000 a year of unearned income. [HON. MEMBERS: "Name."] I do not want to be personal about hon. Gentlemen opposite. Let me tell such individuals, whoever they are, that they will get out of this concession £2,500 in the year, a cool £50 a week, and that their tax-free income will go up 50 per cent. as a result of the Chancellor's generosity. This is the kind of man whom we are to encourage to work harder. [Laughter.] I know that hon. Gentlemen opposite do not like this comment.

If the Chancellor really wanted to increase consumption—I presume that he did—would it not have been better to help people who needed it more? For instance, would it not have been better to reduce the tax on earned income, to increase the earned income allowance, keeping the ceiling where it was, and to concentrate reliefs at the lower end of the tax scale, as we always did year after year in the Labour Government? Would it not have been better to have thought, "Could not I give some kind of help to people outside the tax range and particularly to old-age pensioners who, as most of us know from our constituency experience, are living in greater poverty than anybody else?" This is the way the largesse should have been distributed, and not in this entirely unfair and unsatisfactory manner.

The Budget has been presented on the basis of a false account of our balance-of-payments improvement. That improvement was due very largely to fortuitous and perhaps temporary changes in world prices, not caused, I think we all agree, by Government policy. For the rest, it was due to cuts in imports made possible only by a fall in investment in stocks, which, in turn, was possible only because of the higher degree of stockpiling carried out in 1951. In so far as Government policy had anything to do with this, as the Economic Survey shows, it was simply to reduce production and to create stagnation in our economy. This stagna- tion is the real justification for the concessions, a stagnation which leaves us today two years behind. We are still producing less, if the preliminary February figures are to be believed, than we were two years ago, instead of the steady progress of 3 per cent. or 4 per cent. per annum, or even more, that we had in the previous years.

This stagnation is the real cause for the Budget concessions. In our opinion, these concessions will not be sufficient to galvanise the economy into the higher state of activity which is so vital, so long as the Government fail to take the lead in combating deflationary policies abroad as well as at home, so long as the Government refuse to try to alter that pessimistic climate of opinion which they themselves have created, and so long as they refuse to take far more positive action to procure the effective re-equipment of industry at home.

But above all, this Budget marks the sharp reversal of the progress made in these last years towards social justice. [Interruption.] I ask the Prime Minister, whom I am very pleased to see here—he does not always honour us with his presence-—because he obviously has not followed my speech, to read it and he will see the answer. Hon. Members opposite can say what they like. One thing that they cannot deny is that the effect of this Budget is to increase substantially, instead of diminishing, the differences in incomes. It helps most the least deserving people. [An HON. MEMBER: "What are you getting at? "] It may please the City, the financial Press and the company directors, but it is not, I venture to say, on them that the future of our country depends so much as upon the workers in our industries. For them—let us face it—the Budget offers nothing more than a few crumbs, as it were, falling from the rich man's table.

Like last year's Budget this also is called an incentive Budget. Like last year's Budget it is unfair. Like last year's Budget I believe it will fail to produce that rise in production which is long overdue. And, like last year's Budget, it will long be remembered as only one more example of the Tory efforts to put back the clock and to strengthen the wealth, power and privilege of the well-to-do.

5.12 p.m.

Mr. Ralph Assheton (Blackburn, West)

When my right hon. Friend the Chancellor of the Exchequer sat down last night at the end of his brilliant Budget speech, I was profoundly thankful for the country but I was very sorry for the right hon. Member for Leeds, South (Mr. Gaitskell), who has had to make the first speech today. He had a very difficult task indeed. Of course, he avoided some of his difficulty by spending the greater part of the time discussing not the Budget, but the economic state of the nation, and during that time he did his best to try to make us all as miserable as he could.

Mr. A. C. Manuel (Central Ayrshire)

We could not be any worse.

Mr. Assheton

It must have been very discouraging for the right hon. Member for Leeds, South when he woke up this morning and looked at the newspaper headlines. In "The Times" he would have seen, "Lightening the burden." [HON. MEMBERS: "Whose burden?"] He would have seen in the "News Chronicle," "Butler's bumper Budget." In the "Manchester Guardian" he would have seen, "Mr. Butler eases the yoke"; in the "Daily Telegraph," "A brave and a wise Budget"—[HON. MEMBERS: "Who for?'"]—and so on. The only two papers in which he could have found any criticism were the "Daily Herald" and the "Daily Worker," who I am glad to see in step again at last. What is more, they are both in step again with the Opposition Front Bench. That must be very comforting, but I do not suppose it will last for very long.

When the former Chancellor of the Exchequer came to criticise the Budget in detail, he found his problem a very difficult one. He talked about dividends not being limited. I should like him to study the newspapers. If he looks, for example, at today's issue of "The Times," he will see that among those companies today reporting their dividends, more have reduced their dividends than have increased them. When it came to the right hon. Gentleman's attack upon the reduction in the Income Tax, what were the main items of his attack? They were taken from an excellent—excellent, from the point of view of the party opposite—article by the right hon. Member for Battersea, North (Mr. Jay) in today's "Daily Herald." One of his incontro- vertible propositions was that, "The bigger your income, the bigger relief you get." That is quite true. When taxes are reduced, that is what always happens. If the tax on beer is reduced by Id. a pint, the man who drinks eight pints will get much more tax reduction than the man who drinks one pint.

The next proposition of the right hon. Member for Battersea, North was that, "perhaps stranger still, the larger his family, the less a man will get out of the Budget." Of course, if a man's income does not suffer any tax because he has a number of children, he cannot get any tax reductions in Income Tax—he is not paying any Income Tax; but it is quite wrong to say that he does not get anything out of the Budget, because his wife, who goes into the shops to buy things for her children, has to pay less Purchase Tax, and so everybody will get something out of it. [HON. MEMBERS: "Nonsense."] Hon. Members opposite say that nobody benefits except those who actually receive the Income Tax reliefs, 'but is that true? Of course it is not. The Chancellor told us yesterday that half of these reliefs went to industry. What does that mean? [HON. MEMBERS: "More dividends."] No, It means that there will be money in industry to secure the employment and pay the wages of the workers. [HON. MEMBERS: "Oh!"] Hon. Members opposite can laugh and jeer, but that is the truth.

We have put the case for some time that the cash of industry was running down—and it had been running down— and wants reinforcing. It is as important to working people as to any other section of the community that industry should be in a position to pay their wages and provide for the improvements which we need.

Mr. Frederick Lee (Newton) rose—

Mr. Assheton

Perhaps the hon. Member will forgive me if I do not give way.

So it is that the right hon. Member for Leeds, South has had a difficult task. When I was leaving the House last night, one of my right hon. Friends on the Front Bench said that even the ranks of Tuscany could scarce afford to jeer. And so it is, because my right hon. Friend has made a Budget which is not only wise but is popular, as hon. Members opposite will find when they go to their con- stituencies. It is wise and popular, too, because my right hon. Friend has begun to take the weight off the backs of the people and off the back of industry.

The opening part of my right hon. Friend's speech yesterday was a fair and honest review of the year. The large number of beneficial changes which he has made show that he has taken enormous pains in considering the various points that have been raised during the course of the year. I do not remember any Chancellor of the Exchequer who has shown a greater grasp of his subject or a greater attention to detail.

This is a Budget which, for the first time since the war, moves in a new direction and I am very glad to see it. There are no new taxes and a great many taxes have been reduced. That is a good direction in which to go, whatever hon. Members opposite may think. The Conservative carrot replaces the Socialist stick and carrots are very good for lots of people besides donkeys.

We were all obliged to concede that the Chancellor was quite right in providing for increased defence expenditure. That is necessary; we can obviously negotiate best from strength. Increasing the strength of N.A.T.O. must have had a tremendous influence in bringing about the new situation in world politics and that must be maintained. I for one was glad to see that the civil expenditure had been reduced by £60 million, although prices had been rising. That is a distinct achievement, but I am very glad that the Chancellor admits that the pressure has to be kept on and that he agrees that taxation is still much too heavy. There is no doubt that expenditure is still much too high. I am sure the Chancellor recognises that and I am sure that he will do all he can to reduce it.

There is still plenty of scope for economy and reducing expenditure. There are plenty of economies to make—[HON. MEMBERS: "Where?"]—I gave the Committee a great many examples last year and I will give more this year. I am glad to see that there has been a reduction of 22,000 civil servants, but that is not nearly enough. In any large organisation it is very difficult to make economies, and the State is the largest organisation in the country. We have to be unceasingly vigilant if we want to do it. It is not only in the State that we want to do this, but in the nationalised industries, which are almost part of the State. [An HON. MEMBER: "In local government?"] Local government would be another field for economy, and I will say a word about that later.

I want to say a word about the Welfare State. The Chancellor has proved in two Budgets that the Tories are not out to destroy the Welfare State. [HON. MEMBERS: "Oh!"] He has proved that. What we want to do is to make it solvent and to earn enough money to pay for it and continue the policy, which is essentially a Conservative policy, of letting the strong help the weak. I suggest to the Committee that we must find ways of doing that so that the more capable citizens are not crippled in order to benefit those who are less worthy or less industrious. We want to do it in such a way that the more capable citizens are not crippled; they can bear a heavy burden, but they must not be crippled.

I think that the review of the Health Service which the Minister of Health is to institute is timely. I feel that more financial responsibility might be placed on the shoulders of the hospital boards and that there should be less effort spent in the minute control of expenditure from Whitehall. That applies right through the administrative machine of Government where there are always too many people watching each other spend money and not enough people in responsible positions having the duty of controlling that expenditure and being responsible for expenditure. We all know many faults in the administrative machine through daily contact with it in our own humble way.

If, on both sides of the Committee, we work together and give Ministers the advantage of our experience—as many hon. Members on both sides of the Committee have great experience, particularly in local government—we can see that our money is better spent and that we get value for it. I do not believe that the people of this country mind paying well for a good thing, but they do hate seeing their money wasted.

Coming to the specific proposals in the Budget, I touch, first, upon sugar and congratulate the Minister of Food, whom I am glad to see here, and also the Chancellor on the proposals which have been put forward. Their action will be approved by every housewife in Britain. It is one of the things which made the Chancellor's Budget speech a popular speech. As the derationing process goes on and prices fall, I hope that subsidies can be further reduced. Subsidies, whether on food or housing, suffer from one great disadvantage. That is that they come out of the pockets of all the taxpayers or ratepayers, however poor they are, and go into the pockets of everybody, however rich they are; so it is not a clever device and we want to find something better.

Industry, I know, will welcome the re-introduction of the initial allowances. There are some, I suppose, who would share the criticism made by the right hon. Member for Leeds, South that the 20 per cent. was not 40 per cent., but I agree with the Chancellor. I think 20 per cent. is adequate and is to be preferred to 40 per cent. One must remember, also, that this is really only an advance of money to industry free of interest, nothing more, and that it has to be provided for. I look forward to the revision of the whole system of depreciation when the Royal Commission report.

I trust that the total wear and tear allowances will be increased in many cases, but, as an interim measure, I think that this attempt to deal with the initial allowances will be welcomed by industry. I hope that in the period when the final review takes place the question of depreciation on buildings will be seriously considered apart from industrial buildings. I attach importance to the new allowances for capital expenditure on mining and extractive operations, particularly overseas. I think this is very important and I am glad that the Chancellor has done it.

I come to the Purchase Tax which, of course, is the popular feature of the Budget. Hon. Members opposite may say what they like in their constituencies, but people will be glad of these reductions. A general reduction of 25 per cent. will be widely welcomed and the moderation of the reduction will avoid some of the most serious repercussions for retailers who have stocks and who undoubtedly suffer hardship when a tax is reduced. The Hutton Report has not found a solution for that particular difficulty.

Mr. Sydney Silverman (Nelson and Colne)

I was wondering whether the right hon. Member had abandoned his view that it would assist the textile trade if Purchase Tax came off textiles.

Mr. Assheton

I am coming to that; I have a note of it.

I was saying that the country would be very glad—including constituents of the hon. Member and mine—to see this reduction in Purchase Tax. Many will be glad to see that the reduction has not been more than a reasonable amount on this occasion because, as the Hutton Report points out, if we make too severe a cut at any time retailers suffer very great hardship and that has to be borne in mind. I think the retailers will have to endure hardship; I cannot see a way out of it, but I hope that by taking this nasty medicine they will eventually benefit by better trade and that must be their hope. The tax on so many articles of daily household use has been reduced—cutlery, carpets, bicycles, toys, a hundred and one things that are bought in the shops, and that will be very welcome.

This means also that the cost of living will be reduced. I do not know whether it will reduce the cost-of-living index, but, certainly, the cost of living will be reduced and that is what really affects the housewife more than the index, so she will be very pleased. The increase in the cost of living—not in the index—has been causing more trouble in this country and giving rise to more complaints than any single thing since the war. Here, we are coming to the conclusion that much of this cost-of-living increase has been due to taxes being too high. I have been saying so for years.

We now recognise that it is true and we shall reduce taxes and prices and reduce the cost of living. We are getting firmly started once again on the right road, the road to a cheaper and greater supply of goods. I am sorry that the right hon. Member for Leeds, South is anxious lest the consumer will be able to buy more things, but I trust that some people will enjoy a better standard of life than they did last year. The £60 million in this field in a full year will bring relief to every householder in the country.

About textiles, the hon. Member for Nelson and Colne (Mr. S. Silverman) must remember this. I said last year, and I still say, that I want Purchase Tax taken right off textiles. That is my ambition. Last year he and I, and various other Lancashire and Yorkshire Members, were able to make certain protests about this tax, and we got our reductions then. We got it a year ahead of the rest of the country, and we must be profoundly thankful for that because it came at a time when our trade was suffering badly. We got our reduction in tax when it was more important to us, and we are very thankful to the Chancellor for letting us have it.

Mr. S. Silverman rose—

Mr. Assheton

I cannot give way again. Perhaps later on, during the Finance Bill, we shall have an opportunity of discussing this in more detail. There are so many topics that I want to examine, and I do not want to take more than a reasonable time.

I know that in my part of the country both amateur dramatic societies and sports clubs will be very pleased about the change made in the Entertainments Duty. I do not believe that even the most ardent football and dog racing fans will grudge cricket its deserved good fortune—not in Lancashire anyway.

The Chancellor's proposals on overseas profits are wise. His decision with regard to profits blocked overseas is eminently practical and sound, and I am grateful to him for dealing with this matter which we have been representing to him for so long. People cannot be expected to pay tax on profits which cannot be brought home, but when they have got the profits the tax can be paid to the Chancellor. I am sure, also, that the minor relief on the savings of those over 65 will be very much welcomed, as will be the increased allowances for dependent relatives and housekeepers.

I am glad to see the concession to authors, but I hope that before next year the Chancellor will be good enough to look into the case of inventors, which, to my mind, is just as important, and is perhaps of particular importance to the country at this time.

Next I want to thank the Chancellor very much indeed for the decision about the business chattels scheme. I was particularly glad of his proposal to settle those claims, long overdue, of business people who had their goods destroyed in the war, who, although they had paid their premiums, had not been paid for the goods which were destroyed. The fact that those claims had not been paid was a standing complaint which I am glad to see removed.

On E.P.L. I say very little. The right hon. Member for Leeds, South has the same views about E.P.L. as myself. I congratulate the Chancellor on deciding to abandon it. It is a striking disincentive to the most enterprising firms, and I hope that after our long experience of it this tax will never again appear on the Statute Book. Its vice has been proved up to the hilt.

We shall have plenty of opportunity later to go into the details of the Income Tax changes, and who exactly is getting what, but I still maintain that we cannot expect any reduction of the standard rate of tax to benefit the man with the smaller income as much as the man with the larger income. However much that tax is reduced, the man with the larger income will always benefit more than the man with the smaller income, so that criticism of the right hon. Gentleman is really nothing more than a debating point; a very good debating point, and a very good platform point which hon. Members opposite can make in their speeches throughout the country, but not sensible.

The Chancellor was so right to remind us that industry is an organic structure of men and women, and that no depreciation allowances, or anything like that, will have half as good a psychological effect as reducing Income Tax. That is the fact, and I congratulate the Chancellor on what he has done. I wish he had reduced it more. I wish he had been able to reduce it by 1s. instead of 6d., but I dare say that he was bearing in mind the effect his Budget has abroad and did not want to close his Budget without providing for a handsome surplus. Bankers and traders overseas look very carefully at our affairs, and they look particularly carefully at our note issue, as I always find when talking to bankers overseas, when assessing the value of sterling. If we are to achieve our great and most important objective of all, namely, restoring free exchange in sterling, we must be careful to do nothing to check rising confidence. So I accept the Chancellor's judgment on that, and I hope he will do more for us next year.

I think commerce would rather have seen larger Income Tax reductions than in the initial allowances. The initial allowances are very useful for industry and manufacturers, but for commerce greater reduction in Income Tax would have been more helpful, as it would have been to the professional man and woman. I have no doubt that the Chancellor has all these things in mind, and I earnestly hope that before this Government reaches the end of its allotted span—and I have no idea how long that span will be— Income Tax will be reduced to 7s. 6d. in the £.

I hope that local authorities will be encouraged by the remission of Stamp Duty to finance their housing directly by loans. I cannot pretend to be happy to see a housing programme, which is essentially a long-term investment, being sustained by the issue of Treasury bills. That is not satisfactory finance. One does not want to borrow short and lend long; that gets people into trouble; it always has done, and we must get out of it. I dare say that a long-term Government loan to mop up genuine savings may be in the Chancellor's mind to meet this criticism, but I should not dream of asking him to make any reference to it unless he wants to. When such a loan does come, if it does, I should like to suggest that one tranche of it might be issued at a low rate of interest with a special arrangement for its use in settling Death Duties, in the same way that Victory Bonds were used after the First World, War, because the Death Duties tax on capital is having a very serious effect on private businesss. I do not think that can be denied.

I think that the Chancellor has produced a fair Budget which encourages production and trade, and which gives incentive to workers and, to some extent, to work providers, although work providers do not come out of it very well yet. Before the end of next year I hope to see the end of food rationing and a further reduction in taxation. I look forward to the Chancellor's proposals for reviewing the whole system of the taxation of profits. The Royal Commission is sitting on that and its work is of the highest importance.

I also want to hear, during the life of this Government, a plan for dealing with the finances of local Government, because the present source of income of local government is entirely inadequate and unsatisfactory. It tends to make local authorities the agents of Whitehall rather than the independent and responsible bodies they were intended to be and ought to be. That is more important than dealing with the functions of local authorities, which must come afterwards. Deal with their finances first and see that they have got the money before putting further burdens upon them or spending time deciding what their functions or boundaries should be. Finance comes first there.

The Chancellor has undoubtedly taken some risks, as "The Times" pointed out so wisely this morning. More than half the concessions have to be paid for in future Budgets. Do not let us forget that. These risks will be justified only if he succeeds. I think he will succeed, as indeed he must, in further reducing expenditure and giving every incentive he can to saving. He has paid more attention in this Budget to the needs of trade and of industry, and that benefits every man, woman and child. We thank him for what he has done; we trust he will do more next year; we shall support his poposals with confidence, and we wish him well on his journey down the right road.

5.39 p.m.

Mr. W. E. Wheeldon (Birmingham, Small Heath)

I rise to address the Committee for the first time, and in doing so I am sure that I can rely upon that indulgence which the Committee, by tradition, always gives to those addressing it for the first time. I understand that the two essentials of a maiden speech are, first, brevity, and, secondly, that it should be as far as possible non-controversial. The first I think is quite easy, and I shall not err in that respect; but I am not quite so sure about the second, having regard to the debate which is taking place today.

The two speeches to which we have just listened have been very wide ranging and I do not propose to deal with matters that have been discussed already. I prefer to devote my remarks to one comparatively small but, I believe, important aspect which arises from the Govern- ment's financial policy. I refer to the effect of the financial policy of the Government on local government.

That matter was referred to briefly by the right hon. Member for Blackburn, West (Mr. Assheton). He did not develop the point except to hope that the Government would deal with the finances of local government before long. I agree with him that finance should be dealt with before functions. That is the logical order. I would go further and say it is high time that a distinct and radical step was taken to alter the present foundations of local government finance. Perhaps the most important and immediate question is that of derating. There are also the matters of assessment and equalisation grants, and a general review of the basis of the Government contribution to local government expenditure.

The matter to which I wish to refer more fully is the capital expenditure which local authorities today are more or less compelled to incur. The figure is now running at about £400 million a year. We have heard criticisms of local government expenditure, but much of it, if not the whole, is not only desirable, but necessary. Arrears from the war still need to be overtaken. What is more, every penny piece of this expenditure must be approved by a Department of the central Government, and to that extent it may be regarded as expenditure which is essential for the well-being of the citizen.

If there is capital expenditure for that amount there must also be a fairly substantial amount spent each year in interest payments. I believe that the figure for the current financial year will be about £70 million. Obviously, therefore, if local authorities have to pay that sum by way of interest payments they are seriously concerned about the action of the Government in increasing the rate of interest on moneys borrowed from the Public Works Loan Board. It will be within the recollection of hon. Members that the rate was increased from 3 per cent. to 4¼ per cent. That has made a substantial difference to the burden on local authorities.

I wish to illustrate that by referring to Birmingham; first, because I know it best, having served as a member of the local authority for more than 25 years, and secondly, because the experience of Birmingham is not singular. Other large county boroughs, and indeed some of the smaller authorities have had a similar experience. Therefore, what I say can be applied quite fairly to local government generally.

In Birmingham, the total amount of interest paid in the current financial year amounts approximately to £1 million. I am not suggesting that the whole of this amount is borne as a direct charge on the rates. It is not. Some of it will be paid by the citizen as a taxpayer, or as a ratepayer, or as a consumer of local government services. But, at any rate, it has to be paid. Schools, roads, houses, almost every aspect of local government work today is feeling the additional burden of interest payments.

I shall not go into the various services, because that would take too long, but I wish to refer to one which, today, is responsible for the greatest expenditure. I refer, of course, to housing. Today, in most local authorities, housing represents approximately 60 per cent. of the capital expenditure. In Birmingham, it is just under 60 per cent. The average cost of houses being built in the City of Birmingham is £1,670. The weekly economic rent, exclusive of rates, amounts to 36s. Of that sum, no less than 19s. arises from interest payments. More than half of the economic rent of the house is due to interest payments.

To put it another way, the total cost of an average house in Birmingham today on the 4½ per cent. basis is £2,970 in interest charges alone. On the old 3 per cent. basis, which applied up to November, 1951, the total interest payments in respect of that house over its 60 years of life amounted to £1,951. The difference between those figures is £1,019. That, in effect, is the additional cost which the Birmingham local authority has to bear by reason of the Government's decision to increase the rate of interest to borrowers from the Public Works Loan Board.

From housing I turn to the general picture to illustrate the same story. In Birmingham, it is necessary every year to raise about £13 million capital expenditure. About £3 million of that is found internally and the remaining £10 million has to be borrowed in one form or an- other. The rise in the interest rate has cost the city £125,000 a year, on the assumption, as I said a moment ago, that £10 million of capital expenditure is required to be borrowed each year. In other words, it is equivalent of a 4d. rate and that is a very high price to pay for this dear money policy.

My third illustration refers to something fairly well known to hon. Members, the recent loan raised by the City of Birmingham. I was Chairman of the Finance Committee at that time, and, therefore, I am particularly and closely acquainted with that operation. The term of that loan, if it runs for the proper period, is 17 years. The additional interest we are called upon to pay as a result of the increase from 3 per cent. to 4¼ per cent. is about £75,000 a year. That is an additional cost due to the increase in the Bank rate. But I need hardly say that it is not now possible to borrow at 4¼ per cent. on the market. No local authority that I know of can go on the market today and borrow at much under 4½ per cent. Unless I am wrong, I believe that shortly, when there is a queue of local authorities wishing to go on the market, rates will harden still further and that even more heavy interest burdens will have to be met.

Yesterday, the Chancellor referred to the freedom that local authorities had been given to go on to the market. I suggest that that freedom is quite fictitious and spurious. There is no real freedom for local authorities today as between borrowing from the Public Works Loan Board and going on to the market. When the rate of interest was 2½ per cent. or 3 per cent. local authorities were happy to borrow from the Board despite the fact that certain rigid conditions applied. What is more, the Chancellor seemed to suggest that the conditions were much more favourable now. Against that, I would say that by raising the rate of interest the Government deliberately made conditions of borrowing from the Board much more onerous and, therefore, forced local authorities on to the market.

That was the position with Birmingham and, I think, with other local authorities also. The Treasury still persist in adhering to regulations which are antiquated and indefensibly restrictive. Every loan borrowed from the Public Works Loan Board must be borrowed for the full period of the loan sanction. Obviously, no local authority in its senses, or no local authority which has a sense of duty to its citizens and ratepayers, will pay 4½ per cent. for periods of 40 to 60 years. The authorities follow the very sound practice that when rates are high one should borrow short.

This is a most important question for the local authorities. The representations made by the Association of Municipal Corporations and other local government bodies are receiving the consideration of the Government. I hope that very soon it will be possible for a favourable decision to be made. I hope that there will be a change which will allow local authorities to have a real freedom to go on to the market. There is no justification for a continuance of the present type of regulation.

I trust that I have been able to emphasise, or re-emphasise, that the rate of interest is a most important factor today in civic life and development, and that the existing rate is a grievous burden which will prove a serious handicap in the development of the legitimate and most necessary local government activities which are taking place.

5.55 p.m.

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

There falls to me the always agreeable duty of congratulating an hon. Member on his maiden speech. The hon. Member for Small Heath (Mr. Wheeldon) made a most agreeable, polished and knowledgeable speech. I think that I speak for the whole Committee when I say that it was evident that the hon. Member was speaking with authority upon a subject with which plainly he is well acquainted, and that he spoke with a successful concealment of the nervousness which all of us, in our hearts, suffer when we go through the ordeal which he has just so successfully surmounted.

I hope that the hon. Gentleman will contribute to future debates with the same clarity and force as he has on this occasion and that he will feel himself no more trammelled by the need for relative impartiality than he did this afternoon during his maiden speech. He started with the great advantage of having succeeded an hon. Member whom all of us on both sides of the Committee knew, respected and admired. The hon. Member fully justified his succession to his late hon. Friend's seat by his very agreeable demeanour this afternoon. To add one not particularly impartial comment, I might say that I was delighted to listen to a speech upon local government finance by a representative of the great city of Birmingham which, as hon. Members know, has set so successful an example of recourse to the stock market under the new freedom given to local authorities.

I wish to address a few observations to the Committee in reply to certain parts of the speech made by the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell). In fairness to the right hon. Gentleman, I should tell the Committee that he was courteous enough to indicate that it would not be possible for him to be here. I understand that his absence has something to do with a subsequent appearance in the Light Programme of the B.B.C. I thought that I ought to tell hon. Members that since the right hon. Gentleman, I know, observes all the punctilio and courtesy of debate and I should not like to leave the Committee under any apprehension that the right hon. Gentleman had been guilty of a breach of those standards on this occasion. I, equally, communicated to the right hon. Gentleman the fact that his absence would not wholly prevent me suggesting to the Committee one or two of the reasons why some of his conclusions appeared to me to be in some degree fallacious.

The right hon. Gentleman's speech fell very neatly into two parts. There was— and I use the term in no discourtesy—the economic lecture delivered with his usual lucidity, leading, as it always does, to the conclusion which was politically convenient to the right hon. Gentleman. I thought that the right hon. Gentleman was a little less than generous, not to Her Majesty's Government—we do not seek his generosity—but to the British people, when he went out of his way to indicate that no particular efforts and no particular sacrifices had been made to achieve the improvement in our balance of payments position.

The right hon. Gentleman's flawless lucidity of exposition would perhaps have been a little more convincing if there had not come into my mind, as I am sure there came to the minds of many of us in this Committee, the recollection that the right hon. Gentleman, who was demonstrating, at any rate to his own satisfaction, the complete perfection of his own economic policy and the imperfections of the Chancellor's, was the same right hon. Gentleman who left the finances of the country in a condition of a grave and growing balance of payments crisis which required urgent action to prevent a national disaster. It would have become the right hon. Gentleman a little better if he had at one stage or other of his observations indicated that the heritage which he handed over to my right hon. Friend in October, 1951, was not exactly that of a smoothly running concern.

I shall not seek to weary the Committee with my own observations on much of the right hon. Gentleman's arguments on the plane of economic theory, since I understand that, if he has the good fortune to catch your eye, Mr. Speaker, my hon. Friend the Economic Secretary to the Treasury will make some comments on that topic. We therefore pass, as the right hon. Gentleman passed with it seemed to me manifest reluctance, from the high plane of economic theory to which he devoted the first part of his speech to the somewhat lower level of contemporary partisan politics to which he devoted the concluding parts of his observations.

I am bound to say, as my right hon. Friend the Member for Blackburn, West (Mr. Assheton) said, that we all sympathised with the right hon. Gentleman. It was pathetic to see a fine animal with all his fine qualities struggling with the all but impossible task of finding valid and penetrating criticisms of the Budget which my right hon. Friend introduced yesterday. It is always impressive to see a fine performer playing a very difficult part. It is amusing for everybody, except perhaps the performer, and I hope, therefore, that what I am about to say about that performance will not indicate any lack of understanding of the inherent difficulties of the right hon. Gentleman's position.

His speech displayed the same confusion of counsel about the Budget as those of us who read that remarkable organ found in this morning's "Daily Herald," and it is somewhat revealing that, on this particular topic, both on the first and second pages of that charming newspaper, there is an indication that my right hon. Friend's speech contained proposals of such obvious popularity as to indicate an election in the near future. "A Bold Bid for Popular Favour" is the description conveyed by the political correspondent, yet, on the first page, these same proposals are described as "A Thoroughly Unjust Budget." The right hon. Gentleman the Member for Batter-sea, North (Mr. Jay), who, I understand, provides the "Daily Herald" from time to time with such economic information as comes his way, referred to the tax reliefs as being on an unfair and unashamedly class basis.

Neither the right hon. Gentleman nor the "Daily Herald" can have it both ways. They must take a very curious view of the English people, and the Scottish and the Welsh peoples, if they think that a bold bid for popular favour can be made by a thoroughly unjust Budget. They cannot really claim simultaneously, though they can, no doubt, do it at separate times, both that my right hon. Friend indulged in acts of oppression of the poor in the interests of the rich, and, at the same time, was openly seeking popular electoral favour. Really, a great newspaper and those who take their opinions from it must make up their minds which of these two horses they are going to ride, because, if they do not, then inevitably they will fall off and find themselves on neither.

The right hon. Gentleman concentrated his argument this afternoon very much along the lines which those of us who read his right hon. Friend's article in this morning's "Daily Herald" could have forecast with quite remarkable accuracy. The whole gravamen of his case was that concessions were being heaped upon what he described as the least deserving, by which I understood him to mean what the late Sir Stafford Cripps used to describe more politely as the higher income groups, while, on the other hand, nothing was being done for other sections of the community who were in great need. I think that is a fair summary of that part of the right hon. Gentleman's speech, and I should like to follow it up a little.

First, let me follow up the implication that the concessions on Income Tax only matter to a few very rich men. There are some 16½ million Income Tax payers today, and that represents more than 16½ million people, since in many cases husband and wife are what the Inland Revenue crudely describe as one Income Tax unit, and, indeed, the income of that husband and wife is often the main support of a family. We are dealing, therefore, as far as I can make out, with the interests of something of the order of 30 million people, and it is important to appreciate that, as the result of what my right hon. Friend has done, every one of the Income Tax payers, who, with their families, make up these 30 million, gains some benefit by reduction of his liability to tax.

Now, I do not know exactly what category of people it is to which the right hon. Gentleman suggests that my right hon. Friend was so terribly oppressive. I do not know to whom the "Daily Herald" suggests that my right hon. Friend was terribly oppressive. Is it to the readers of the "Daily Herald," because, if it is, the "Daily Herald" itself does not seem to think so. As recently as 15th January, that distinguished organ of opinion put an advertisement in the "Advertisers' Weekly" containing the no doubt sound suggestion that advertisers would do good business by advertising in the "Daily Herald." In order to support this proposition, this assertion included these words: One-third better off than pre-war (despite increased cost of living) and with more than half of them enjoying two or more wage packets every week, 'Daily Herald' families have vast spending power. They do not seem to be doing so badly, despite the gloomy views of the right hon. Gentleman, and I assume that, before inserting an advertisement of that character and suggesting that people, on the basis of this assertion, should spend money on purchasing advertising space, a responsible newspaper sought advice from the normal sources of economic inspiration, and that, therefore, these are the views of the right hon. Gentleman the Member for Battersea, North.

But I do suggest to the Committee that file fair test, in the ultimate analysis, of the Budget proposals is not as to whether they serve in greater or less degree the precise individual or sectional interests of one section of society or another. Surely, the only test which this Committee ought to apply to the Budget proposals is, aye or no, whether they serve the fundamental interests of this nation and the fundamental necessity of revivifying and restoring our economy and our competitive power. I think it would be wrong if we were to conduct these proceedings solely on the basis of X being a penny better off and Y being a penny worse off, because, surely, in this Committee, we can all take it for granted that the greatest interest of everyone in this nation is the restored capacity of this nation's economy, because if we fail to restore it, everybody in every section of society will suffer, and if we succeed in restoring it, every section of society will gain.

But I will, none the less, try to analyse a little more fully than has been done so far the direction in which the concessions on direct taxation fall. I am not going to worry very much about that figure of the right hon. Gentleman's imagination—the bachelor with an unearned income of £100,000 a year. Within my limited acquaintance, such fortunate beings do not, as far as I know, exist, and, although the right hon. Gentleman the Member for Leeds, South is apparently more fortunate in his acquaintances, I do not think any of us need spend much time on this somewhat intangible figure.

I should like to go a little more into the sphere of reality. [Interruption.] I would say to the hon. Gentleman that even the appearance of a figure in a White Paper does not necessarily connote a real figure on a bench or in a street. What I think has not been brought out is that my right hon. Friend's proposals provide for a reduction of 6d., not only in the standard rate of Income Tax of 9s. 6d,. which comes down to 9s., but also in the three existing lower rates. The 7s. 6d. rate falls to 7s., the 5s. 6d. rate to 5s. and the 3s. rate to 2s. 6d., and the Committee will recall that it is at these lower levels that those taxpayers in the lower income groups are mainly taxed.

There are some millions of taxpayers, I understand, who only pay tax at the lowest rate, formerly 3s. and now to be 2s. 6d. The 6d. reduction on the lowest rate of 3s. is a reduction in the tax bill of those who pay at that rate only of no less than one-sixth—16⅔ per cent.—and hon. Members will notice that, as the 6d. reduction runs right through the tax scale, the biggest proportionate reduction in the tax bill comes at the bottom of the scale, falling, therefore, from one-sixth at the bottom to, I think I am right in saying, little more than l/38th in the case of the right hon. Gentleman's bachelor friend.

That makes it clear that the biggest proportionate reduction in the rate of tax applies to the lowest incomes which are subject to tax. Although the right hon. Gentleman rather brushed aside the various figures in the tax tables, it is the fact that even in the case of a somewhat more real figure than the right hon. Gentleman's friend, that of a single man with an earned income of £175, there is some appreciable gain. As we come a little higher up to the single person with an earned income of £300 a year, we find that his tax bill is cut by nearly £3 from £18 13s. 4d. to £15 16s. 8d.

There is another class of society worthy, I should have thought, of the attention of this Committee. Take the married couple with three children on £1,000 a year, a not unfamiliar type faced with not unfamiliar financial problems. That couple find their tax reduced by some £8. And so it goes on through the various salary scales. I think the right hon. Gentleman was hardly fair in omitting in this way from his allegations of my right hon. Friend's failure to deal with hardship all reference to the specific concessions to this end which are included in these proposals.

The context of what the right hon. Gentleman said was less than fair to the concessions made to those who have the heavy burden of maintaining on a small income a dependent relative or of employing a housekeeper; nor did he refer to a very welcome relief indeed, the age relief, which has been raised from £500 to £600. One cannot really judge what my right hon. Friend is doing if one ignores altogether what is done for real people in substantial numbers and, instead, spends one's time talking about people with unearned income of £100,000 a year.

At this stage of the Budget debate there is a chance to get some idea of the first thoughts of people in this Committee and outside upon my right hon. Friend's proposals, and it is the fact, like it or not, that, in general, those proposals have been received outside by a public which, if I may use the words of the old hymn, has been Slow to chide and swift to bless. It is the gathering realisation growing in the minds of our fellow countrymen that my right hon. Friend has succeeded in the twin task of concentrating much of his effort upon the major factor of stimulating national recovery, while not forgetting the human necessities which he has been able to help, which is responsible for the favourable reception his proposals have had. He has succeeded—a kind of success so rarely found—in combining fundamental economic purpose with the touch of common humanity.

As my right hon. Friend the Member for Blackburn, West pointed out, it is conspicuous that this is the first Budget for many years which neither increases taxation nor imposes new taxes. Indeed, it may interest hon. Members to know that if one excepts the Budget for 1945, at a time when the war was rapidly coming to an end, one has to go back to 1935 to find a precedent for this. Therefore, my right hon. Friend the Member for Blackburn, West, in his most interesting speech, was wholly right in pointing to the new approach to the problems of taxation which my right hon. Friend's proposals embody, the realisation of the immense burden of taxation borne in this country alike by industry and by the individual, and of the dangers which lurk in a burden of that weight.

The right hon. Member for Leeds, South showed in his closing words how fundamentally different was his approach to the subject of taxation. Referring with reluctant kindliness to my right hon. Friend's decision with regard to the Excess Profits Levy, he then went on to say that he would himself, if that had to be done, impose dividend limitation and raise the Profits Tax. That was a very revealing comment because it seemed to indicate that the right hon. Gentleman regarded high taxation upon industry, not as the necessary means of raising the national revenue, but as something that was good in itself and that it was wrong, even though it might be financially possible, to lighten the burden on industry.

I thought that attitude was equally revealed when the right hon. Gentleman referred to tax concessions as largesse. It is a curious conception, when a State, as our State is doing, is raising from its citizens a higher rate of taxation than has ever been known before, that when it becomes possible to relax in some small degree that burden, a right hon. Gentleman who has himself been a Chancellor of the Exchequer should refer to this small lightening of the burden as a distribution of largesse. That is a very revealing comment and shows the vast gulf which yawns between right hon. Gentlemen opposite and ourselves on this question of taxation.

One would have thought that the right hon. Gentleman, with all his economic knowledge, would have appreciated the fact that high taxation on industry, carried on year after year, has a good many ill effects which it may be possible to exaggerate but which it is not possible to ignore. The knowledge that as profits rise so in proportion more goes to the tax gatherer must, in the course of years, somewhat blunt and diminish the willingness to make new effort, extra effort, to experiment, to plan and to go ahead, which are, of course, the very dynamics of a free enterprise society.

It seemed to me that, from this point of view, the right hon. Gentleman revealed an attitude of mind which he certainly succeeded in concealing with some skill when he sat in my right hon. Friend's place, but which, perhaps, now accounts for the greater harmony he is said to have with certain elements in the party opposite. The right hon. Gentleman was terribly anxious that the owners of industry should not get an extra penny. It is not my purpose to argue that matter on an ethical, metaphysical or philosophical plane, but it is surely fundamental to the problem of stimulating investment, which the right hon. Gentleman admitted to be necessary, to give to the prospective investor some prospect that his investment will at some time bring back some reward. What the right hon. Gentleman wholly failed to appreciate was that all Ministerial admonitions on the value of savings will not cut much ice until saving and risk taking is to be rewarded by material recompense if the enterprise is a sound and successful one.

He said—and it was less than fair— that no one under the Income Tax level gets a single penny. That is simply not true. My right hon. Friend has proposed reductions in Purchase Tax costing no less than £60 million in a full year, and many of them are upon articles which go to a great many homes. It is not for me to exaggerate—and I have no intention of doing so—what effect they may or may not have on the cost-of-living index or on the cost of living, but it is a fact that this cut is a contribution to a steady reduction in prices, which must be a peculiar and special benefit to those whose incomes are lowest and therefore most susceptible to movements in the level of prices.

No doubt the right hon. Gentleman was pressed for time, but it was quite wrong of him to make an assertion of that kind in the face of the fact that in this respect, as in others to which I have referred, my right hon. Friend's Budget is a carefully constructed whole in which he is not only serving the major economic purpose of this country's recovery but has sought, within the limits possible, to bring easement, aid and comfort to a very wide variety of people in this country.

It will in due course be for people outside this Chamber as well as inside to judge not only upon this Budget but upon the full financial proposals. I hope that I may be allowed to say that I do not believe that the attempt to play upon narrow class sectional feelings, in which the right hon. Gentleman thought it consistent with his high reputation to indulge, will cut very much ice with the British people. I believe that they will prefer the proposals of my right hon. Friend which are conceived with one purpose only—the restoration of this country's economy from the mess in which he found it.

6.23 p.m.

Mr. George Thomas (Cardiff, West)

The Financial Secretary to the Treasury always commands the attention of the Committee, because he not only brings eloquence to his subject—and I am not speaking as if his were a maiden speech— but brings astonishing indignation into every word that he utters. I often feel that he would have made a good Nonconformist divine. He is able to put up so many skittles and to enjoy himself knocking them down.

As he moved towards his peroration, the hon. Gentleman spoke about my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) as introducing his speech on narrow class lines. Such an accusation will hurt my right hon. Friend very deeply, because there is no one on this side of the Committee who would accuse him, above all people, of wanting to speak on narrow class lines. The appeal which my right hon. Friend made attracted the attention of the Commitee from those who benefit directly by this Budget to some of the people who do not benefit.

The hon. Gentleman said that the greatest aim of the Chancellor must be to restore the capacity of the nation's economy. I could not agree more with that. He also said that the incentives that are necessary in the field of industry and commerce must be well applied. But I suggest to the Financial Secretary that the incentives have been restricted to those with a financial interest on the investment side of industry. The shareholders will be smiling, but the workers who produce will not have nearly such a pleasant prospect held before them, as I hope to show today.

When people are not victims of new taxes imposed by the Chancellor, the immediate reaction is one of such profound relief that a temporary blessing is given upon his head. Then come second thoughts, and the question is asked as to who benefits by the Budget and what are the nation's prospects in the forthcoming year. It appears that the main aim of the Chancellor is to try to correct some of the disastrous blunders in his Budget last year. It appears that he realises that the fall in production and the increase in the cost of living are leading us into a very serious economic position indeed.

This Budget can only be assessed correctly in the perspective of last year's Budget. The Chancellor himself stressed that point. As all hon. Members are aware, last year's Budget led to an increase in the cost of the people's food of roughly 9 per cent. during the year.

Mr. John Arbuthnot (Dover)

Compared with 18 per cent. the year before.

Mr. Thomas

The Chancellor has succeeded in increasing the cost still further above what it was when he took over; and since he has had his hand on economic operations the cost of living has soared and soared until it has become a very serious problem indeed for working people to meet their obligations. The increased Bank rate led to a further substantial increase in the rate burden of local authorities and in the cost of our primary products. The cost of living must be considered very seriously when we look at the Chancellor's proposals, for there are three sections of the community to whom I want to refer who have been completely forgotten by the Chancellor in distributing his "relief"—if the Parliamentary Secretary prefers that word to "largesse."

I think, first of all, of the old age pensioners. To the old people this Budget is a tragedy. It leaves them in their plight. There is no relief at all for them. The old age pensioner does not want to buy a mink coat, a new motor car, a radio or a television set and so get the reduction in the cost. The old age pensioner cannot afford those things. The benefit of this tax reduction will go to people who are already well off in comparison with the old folk of the nation. These old folk ought to be regarded as the honoured guests of the nation who have worked to create the wealth which we possess. But they find that there is no prospect of relief held out to them.

There is not a millionaire in Britain who is not counting his gains tonight as a result of this Budget. There is not an old age pensioner, not a widow, not an unemployed person, not a man on sick pay who is not sick at the prospect before him and who does not realise that for him there is no relief at all. This Budget classifies them as the forgotten people.

There are others whom the Chancellor appears to have forgotten. During the course of the year the Chancellor has received powerful deputations from the National Union of Teachers, the Trades Union Congress and Civil Service organisations on the subject of equal pay for women in the public service and in industry. Without anyone on the Government Front Bench having the moral courage to vote against the Motion for equal pay, the House went on record as having agreed that equal pay should be introduced into the public service. The Chancellor made not even a passing reference to this question.

There has been a campaign throughout the country amongst teachers and civil servants and people in other walks of life that this long overdue justice should be given to our women colleagues, and we were awaiting the Budget statement expecting an announcement to that effect, but the Chancellor has not even repeated the statement that the Government accept the principle, and he has refused to name the date. There will be profound dismay that the Chancellor, when he has had money to share out, has not thought it worth while to do justice to the women in the public service of this country. I warn the Financial Secretary that, when he comes to deal with the women employed in the public service, he will find that this Budget is not as popular as he tried to lead us to believe this afternoon.

There is one other group of people to whom I want to refer. I asked Questions yesterday of the Minister of Pensions concerning the disabled persons in receipt of disability pensions arising from the 1914–18 war. I asked the Minister what it would cost to give the 15s. a week increase in the basic rate to those men in receipt of the alternative pension, and I was told that it would cost £15,000 a year. There has been a campaign by B.L.E.S.M.A. and the British Legion on behalf of those men, and powerful speeches on this question have been made in the country by hon. Members opposite.

The Chancellor could easily have granted this concession and the whole nation would have applauded him. I hope that in the course of the Budget discussions he will take the opportunity to increase the disability allowance for those men of the 1914–18 war who have been outside the increases that have been given in other fields. I hope that more human consideration will be given to the women, the disabled and our old folk than would appear in the Budget speech.

6.33 p.m.

Mr. G. P. Stevens (Portsmouth, Langstone)

The hon. Member for Cardiff, West (Mr. G. Thomas) at the beginning of his speech said that it seemed to him that the Chancellor yesterday was trying to correct some of the disastrous blunders of last year. I want to follow that thought of his for a moment or two.

As I sat here yesterday listening to my right hon. Friend, my mind went back two years to April, 1951, when the Chancellor of the Exchequer was the right hon. Member for Leeds, South (Mr. Gaitskell), who has addressed us this afternoon. As I thought of that very impressive dialectical performance two years ago, I could not help recalling very clearly that at the time I was strongly reminded of the man who … turns no more his head; Because he knows, a frightful fiend Doth close behind him tread. The fearful fiend I had in mind two years ago was the fiend of inflation which was then very much in the minds of all of us.

Yesterday, as I listened to my right hon. Friend the Chancellor of the Exchequer, it was very clear that that fiend was no longer the menacing solid body that he was two years ago. He is still a spectre; we have still got to respect him in some degree, but to a large extent he has disappeared from the calculations which a Chancellor has to make in preparing his Budget. I do not call that fact a disastrous consequence of the Budget of a year ago. I think it is a great tribute to what the Chancellor did on that occasion.

The right hon. Member for Leeds, South, as the Financial Secretary said a few moments ago, spent the first part— indeed, the greater part—of his speech in dealing with the economic situation, trying to explain away various features of the present economic situation; but there are four economic facts which exist today and which no amount of explanation can dissipate. It may be that it can be suggested that there are alternative reasons for them, but the facts as such remain.

First and foremost, at the top of the list, I put the striking improvement in the balance of payments resulting in a surplus for 1952 of £291 million. It may well be that a large part of that surplus has resulted from an improvement in the terms of trade. It may be that the restriction of imports has something to do with it, but the fact of that surplus remains. The second fact is the increase in our gold and dollar reserves. There may be more than one reason for that, but the fact remains.

Thirdly—and this is immensely important—there is the strength of the £ sterling in the United States of America. That surely indicates one thing above all else—namely, the confidence of the American nation, to whom we are still indebted this year, as the right hon. Member for Leeds, South said, in our ability to pull ourselves up by our own shoe strings, with the Chancellor's aid. The fourth fact that I have in mind is the maintenance of a high level of employment. Those are four solid concrete facts, and they show quite clearly that the bogy of inflation has to some degree disappeared from our economy at the moment.

That means that the financial situation is more stable than it was a year ago. It means that the cost of living, to which the hon. Member for Cardiff, West referred so eloquently, is no longer rising at the appalling rate at which it was rising a year ago and in the years before. There is a more stable position. Can that more stable position be held? Can it be improved? I think it can. But outside direct Budget policy there are two factors affecting the stability of the financial situation which have to De considered; one is wage levels and the other is dividends.

The right hon. Member for Leeds, South this afternoon called for the statutory limitation of dividends, and "our own great" "Daily Herald" this morning waxed very eloquent on the subject. It said that the Chancellor … has also declined to place a legal limit on dividends, though he must know that leaping dividends are a profound irritant to wage earners at a time when the Government is appealing for 'income restraint' by all classes. That kind of propaganda, if it be true, is very dangerous; if it be untrue, it is very mischievous.

I recall that last week the right hon. Member for Leeds, South and the right hon. Member for Battersea, North (Mr. Jay) gave an example in this House of a company which had declared a dividend of 187½ per cent., and it may well be that the right hon. Member for Huyton (Mr. H. Wilson) could tell this Committee something useful about policies directed towards paying higher dividends than those paid in the past. It is certainly true that there may be black sheep in every fold, and it is equally true that if all the circumstances of these cases are investigated it will be found that those sheep are not nearly as black as right hon. Gentlemen opposite would have us and the country believe. I am quite sure that the right hon. Member for Huyton would agree with that. It is perfectly easy to take out of any set of circumstances a single solitary example and try to build up a completely strong point.

I am not prepared to do that. I much prefer to turn, not to a propaganda document, but to the 95th Report of the Commissioners of Her Majesty's Inland Revenue. There we find, not single examples taken at random, but on pages 64 to 70 we get the results of industry in tabular form, split into convenient categories. Turnover is taken for convenience as 100. Costs, such as materials —in other words, purchases; personnel —that is, wages; depreciation allowances and taxation and distribution—that is dividends; are all shown as a percentage of 100. The results of three years are given: 1938–39, the last pre-war year; 1949–50 and 1950–51. It is quite true that that takes us only to 1950–51, but this document is always a little in arrear.

I want to quote some figures from it. As the hon. Member for Cardiff, West (Mr. G. Thomas) started with skittles, I propose to start with drink. If we turn to the drink trade, we find that in 1938–39 wages took 10.4 per cent. of the turnover, In 1950–51 they took only 7.1 per cent. —a decrease of 31.7 per cent. Since 1938–39 there has been an increase in productivity throughout industry and one would therefore expect wages, expressed as a percentage of turnover, to fall. When we come to dividends, we find that in the same years they have fallen from 10 per cent. to 4.9 per cent. Whereas wages have fallen by 31.7 per cent., dividends have fallen by 51 per cent., while taxation has increased by 40 per cent.

Let us turn to another group of industries. I agree that I have not selected these at random, but I am prepared to take any group of industries anyone likes to mention. Take the case of cotton. There, the decrease in wages, expressed as a percentage, has been 21.2 per cent. The decrease in dividends has been 29 per cent. and the increase in taxation has been 587 per cent. Let us take a very large group—the electrical group: wages decreased by 17.9 per cent., dividends decreased by 45 per cent. and taxation increased by 84 per cent.

Mr. Austen Albu (Edmonton)

Has the hon. Gentleman observed from the National Income White Paper that dividends and interest payments have risen every year since 1949?

Mr. Stevens

Yes, and I have also realised that the purchasing power of money has fallen at the same time. These tables are strictly comparable; they take into consideration the reduction in the purchasing power of money. The figures which the hon. Member for Edmonton (Mr. Albu) quoted are just as "phoney" as today's leading article in the "Daily Herald." The figures which I have quoted completely contradict the assertion that dividends have been leaping ahead of wages. That is entirely untrue and is mischievous propaganda.

There is a great deal of difference between the two sides of the Committee in the view they take of the value to our economy of risk capital. A good many hon. Members opposite forget that, despite nationalisation, 80 per cent. of our economy still depends upon private capital. Not all of that is risk capital, but a very large proportion is; and as long as any proportion of our economy is in private hands, so long must risk capital be encouraged.

How are we to foster the growth of risk capital? Two things are necessary. First, it is necessary to offer a chance of an income return in the shape of dividends large enough to cover, over the years and over a variety of enterprises, the very real risk of the entire loss of the capital invested. Secondly, it is necessary to make it possible for that capital to be found at all by reducing direct taxation and thus enabling savings to take place.

It is for that reason that I welcome the Chancellor's decision to take 6d. off the standard rate of Income Tax. There has been a little misapprehension, whether deliberate or otherwise I would not know, about the persons or bodies who are to benefit from that reduction. It is obviously untrue to say that the only people who will benefit from a reduction in the standard rate of Income Tax are the people who are themselves liable to pay Income Tax. Obviously, if a reduction in the standard rate of Income Tax benefits a business and enables it to produce more cheaply, then any consumer of the articles produced by that business will receive a direct benefit.

The right hon. Member for Leeds, South missed a very important point which was brought out on Wednesday, 8th April, by "The Times." It said: In spite of the multiplicity of different taxes invented in recent years, income tax is still the bell-whether. It permeates the whole private and business life of the nation as no other tax does. A change in it has a psychological significance all of its own. I could not agree more, and it is for that reason, if for no other, that I personally wish the Chancellor had been able to go further still and to reduce the standard rate of Income Tax by Is. I know it is exceedingly difficult, but that would have been a dynamic sign to the whole of industry and business of this country and I think everyone in the country would have benefited.

Let us, however, count our blessings. I welcome the obituary notice of the Excess Profits Levy which my hon. Friend the Member for Oldham, East (Mr. Horobin) dubbed "a lunatic nightmare of a tax." His nightmare will not be with him very much longer. We are very grateful to the Chancellor for that. How fantastic for anyone to suggest that, with the death of the Excess Profits Levy, there should be an increase in some other tax; that is "moonbeams from the lesser madness" on an inspired note.

A fresh note has been struck by this Budget and by the Budget last year. In six post-war Budgets, successive Chancellors seemed to be perfectly aware of the presence of this fiend of inflation but seemed equally quite unable to exorcise it. What they did was to dig ever deeper into the bottom of the pot and dole out the proceeds. In 1952 and this year the Chancellor has realised that we cannot take out of the pot unless we have put something into it. "The Times" today says Mr. Butler's ability to make concessions is due … partly perhaps to the new hope that he has inspired. I am full of hope that my right hon. Friend has got away from the theory which seemed popular among the party opposite some years ago that hard work never made workers richer. He seems to have accepted the very much sounder idea that the labourer is worthy of his hire. This is a wise Budget and will be strongly supported in this Committee and in the country.

6.48 p.m.

Mr. Malcolm MacPherson (Stirling and Falkirk Burghs)

The hon. Member for Langstone (Mr. Stevens) has pointed to one or two things which from his point of view suggest a considerable degree of satisfaction with the Budget, but he has omitted what seems to me the most important matter in connection with the affairs which we are discussing—the general state of production in the country. He has dealt with a large number of matters which are decidedly subsidiary, and hon. Members on this side of the Committee are bound to remind him of the statement by the Financial Secretary to the Treasury that we should be dealing with fundamental matters.

The right hon. Member for Blackburn, West (Mr. Assheton) rather frowned on the idea of dealing with the broad field of the factors covered by the Economic Survey. It seems to me that this is one of the things with which we should be dealing now, and I make no apology for turning to one of the factors which is not an immediate Budget matter but which concerns our general economic prospects.

Before doing that, I will interpolate a constituency matter for a couple of minutes. I do not think it is appropriate to make a constituency speech on an occasion like this and I am balloting to raise the matter on the Adjournment. Since I am pretty unlucky in ballots, and since the matter is very serious for my constituency, I want to get in a couple of words about it now. It is the matter of the light castings industry. This industry is not following the ordinary fortunes of manufacturing industries in the country in general. It is in a very much worse position than industry in general, and is at the moment undergoing what I can only describe as a crisis.

It has lost a good part of its home market because of the decline in purchasing power. For example, my area produces slow combustion stoves. The demand for them has recently suddenly dropped—not gradually declined. The industry has lost very considerably through the Australian import cuts. These matters are very directly the responsibility of the Government because of the bearing of Government policy upon them. There are also a number of long-term factors in the situation that make the outlook for the industry, concentrated as it is, very largely in one small part of the country, my constituency and round about, very bleak. I draw the attention of the Government to that situation and ask them rather hopefully, when I do manage to bring the matter up later on the Adjournment, to produce some constructive ideas about it.

I turn to the much broader question of manpower, which plays such an important part in our economic fortunes. I shall try to make, fairly quickly, three points in connection with that. I would, however, say by way of introduction that it does not seem to me that we give to the question of manpower anything like the importance that we should. Manpower is one of our three really great economic resources; coal, agriculture, and our skill and ability to do a job. Those three are the only really big economic assets we have. We give a tremendous amount of attention to the first two, but comparatively little to the third. We have had a great deal of discussion, a great deal of planning, a great deal of legislation about the first two. We have had very little about the third, about manpower, and yet one of the key difficulties just now is the shortage of the kinds of manpower that will be most useful to us.

We are short of skilled and able men at almost every level. We are short of skilled craftsmen; we are short of technicians; we are short of good managers. All those are key groups of people. We do comparatively little to put things right. Some time ago Professor Arthur Lewis had an article in the "Observer" in which he made what I think was a very sound statement that illustrates just how casual we are about this business. What he said was that 10 years thence—he was writing in 1950—in 1960, if we had our manpower in those industries in which we wanted it, it would be as a result of a most unlikely miracle. My right hon. Friend the Member for Leeds, South (Mr. Gaitskell) pointed out today the existing illustration of that situation.

We are not giving any serious attention to getting the right kind of manpower in the right places. It is a long-term matter, and one or two of the things I have to say will be things which are not simply of concern for the next year or two. I think most of us realise, since the Chancellor's statement last year, that our economic difficulties began some 50 years ago, that our economic situation now cannot be cleared up in a matter of a few years. We have difficulties which will last probably for our generation, certainly for a long time.

I want, as I said, to make three points on the subject of manpower. The first concerns training for industry, commerce and the work of the nation in general. Training of our labour force is of immense importance. Skill is one of our major national assets. If we talk about increasing the engineering industry, we talk about increasing the need for people with very highly developed skills. If we talk about increasing our income from exports, we have got to think about exports which use a comparatively small proportion of raw materials and a comparatively high proportion of brains and skill. So the training we give to the people who enter our labour force is of immense importance.

Just after he came to office in November, 1951, the Minister of Labour made a speech—in fact, I believe, he made two or three speeches—in which he stressed the importance of modernising and expanding training for industry. I ask the Government, what has been the outcome of his interest? What has happened since then? I am no expert with figures, but, as far as I can make out, the situation is something like this. Of all the youngsters of school-leaving age, decidedly less than a third enter occupations which give any sort of apprenticeship or progressive training or any kind of professional training. Those youngsters include the people who stay on at school or take university courses. Less than a third of all the entrants to industry, commerce and the nation's work in general are being trained for their jobs.

That is not a situation we should be happy about in our position. There should be far greater encouragement of training schemes, particularly in the major industries. We are told that 70 or 80 major industries nowadays have training schemes, but we are also told that some of the most important industries have none. That is not a position with which we can rest content.

The second point I want to make is about science and scientists. Just as we need trained people, so we need scientists. They constitute one of the keys to our future industrial progress. Our achievement in science actually is of extremely high quality. I need not weary the Committee with examples of that. There is no doubt that we have produced a scientific achievement of an unusually high order, and one would therefore be inclined to say that the expansion of the engineering industry, and the development of science-based modern industries, is a natural thing to us. Yet we are faced with immensely great difficulties because we are short of a great many of the types of scientists needed in our industrial programmes. We are short of physicists, chemists, chemical engineers, electrical engineers for the development of our electronics industry, and mechanical engineers for our aeronautical industry. We are very short of all kinds of applied scientists who can bring the discoveries of science into application in industry.

There was an extremely interesting article in "Lloyds Bank Review" a month or two ago, in which Professor R. S. Edwards gave one indication of how we compare with the United States in this respect. He said that in the United States one person out of every 400 is a full-time science or technological student, whereas in this country only one out of every 1,400 is. As he pointed out, the comparison is not exactly between like and like; there is a very great difference between American science degrees and ours; but the broad picture is there. If we are to compete with America and to overcome the difficulties which lie ahead in developing a modern industry and in expanding our industry, we must do a great deal more than this in the production of scientists.

In this regard, we are not merely not doing what we should but we are actually slipping back. If the schools are to produce people who can become scientists, they need scientists on their staffs, but more and more the schools are finding that they cannot get them. Science departments in some secondary schools have closed down in recent years, and their staffing has been of very much poorer quality. That is common knowledge; we have known about that development for a year or two. What is not always realised is that the water-table, as one might say, of low scientific achievement is rising.

Professor Curtis of Durham University gave an interesting address a few months ago to the Parliamentary and Scientific Society in which he pointed out that the universities would very shortly be confronted with the possibility, in science subjects, of having to lower their standards. He gave further information indicating why he reached that conclusion after consulting his colleagues in his scientific subject in other universities. We are confronted with a situation in which this country, which for its salvation must depend on the development of engineering and science-based industries, finds that its universities must actually consider a lowering of standards. We should regard the situation thus revealed as one of considerable urgency.

The right hon. Gentleman made what seemed to me a very sensible decision, if I may say so, when he selected the Imperial College for the development of a technological university. But a technological institution of any sort cannot be developed in a vacuum; there must be the development underneath of the schools; there must be the students who can benefit from the courses, and the production of possible scientists must be built up generally in order that the Imperial College can play the part we hope it will play.

My third and final point is that, besides failing to staff our schools with scientists, and therefore failing to produce an adequate number of scientists of the right quality, we are also inclined to fail to staff a number of other occupations which might be described as maintenance occupations. Those great activities which are carrying on the machine of the State are finding that they cannot get sufficient men of the necessary quality. The schools are one instance, and the Civil Service is another.

Hon. Members should realise that the Civil Service Commissioners have reported an inability to maintain the previous high standard of recruitment to the administrative class. Officers of the Armed Services are another instance, and various other Civil Service classes are another. Generally speaking, those classes of the community who are educated and able to manage our national affairs and who are paid by the taxpayer tend to become smaller; the quality tends to go down; the pull of industry, with its better pay and conditions and prospects, is far too great.

Not so long ago we were faced with the situation in which industry in this country had run down its physical assets. There had not been nearly enough investment of the ordinary material sort. A parallel situation is beginning to show itself in the nation as a whole, not in material matters but in personnel. The nation is reaching a situation in which we cannot get enough of what might be called human capital investment. The quality of those attracted to those parts of the State organisation and the community organisation which keep our affairs going is becoming too low. That is an extremely dangerous situation. The pull of industry grows stronger and stronger. Industry is making more and more vigorous attempts to attract the best young men, and is very largely succeeding.

This Budget, it seems to me, will tend to encourage this. The Chancellor gave no indication that there is likely to be any strengthening of our great national institutions—the schools, the Civil Service, and so on—and I should imagine that one of the results of his Budget will be greatly to increase the movement of able young people away from that type of occupation, and it will tend, therefore, to lessen the possibility of carrying on our educational system, and our Governmental system, at its previous high level. If the present tendency continues, I imagine that the Chancellor's successor 20 years hence will not be able to draw on advice of the same high quality as he obtains at the moment.

Those seem to be one or two of the attributes which are important in this respect—the skill, the ability and competence of our people—and whatever may be said about the three points with which I have dealt, I should like to finish by emphasising what I started with. We must give more attention to this asset. Too often we end our statements about our economic affairs with the cliché that education must be improved. Of course it must. But there is a great deal more to it than that. We in this country depend, above everything, upon the quality of our manpower, and we are not giving that economic asset anything like the attention it deserves.

7.9 p.m.

Mr. Niall Macpherson (Dumfries)

Nobody will dispute the importance of the subject with which the hon. Member for Stirling and Falkirk Burghs (Mr. Malcolm MacPherson) has just been dealing. I do not intend to follow him in detail, but I simply suggest to the Committee that perhaps one of the reasons for the difficulty which has arisen, to which he very rightly draws attention, has been the continuing course of inflation since the war. It is a natural result of inflation that we have hitherto been suffering from, and I think that by the same token my right hon. Friend's Budget should do something to correct it. I believe that we may look forward to an improvement in that situation within a year or two—because these things do not correct themselves quickly.

The fact is, of course, that this Budget has been delivered in a completely different atmosphere from that of previous Budgets. The atmosphere is, I think, reflected in the country as a whole. One has only to compare the tenseness with which the previous Budgets have been delivered, and the general feeling of stringency which has been felt in the country, with the calm confidence which was exuded by my right hon. Friend in presenting this Budget to realise the difference in the atmosphere in the country as a whole. Previous Budgets have reminded me of a player in a tennis match who is extended to the full, returning gallantly, with great difficulty, balls from the back line and rushing up to the net. This time, my right hon. Friend was playing the ball well within his capacity the entire time—and, as he rightly said, he was leaving room for exports.

One has to remember that last year we had to face a desperate problem which was a legacy from the previous Government—the balance of payments problem. On its solution everything depended. To its solution all other claims had to be subordinated. Britain has shown—and here I disagree very strongly with what was said by the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) —what she can do under calm and competent leadership. My hon. Friend has produced an entirely different atmosphere.

Mr. Wilfred Fienburgh (Islington, North):

It has reduced production.

Mr. Macpherson

It may have reduced production, but the fundamental problem was, first, to get the balance of payments right. Until that had been done nothing else could be done.

Now we come to the second stage. The fact is that taxation and inflation have been for too long eating away our patrimony. The resources of industry, instead of going into the replacement of assets, were being absorbed by the replacement of stocks at ever rising prices. Of the resulting paper profits the State was taking fully half away and using them largely for current consumption. The depreciation allowance is a matter which needs to be overhauled. We understand the reasons why my right hon. Friend has not been able to deal with that in this Budget. We hope that before the next Budget he will have received and studied the Royal Commission's Report, and that we shall be able to get this position put right. As things are, the danger is that in a few years' time we in this country will be competing with out-of-date equipment against other countries to whom we have sold the most up-to-date equipment. Thus the most vital problem of this Budget seems to me to be the need for industry to build up its resources, and I am certain that my right hon. Friend was dead right in putting the emphasis mainly there.

The announcement that the Excess Profits Levy is to go will be a very welcome one to industry. I think that industry deserves the greatest credit for the way in which it has behaved under this additional incubus which was placed upon it. Industry will be very pleased indeed that this levy is to go—that this unwanted monstrosity is to be put away after only two years' existence—and that the relief to industry will be about £100 million a year.

The second thing, of course, is the drop in Income Tax. As the Chancellor of the Exchequer said, this will give relief of £64 million, of which about one-half will go back to industry. That will also be a valuable adjunct. The initial allowances, in my view, are of equal importance. In particular, the 40 per cent. on mining works, both home and overseas, will give a terrific impetus to the development of the Commonwealth and the Colonies. It will also give impetus to the establishment of new industries in the Development Areas.

That, together with the relaxation of Income Tax and the disappearance of E.P.L., will be of the greatest importance. It has to be remembered that E.P.L. disappears in January, 1954, and that any industry started up now will not be got going before then. It is now possible, therefore, for industry to start up in various areas where it is required, and industry will be much more willing to do so, because what has been holding it back most of all has been the fact that those engaged in it have not seen how, with capital costs as they are at present, they are to be able to succeed if they start up now. I think that the measures that have been taken will be of immense benefit to the Development Areas and other areas in this country which require new industries. An important point is, of course, that these initial allowances are also available for agriculture.

I should like to express particular thanks to the Chancellor of the Exchequer for the concession which he has made to those whose herds were slaughtered during the foot-and-mouth epidemic. He apologised for mentioning this in his Budget speech as being a matter of detail, but. in fact, to many people in my constituency and in others this is a matter of the utmost importance. The renewal of the option to elect for herd basis will be of real value in enabling those whose herds have been smitten by foot-and-mouth disease to rebuild them.

So far as the ordinary citizen is concerned, hon. Members opposite will say that this is a Budget which appears to benefit the better-to-do. What one has to consider, in my view, is that, in the first place, we can give no relief to people who are paying no taxation.

Mr. Fienburgh

The Chancellor could give food subsidies.

Mr. Macpherson

That is true and I shall deal with that later, but he cannot grant any tax relief to people who are paying no taxes.

In the second place, and what is even more important, unless we are in a position to give encouragement to people to go out and found their own businesses and run them, the ordinary men in the street will, in the long run, not benefit either from the resulting employment. That is the main justification for what the Chancellor is doing now. One might wonder whether he has carried it quite far enough. I would say that we have a long way to go to make up the ground that has been lost as the result of the war years and of the period since the war. We cannot make up this leeway by a few grand gestures. What has to be done is to give a little here and there—adjust the economy here and there gradually—so that the economy adapts itself to the needs of the moment and that, at the same time, we gradually get back to a position in which as much as possible of what a man earns is left with him.

I think that the fundamental difference of approach on this side of the Committee and on the other is that we on this side consider that the individual is entitled to the enjoyment of his own property, that it is for the State to take as much of that property as it needs and no more and to leave the individual with as much as possible. The Opposition take an entirely different view. They seem to regard everybody's earnings as national income to be divided out in the Budget. Surely if we do that we are not giving the ordinary man confidence to do things for himself and to gain a position in life for himself which he feels that successive Governments will allow him to retain.

The reliefs which will be most welcomed by the ordinary citizen are the reduction in Purchase Tax and the freeing of sugar. I join in congratulating my right hon. Friend the Chancellor of the Exchequer and my right hon. and gallant Friend the Minister of Food and also the Parliamentary Secretary, whom I see in the Chamber. The Ministry have done a splendid bit of buying. In principle, we on this side prefer trade to be done by the traders and not by Governments. The Socialists prefer bulk buying, but they do not seem to be as good at it as the present Government. Under this deal we expect 600,000 tons of sugar to arrive in this country before very long. I trust that arrangements can be made for it to arrive quickly for there will otherwise be considerable congestion in sugar stocks. I understand that the refineries are able adequately to deal with any sugar which arrives and I hope that as a result of this purchase a refinery in Scotland which has recently been closed may be set in motion again.

The sooner the sugar from Cuba arrives in this country the sooner shall we have derationing, and the ordinary housewife attaches more importance to that than to any other matter in her budget at present. The continual complaint, particularly in summer, has been the shortage of sugar. If we can deration sugar by the time the fruit crop comes along there will be a great saving in fruit and an end to the wastage that we have had year after year.

I believe that we ought to get rid of food subsidies at the earliest possible moment. The trouble about food subsidies is that they are a perpetual temptation to politicians and Governments to manipulate for party ends. Once we have got rid of them and our people are paying the real value of food and not an artificial value, the country will be in a much better position to review its state and get on with production. Food subsidies conceal the true cost of living, and to a large extent they mean that we are selling goods abroad at a lower price than we should do because wages are not at their proper level.

Mr. Douglas Houghton (Sowerby)

Does the hon. Gentleman agree that taxes on commodities also conceal the true price and value of goods?

Mr. Macpherson

Taxes certainly do, and we should like to see a reduction in some of the enormous taxes on such commodities as tobacco and beer. That must be a matter for future Budgets, when the policies which my right hon. Friend is so ably pursuing have brought still greater results.

With regard to the encouragement of foreign earnings, I welcome very much my right hon. Friend's decision to implement the recommendations in the first Report of the Royal Commission on the Taxation of Profits and Income. The recommendation about enabling unilateral relief for double taxation to be granted and that to enable a trader to exclude from assessment profits which are blocked in another country and cannot be legally remitted will have very beneficial effects on companies which have subsidiaries abroad and do a great deal to encourage an increase in our invisible earnings. With regard to the first recommendation, I hope that Commonwealth countries will come to consider it normal that such mutual arrangements should exist.

The Chancellor said nothing about the third recommendation of the Royal Commission concerning taxation concessions to pioneer industries. I hope he agrees with the recommendation. I should like to know whether it is his intention to take powers in the Finance Bill to negotiate with other countries about this or whether the Government already possesses such powers. In any case, I hope he will use what powers are available to him to ensure that the concession is given only in cases in which it is in the national interest to give encouragement to particular industries in particular countries. I have in mind especially the Colonies and the Commonwealth.

My last point is on the agreeable subject of wines. In 1949 the then Chancellor of the Exchequer cut the tariff on so-called light wines by half. By doing so he benefited not only the producer and the consumer but also the Treasury, because the withdrawals of French, Italian and Spanish light wines have quadrupled compared with 1949 and are nearly three times what they were in 1948. The Commonwealth sends this country hardly any so-called light wine. Most of the wine from South Africa and Australia is classified as heavy. The duty on heavy wine was left as it was, and the result is that the withdrawals of heavy wines from Commonwealth countries have fallen by about one-third while the imports of heavy wines from other countries have remained more or less stationary. Before the war the heavy wines were preferred by the ordinary consumer. I urge my right hon. Friend, between now and the Finance Bill, to consider making a similar concession for heavy wines, in the hope—one cannot put it higher than that—that in the long run it will cost him nothing at all.

The process on which we are now rightly engaged is that of trying to get back to some kind of normality. At the end of the war we demobilised our military services, but we never really demobilised our civilian services. What we have to do is gradually to relieve the ordinary citizen of the tremendous burdens involved in these gigantic services. What has been done this year is a start in the right direction. When I say "in the right direction" I also mean "in the right way." To have made sudden decisions to take off all the food subsidies or to have drastically reduced Income Tax at one time would undoubtedly have had bad effects. My right hon. Friend is right in adjusting a little at a time and seeing how it goes.

As has been said by my right hon. Friend the Member for Blackburn, West (Mr. Assheton), whether it will be possible to continue this process in the future will depend on the response of the country as a whole and the success of our trading efforts. I wonder whether it has occurred to hon. Gentlemen opposite that the general easing of the international situation may have been due, at least in some measure, to the fact that a start has been made in demobilising our civilian services. Some promise and indication that we are really in earnest in departing from our war economy may have had a certain influence in that direction.

I am not doubting in any way that all of us are in earnest in not desiring war. I am thinking of the effect of these measures on other countries as seen through their eyes. So long as other countries saw that we were retaining the same civilian paraphernalia as we had during the war they were bound to think that at least to some extent we had in mind the possibility of going to war very soon again. I welcome the general hope of international peace and of greater prosperity which the Chancellor's Budget has given to the nation.

7.30 p.m.

Mr. A. Blenkinsop (Newcastle-upon-Tyne, East)

The hon. Member for Dumfries (Mr. N. Macpherson) has displayed a complacency which is wholly unjustified by the facts of the present situation. As far as I can follow him, he seems to recommend a wine-drinking nation with the Chancellor of the Exchequer playing tennis perpetually and well within his own capacity. It might well indeed be to the benefit of the nation if that were to be true, but what we must face—and face with some care for reality —is that during these last few months we have seen a steady fall in actual productivity in our industry, which is, after all, the prime factor in the whole of our life in these islands. That factor represents to us the hope of our progress to any form of real prosperity, and although it is true that the Chancellor has had a great deal of adventitious aid from outside sources, which has helped to cloak the reality of the situation, the real danger still confronts us.

I am very concerned when I hear an hon. Member refer, as the hon. Member for Dumfries did, to the great easing of the present situation compared with the comparative tension of a year or two ago. Surely we are living in a world of dreams if we imagine that the tension has, in fact, eased as compared with a few years ago. Indeed, the danger now is greater because the facts are cloaked by the sudden change in the terms of trade that have flowed to the advantage of the Government.

In these circumstances it is all the more important to insist upon the reality of the dangers that we face and to examine the measures that have been taken with that in view. It is a very serious feature when the best that the Chancellor himself can say is that he hopes that during the course of this financial year we may be able to build production up to the figures achieved in 1951. This country has a right to demand something very much better than that if we are to achieve a better future for our people in the coming years.

The Chancellor might well have adopted a much more modest tone in view of the financial out-turn of the year as he reported it to the Committee yesterday. The Committee is entitled to a much fuller explanation of what can only be termed the wild inaccuracies of the Budget estimates of a year ago. My right hon. Friend the Member for Leeds, South (Mr. Gaitskell) rightly commented this afternoon that if such false estimates had been put forward two or three years ago, they would have been fastened on by Members from the benches opposite.

Mr. R. R. Stokes (Ipswich)

And by the Press.

Mr. Blenkinsop

And, indeed, by the Press. The Chancellor has been saved in spite of himself by the improved world factors, over which he himself would not claim any control. In view of the financial out-turn of the past year, can we have much hope in the prospects for the coming year? First of all, the right hon. Gentleman's estimates are based upon a certain hope of a new buoyancy in the economy. There is, in fact, precious little evidence of it today, or that we can achieve the very modest target of a return to the production of 1951. Indeed, there are many factors in the world situation that threaten us with further reductions in production rather than increases, and there are further dangers to our export trade of which very little account has been taken during debates here.

Secondly, the right hon. Gentleman's estimates for the future and his ability to offer further concessions are, of course, linked up with civilian expenditure. He made some play and took pride in the fact that some £200 million less has been spent under the civilian Estimates this year as against last year. This is particularly welcome to hon. Members opposite who hold the view expressed by the hon. Member for Dumfries that, in fact, Government expenditure by itself is something evil which must be held down to the minimum, and private expenditure, by the very fact of it being private, should automatically be encouraged, whatever the object on which the money is to be spent.

I want to examine for a moment one or two major items in the expenditure field, and the effect of the Chancellor's determination to reduce Government expenditure without regard to the quality of the service provided and the necessity of the service. When we examine the civilian expenditure upon which the Budget is based, we find that the main item is the expenditure on the social services, and one of the main items in that is the National Health Service.

I think it is worth commenting that just at the time when we had announced in the House that the Minister of Health had appointed a Committee to make a report on proposed economies in the Health Service, the Chancellor of the Exchequer announces that his own friends, the industrialists, are to receive the benefits of the withdrawal of the E.P.L. without any proposal to increase the Profits Tax. It may well be that the withdrawal of the Excess Profit Levy may be financed, or an attempt may be made to finance it, out of further savings from the Health Service. That is something which we must have very much in our minds. There is no doubt that hon. Members opposite will welcome this further example of the reduction of Government spending, as they have always shown a dislike for the principle and basis of the National Health Service.

Mr. R. Jennings (Sheffield, Hallam)

Vote catching.

Mr. Blenkinsop

Let us examine with care the actual figures of the Health Service Estimates. We notice that there is a slight reduction of some £20 million this year as against last year, but it can fairly be pointed out that that reduction is largely accounted for by the exceptional expenditure last year on back payments under the Danckwerts Award to the doctors. That means that approximately the same amount in money is available for the Health Service this year as last year, and it is misleading for the Chancellor to indicate, as he did in his Budget speech, that further increased expenditure was to be made possible. He said: This represents an increase of £18 million." —[OFFICIAL REPORT, 14th April, 1953: Vol. 514, c. 42.] It is only an increase over the Estimates of last year and not over the actual expenditure. Therefore, the very misleading impression is conveyed to the Committee and to the public at large that we are finding extra money for the National Health Service this year. It is not true. The amount of money available will be about the same.

That situation means, in terms of service to be provided, that very much less will be provided for the same sum of money, because some £6½ million to £7 million of extra cost is involved straight away in wage and salary advances to hospital staffs, negotiated during the last 12 months. That sum must be taken out of the money available to the hospital part of the service. There are considerable further increases in food costs directly caused by the administrative policy of the Government, and they can only result in reduced quality of service in the National Health Service, unless we have an increase in the now quite artificial ceiling, which is still being maintained in the service and has been maintained for some four years.

When one examines the details of the Estimates of the Health Service, one faces astonishing facts about the reductions which are being secured over last year. There is a considerable drop in the medical staff, particularly in teaching hospitals. That may be partly due to some of the senior registrars going out of the service, which has been threatened for some time, and is leaving some hospitals in a very serious position. Unless an effort is made to recruit new staff there will inevitably be a reduction in the standard of service in our greatest hospitals.

Oddly enough, in spite of what hon. and right hon. Gentlemen opposite have said from time to time about the need for reduction of administrative costs, the Esti-mates show considerable extra provision for the administrative staff of the National Health Service. One would imagine that all hon. Members who clamoured so vigorously for economies in that matter have achieved absolutely nothing, as the Government have been making provision not only for extra administrative costs but for a very damaging reduction in the medical staffs at the hospitals. One of the most striking and most shocking provisions in these Estimates for the National Health Service is—

Mr. Jennings

Would not the hon. Gentleman agree that he is putting up a perfectly good case for the Minister of Health to have an inquiry into the service to see whether we are getting value for money?

Mr. Blenkinsop

Not a bit of it. This is a matter for the House of Commons to tackle and not one which requires further inquiry. It is known perfectly well by every hon. Member, especially by those who have had contact with the hospitals in their own constituencies.

When we come to the maintenance of buildings, we find the most serious reductions of all. The figures in the Estimates provide nearly £8½ million for the maintenance of buildings and plant in our hospitals during the coming year, as against £9½ million last year, and even this figure was wholly inadequate, as anyone would agree who has knowledge of the subject. This is serious, and must inevitably mean very much higher expenditure in the years to come.

What kind of expenditure is this? It is not wasteful, not a new provision of any kind, but vital expenditure to maintain the fabric of our hospitals. Every hon. Member who is in contact with the hospital committee in his area knows that this matter is of very serious consequence all over the country to people responsible for our hospital buildings. Painting and repairs of plant, heating appliances and boilers are vital matters. If we do not carry out maintenance work, we shall be left with very much heavier bills in future years, unless we are prepared to face the closing down of whole sections of our hospitals.

We must not only examine in the Budget proposals the provisions for revenue but also examine them very carefully to see whether there is not a great deal of false economy on the expenditure side. Hon. Gentlemen on the Government side, in their plans for further reductions in Government expenditure, may be and in my view are driving the Government into the craziest form of economy imaginable, and into completely artificial restrictions on necessary expenditure of this kind in the most vital service in the country. I warn the Minister responsible and the Chancellor that they may very well need to face considerable increases in the Supplementary Estimates, as the Chancellor did last year, in order to make some necessary additional provision for the Health Service.

It is clear that the Minister of Health has handed over the whole control of the service to the Chancellor of the Exchequer, on the one hand, and to outside independent bodies of whom we do not yet know the names on the other. I should like to believe that the Minister is anxious to maintain the service for which he is responsible, but there is no evidence of that whatever.

To all those people who have been working conscientiously in the hospital field it must be a positive disgrace that at this very time we are proposing relief amounting to some £4½ million to people earning £10,000 a year and more, and are handing out £42 million in extra interest charges due to the higher interest rates that the Government themselves introduced, despite the fact that these sums of money are needed in one of our most vital services, upon which people in all walks of life depend at one time or another.

In framing his Budget the Chancellor has wholly forgotten that if a greater effort is to come from the community it means a greater effort from the working people as well as from the rich. He must give some sign of recognition of the need for fair treatment between one section of the community and another. I am quite sure that he is not recognising that factor when he is preventing the proper development of a public service of this kind which is of such vital consequence to every family in the country.

There are many thousands, if not millions, of people who will not get a halfpenny of benefit out of the Budget this year but who may need some attention under the Health Service. That Health Service is going downhill by virtue of the attacks being made upon it by the Chancellor and the Minister of Health in co-operation one with another.

Mr. Gerald Nabarro (Kidderminster)

Surely the whole of the argument is being directed to the general surmise that no economies of any description are possible in the National Health Service? May I recommend the hon. Gentleman to go to the Vote Office and get a copy of the Report of the Comptroller and Auditor General upon the operation of the National Health Service in Scotland, 1951–52, which shows the most glaring waste of money and in which there could be economies made without in any way impairing the efficiency of the service?

Mr. Blenkinsop

There are many ways in which we would be willing to co-operate in securing economies in the Health Service. They would include measures that I fear would not get the support of hon. Members opposite, particularly measures relating to the profits made in the drug industry, which are a scandal that might well be attended to by hon. Gentlemen opposite.

We are concerned about the actual estimates on which the Budget has been framed and I am calling attention to the inadequacies of one of our most vital services. It is essential that we should have a reply because this is a service upon which the whole community depends and upon which the economy of the country depends. This is one of the ways in which the Chancellor could show his desire to ensure fair and equal treat- ment between different sections of the community instead of, as at the present time, attempting to ensure that the benefits of his Budget go to one section alone.

7.52 p.m.

Mr. Cyril Osborne (Louth)

I hope that the hon. Gentleman the Member for Newcastle-upon-Tyne, East (Mr. Blenkinsop) will not think I am discourteous to him if I do not follow him in discussing the National Health Service and its charges. I want to look at the Budget from one sharp aspect, the aspect of productivity. I also want to add my congratulations to those already given to the Chancellor on what I consider a sound and excellent Budget.

The test of the Budget will be solely this: Will it help to increase productivity? If it does that, it will succeed; if it fails in that, it will fail in everything. The most ominous sentence in the Economic Survey is that productivity in 1952 fell by 4 per cent. and that the output per man-year fell considerably. Unless that is altered, and altered soon, this nation must face shorter rations and, ultimately, unemployment. Therefore, it is on that narrow question of productivity that the Budget must be judged.

Before long we all hope that there will be general peace following on the ending of the Korean war. When that comes about there will be much more intense competition in international markets. In the last 10 years the American productive capacity has doubled. Germany, Japan and possibly Russia will be coming into the international markets and we shall not survive at all unless our productive machinery is better and keener than it has been in the past.

A few weeks ago I attended the Productivity Council Conference at which the Chancellor urged upon the trade union leaders and the heads of business firms the need for greater productivity. He described that not as a demand for gross increase of production but for the production of better goods at lower prices. Nearly everyone at that Conference agreed with the wisdom of his policy, but also agreed that unless that message reached the man at the shop level, all the talking in the world would produce no results.

To my mind here lies the crux of our national economic problem: How can we get the man on the shop floor to realise this? It is obviously unfair to him to expect him to do something to increase productivity—that is, producing more units at less labour cost per unit—unless he realises the urgency of the matter. The Budget calculations and the Budget figures that we heard yesterday are to him just higher mathematics or, at their worst, they are incomprehensible hieroglyphics which mean nothing. All that he is bothered about is how the Budget affects himself and his family, and in that connection I want to make a suggestion or two which I hope my hon. Friend will pass on to the Chancellor.

I suggest that the Chancellor should undertake an intensive drive throughout the country; that he Should stump the country for the next six months trying to educate our people in our basic economic problems because, until they realise these, it is unreasonable to expect them to make the necessary effort. In doing so, his first and perhaps most difficult task will be to try to remove the fears and misconceptions about industry that are held largely by men who work at the shop floor level. For example, many men still fear, to my mind reasonably, that if they work harder and produce more they are likely to work themselves and their pals out of a job. Until that fear is removed, we cannot expect men to do their utmost and so all of us should try to get rid of that fear.

I know that the memories of the 1920s and the 1930s are still vivid in the minds of older men. Most of us know that these are the old Luddite fears which, 130 years ago, were proved to be groundless, but they are still held by some people so I ask the Chancellor to try to remove them. Furthermore, I ask him to explain to the country that increased productivity does not mean merely putting more profits into the boss's pockets. Few men at the shop level realise that between 60 per cent. and 70 per cent. of all the profits in a company go to maintain the Welfare State of which we are all so justly proud. There is no link in the minds of the men working at the shop level between the profits that they think they are earning for someone else and the privileges they enjoy in the shape of social services which they value so highly, so the Chancellor must get that point over to them.

In America the workers are proud and pleased to be engaged by big profit- earning concerns. They know from experience that the big profit-earning companies guarantee to them good wage packets, regular jobs and make big contributions to the Welfare State. It is the successful business man who is the greatest prop of the Welfare State for, without him, unless there were immensely increased taxes, the Welfare State could not be maintained. This, I think, is the root of the problem that the Chancellor will have to face, and I want him to go up and down the country and try to explain these matters.

Next, the Chancellor of the Exchequer could do very well to spend some time in explaining to the man at the shop level that increased productivity—greater output for less costs—is well within the national capacity. A 10 per cent. increase would put us completely right, and it could be done without any national nigger-driving. It could be done quite easily. Some industries are doing much better than others. As a general rule, I should say that those industries whose products are being sold either abroad or in competition with imported goods at home are more efficient than the sheltered industries. It is within the scope of the sheltered industries that great improvements have to be made.

Let me give an example. We on this side are specially pleased that more houses are being erected. But they are costing too much. The last Government report on housing said that productivity in housing was still 20 per cent. below pre-war. If every industry had a productivity level of 20 per cent. below prewar, we would be in a sorry mess. It is in the sheltered industries that so much has to be done.

I should also like my right hon. Friend to explain to the men at shop level that while "the carrot and the stick" policy has been abolished, oftentimes—far too much—it is still applied to us in the export markets. If we do not compete, the foreigner has no concept of an international Welfare State that will cause him to be kind to our exports. If he can push us out of the markets he will do so.

Then, I should like it to be explained to the man at the shop level how fortunate we are as a nation—all of us, in all walks of life—compared with the man against whose products we are having to compete. For example, we now have to start to compete with the textile products of India. But India has, on an average, a standard of living which is one-twentieth of what we have; and against Japanese products with which we have to compete, the Japanese have an average standard which is only one-seventh of ours.

The world does not owe us a living and it will not give us one. We shall only get one in so far as we earn it. I ask my hon. Friend the Economic Secretary to pass on this message to the Chancellor: The extra productivity that we require will only come if the men are paid for it. I believe that Income Tax and Surtax together are far too high. In my opinion, the law of diminishing returns—

Mr. Fienburgh rose—

Mr. Osborne

Let me finish.

The law of diminishing returns operates when we have to pay more than 10s. in the £, for then man is working less for himself and more for the State. Direct taxation is far too high, not only upon the man at the shop floor level—

Mr. Fienburgh

How much Surtax does he pay?

Mr. Osborne

—but also upon the men who have to run industry.

I am grateful to the right hon. Gentleman the Member for Ipswich (Mr. Stokes) for his courtesy in coming into the Chamber, to hear what I have to say, because I want to refer to the circular that he sent to his 1,300 workpeople. I should like my right hon. Friend the Chancellor to copy the excellent example of the right hon. Member for Ipswich for the whole country. What I cannot understand about the right hon. Member for Ipswich, for whose honesty and capacity I have the highest regard, is how he comes to be sitting on the other side of the Committee.

The right hon. Member is, quite rightly, proud of the success of his business, and its success is as much due to his brains and drive as to the work of the men on the shop floor whom he employs. At the end of last year, he sent this circular to his workpeople. It is headed: Hard facts about the world economic situation. On the front page the right hon. Gentleman said: In 1953, we must make greater effort and get bigger output still. The Chancellor has called for a 20 per cent. increase all round, especially of capital goods. I discussed this with the right hon. Gentleman and he quite rightly points out that he was asking his workpeople for an extra 10 per cent. output so that he could get a 20 per cent. increase in his exports. I wish that every Tory business man had the common sense shown by the right hon. Gentleman.

There are three out of the 11 points in the right hon. Gentleman's circular that I commend to the Committee. I commend hon. Members opposite to get a copy—I have two. In paragraph 9, with great courage and common sense, the right hon. Gentleman told his workpeople —and I commend this to the hon. Member for Newcastle-upon-Tyne, East (Mr. Blenkinsop), who has talked to glibly about the social services: Between 1945 and 1952 the British social services have, in considerable measure, been financed by wealth taken from West Africa, Malaya, etc. Not only is this immoral, but it cannot go on. It is well to remember that no one owes us a living, least of all the poor people overseas. That is the message I want the Chancellor to ram home.

In the next paragraph, the right hon. Gentleman—I admire him immensely for his courage—says: In other words, we cannot have welfare unless we ourselves produce wealth sufficient to provide it. We have for too long been living on wealth created by our forebears. Our economy will come to a standstill and our standard of living, which, at present, on average, is the highest in the world, will suffer a catastrophic drop unless this process is reversed. The next sentence is in italics: We must, in fact, create more than we consume if we are to survive. At present, we consume more than we create. I ask that the Chancellor should use such courageous words. Whether it gets votes or not, for goodness sake let us tell the people the truth.

Lastly, I commend the right hon. Gentleman for paragraph 11, in which he says: It is a profound mistake to think that we can get out of our difficulties by heeding only our own domestic affairs. We can only maintain"— I commend this especially to the hon. Member for Newcastle-upon-Tyne, East— the social services we now enjoy so long as we can pay for them ourselves, which we are not now doing and have never done in full since the Welfare State started in 1945. Tell the people that. Do not fool them that they can have something without working for it. This is something that affects the Committee as a whole, and not one side alone.

I come now to my final word, which I ask my hon. Friend the Economic Secretary to pass on to the Chancellor. I believe that the best article written by the "Economist" in recent years appeared in its issue of 29th June, 1946, under the heading, "The Carrot and the Stick." I take out just one sentence, which I should like to be passed to the Chancellor of the Exchequer: The British community is sound in wind and limb, it has an immense accumulation of subconscious judgment, it rarely makes a very stupid mistake, prudence is its middle name—but it moves so slowly. I beg of the Chancellor to stump the country to drive these economic facts home, and then to follow the example of the right hon. Member for Ipswich in seeing that every wage packet contains something similar to what he produced. I am confident that if my right hon. Friend does that, the British people will not fail him.

8.9 p.m.

Mr. Austen Albu (Edmonton)

The hon. Member for Louth (Mr. Osborne), with his customary sincerity, has broken through the wall of complacency which has been typified by the speeches we have had from the Government side of the Committee. While I agree with very much of what the hon. Member says, I beg of him not only to address his homilies to the workers in industry; and when he makes his appeal for higher productivity, repeating the appeals that have been made by every Labour Chancellor of the Exchequer since the end of the war, and by most Labour Members of Parliament during the whole of that time and by the Trades Union Congress, he should remember that exhortation and propaganda alone will not achieve the results that he wants.

A friend of mine used to say, "You cannot sell a face cream made of vitriol," and I suggest to the hon. Member that it is not much use asking the workers to work harder in an economy which, as my right hon. Friend pointed out at the beginning of the debate, is rapidly approaching stagnation. The Financial Secretary to the Treasury, in a speech which was flippant, I imagine, because he was quite unable to deal with the arguments of my right hon. Friend, in exactly the same way as other hon. Gentlemen who have spoken since were quite unable to deal with them, preferred to deal with trivialities rather than with the economic conditions of our country. In boasting of the Chancellor's Budget, the Financial Secretary said that this was the first time that there had been a reduction in taxation since 1935. I would remind hon. Gentlemen opposite that in 1935 there were something like two million unemployed.

The Chancellor was lucky to be able to introduce his Budget at a time when the balance of payments had benefited from the very considerable fall in home production and the very great improvement in the terms of trade, and also at a time when they had not suffered from any serious decline in demand for sterling area commodities. I suggest that this situation cannot last, because if home production improves, costs will rise, and unless exports are then expanded substantially, our overseas account will again be in deficit. On the other hand, of course, the reverse situation may take place, and we may find ourselves very short of dollars.

The Chancellor made the appropriate noises and mouthed the appropriate platitudes about higher productivity and higher exports, but the whole of his speech was shot through with complacency. Perhaps the most surprising thing about his speech, and about the speeches of all other hon. Gentlemen who have spoken from the other side, is that no account appears to have been taken at all of the change in the economic climate in the world, due to the very considerable change in the climate of international affairs that has taken place during the last month.

I do not intend, nor do I think it necessary, to describe in detail the chilling horrors that might well fall on this country, and on the world as a whole, from a fall in industrial activity in the United States by, shall we say, four or five per cent. Every serious observer and every serious economist and writer has been expressing considerable anxiety on this matter during the last two or three weeks.

This anxiety arises not only because of the very high proportion of United States economic activity which is due directly to defence orders, but also to the very high level of industrial investment in the United States during the last two or three years, the high level of consumer credit and the very high sales of consumer durable goods. I must say that it looks as if it will be extremely difficult for the United States to substitute any other expenditure for a reduction in defence expenditure. Therefore, pipe-dreams of free trade and an approach to the convertibility of sterling are nothing more or less than escapism from the realities of the present economic situation—a situation which is likely to be with us for the rest of our lifetimes.

I do not know whether the present United States Administration is either willing or able to maintain the present level of economic activity in that country. It may very well be that a Government of businessmen, like the Conservative Government in this country, prefers an economy that is not operating in conditions of full employment. Perhaps, as Professor Galbraith has suggested, these businessmen dislike Government measures to maintain economic activity, because they destroy their own sense of power.

Whether this is true or not, I think we can all agree that the American Administration would think they had done very well indeed—and I would think so too—if they succeeded in maintaining industrial production in that country, after the defence programme had levelled off or been reduced, at, shall we say, 90 or 95 per cent. of its present level. But this, of course, could spell disaster for this country and for the rest of the sterling area as a whole. I doubt myself whether even radical changes in American tariff policy would make any very great difference. He would be a dreamer indeed who believed that such a reduction in tariffs would be possible under those conditions.

Therefore, I suggest to the Committee that every effort must now be concentrated on making our economy more independent of that of America; but I would go further, because I believe that we must reduce our dependence on foreign trade altogether. I do not believe it is possible in the modern world to continue to rely on imports for one-third of our whole national income, whatever may have been possible in our industrial heyday at the end of the last century or before the First World War. We must, therefore, have a policy and a plan for dealing with this situation.

It is clear that the first step in such a plan must be a radical increase in agricultural production, not so much per man as per acre, but in actual fact last year the increase in agricultural production was on a level about one-third of that of the three previous years, and there was a fall in manpower in the agricultural industry of 22,000. There are no signs here of a policy for decreasing our dependence on food imports.

Our second need, I believe, is to reduce the import content of our industrial production, and this can be done in two ways. We must, first of all, raise the proportion of our exports which have a very high conversion ratio; in other words, a very high proportion of labour, and so forth, to raw materials, and particularly imported raw materials. Of that conversion factor a very high proportion should be skilled labour, and the use of scientific research and development. I cannot see how it can help such a situation when the Government, in fact, make a cut in the expenditure on scientific research. This is the time for a very great increase in scientific research and development, because although the results may not be immediately available, they will certainly be very much needed in the next few years.

Such a policy as I have tried briefly to describe will, I believe, make us very much less dependent on the violent fluctuations in raw material prices. I think that the experience we have had since the war—and it is no good hon. Gentlemen opposite talking about returning to normal if by normal they mean the situation in which a large part of our imports were paid for by the proceeds of foreign investments—and the lessons we have drawn from post-war history are that steady economic expansion is almost impossible under conditions of such violent changes in the prices of raw materials and imported commodities as we had between 1950 and 1951, and again, in the other direction, between 1951 and 1952.

It is not only the enormous effect which these have on the national economy and the balance of the national accounts —such an effect that I do not believe any Chancellor of the Exchequer can catch up with the swings and even out the fluctuations. We have seen how almost impossible it is, without violent changes in taxation policy, to deal with such a situation. There is also the effect which these violent changes in prices have on individual businesses. As long as individual businessmen feel that they must retain large liquid assets to deal with stock fluctuations, I believe that they will be chary of new fixed capital investment.

It is from these violent changes in stock values that a large part of the demand for a reduction in business taxation really comes, because businessmen need the increased liquid assets in order to cover the changes in stock values. To be quite honest, I do not believe any taxation system can logically and fairly deal with such violent fluctuations in profits caused by violent fluctuations in commodity prices.

Is this not the occasion, while we are negotiating a new international wheat agreement, to try to obtain commodity agreements for other raw materials? Some suggestion of this sort was made by one of my hon. Friends during Question time, and I thought it received a not unfriendly reply. I hope that when the Economic Secretary speaks tomorrow he will be able to enlarge on that a little. It seems to me that the benefit of such commodity agreements, which we might use our buying power to assist in obtaining, would apply not only to the British economy, but also to those territories in which the materials are produced and on which they are mainly dependent.

The situation described in the excellent little leaflet of my right hon. Friend the Member for Ipswich (Mr. Stokes) which was quoted by the hon. Member for Louth (Mr. Osborne), in which it is pointed out that we are practically living on the backs of the Colonial Territories, will be even worse if the Colonial Territories are not even able to sell their main crops and their main products. I do not need to remind the Committee that this matter is of very great political as well as economic significance.

The other aspect of my proposals, that we should go in for the production of new types of industrial goods, especially in the chemical industry and of the synthetic fibres and other synthetic materials based on the chemical industry, requires, of course, a very high level of investment. The Chancellor, it seemed to me, both in his speech yesterday and in the very terms of his Budget, has admitted that the problem today is not so much to create the savings as to get the financial and other resources which are available into use.

Apart from the initial allowances, which I think are a direct incentive to fixed capital investment—although I do not think the relief is high enough, and I entirely agree with my right hon. Friend that they should be used in a discriminatory manner—I cannot see in what way the taxation reliefs given by the Chancellor are going to have any comparable effect on the investment decisions of businessmen compared with the deterrent effect of approaching market conditions in the world.

The country must understand that this Government are returning as my right hon. Friend pointed out, to a situation where only private industry takes the decisions and the Government are passive. Indeed, the Chancellor is moving to the situation of laissez faire. Perhaps the most significant support which the Chancellor has received today was from the right hon. Member for Blackburn, West (Mr. Assheton), who last year was one of the most bitter critics of the Chancellor's policy. It is clear that the right hon. Member for Blackburn, West feels —and no doubt the City of London feels with him—that the Chancellor is returning to the situation where the City determines the level of economic activity and not the Chancellor and the Government.

The alternative to this policy is that which my right hon. and hon. Friends on this side of the Committee would put into operation if we had to deal with this very serious economic situation. Taking a longer view than private industry and individual industrial firms either can or will, I think that the Government will have to participate in industrial investment, where necessary assuming control of particular companies for the purpose. The present methods of the Government can never, in my opinion, deal with the long-run problems which our country so seriously faces.

8.26 p.m.

Mr. H. A. Price (Lewisham, West)

I have listened to every speech that has been made in the Committee today, and I have noticed two or three dominant themes running through practically all of them. I propose to choose as my starting point the speech of the right hon. Member for Leeds, South (Mr. Gaitskell). As I was not educated either at Winchester or the London School of Economics, I cannot follow him into the high realms of economic theory, but I was fascinated by the facility with which he juggled with figures and I thought his arithmetic impeccable. Nevertheless, he failed to convince me, and I think he will completely fail to convince the country, because he is up against two facts which cannot be controverted and one deduction which can be very strongly supported.

The first fact is that the financial policy which he advocates and which right hon. and hon. Members opposite support is the financial policy which, between 1945 and 1951, landed this country in three very serious financial crises, each one more serious than the last, and the last of them, the one which we inherited, being the most serious of them all. The second fact which cannot be controverted is that the financial policies which the right hon. Gentleman was trying to criticise are those which have rescued this country from that economic crisis and which have produced the results to which my right hon. Friend the Chancellor was able to refer yesterday.

But there is a third deduction which can be strongly supported, and it is this. At the moment, we are comparing the position as it exists today with the position that existed 12 months ago. I suggest that we ought to carry the comparison a little further and compare the situation as it exists with what it would have been today had the policies of my right hon. Friend not been put into operation. Shortly after the General Election of October, 1951, the right hon. Gentleman the Leader of the Opposition and the right hon. Member for Leeds, South both admitted in this House that the position was so serious that unpleasant measures would have to be taken to deal with it.

The right hon. Member for Blyth (Mr. Robens) went even further. He said that the position was so serious that he doubted whether the man in the street realised just how serious it was. That being so, perhaps we might be forgiven for having expected a little support for some of the unpleasant measures which we had to take 12 months ago, and before, to deal with the situation which we found. But we did not. We had no support at all.

On the contrary, every unpleasant measure that we took, every economy that we proposed was bitterly attacked by hon. and right hon. Gentlemen opposite, both in the House of Commons and in the country. The only logical deduction from that is that they would not have carried out any of them. If that is true, then nothing could have saved this country from economic ruin last spring. Widespread hunger and unemployment would have swept through the country and would have invaded nine homes out of every ten.

Mr. Harold Wilson (Huyton)

Is it not a fact that the only single action taken by the Government last year which has had the remotest effect on the balance of payments was the import cuts, and is it not a fact that my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), on 6th November, 1951, the day on which they were announced, said that we should have had to do the same thing if we had been in power?

Mr. Price

That is what I am complaining about. The right hon. Gentleman the Member for Leeds, South and others said that, but ever since then every internal economy that we have sought to impose has been bitterly attacked. If there has been an exception I hope that hon. Members will forgive me for saying that I cannot think of one. If this is so, it is fair to deduce that the improvement which has taken place in our affairs would not have taken place under the leadership of hon. and right hon. Gentlemen opposite.

I want to deal with three specific points which have arisen in this debate. The first is one which has been present almost universally in speeches from the benches opposite. The right hon. Gentleman the Member for Leeds, South referred to the past 12 months and said that production was down 3 per cent, employment was down, and short-time was up, and practically every speaker from the benches opposite has mentioned those facts. They are quite true. But I must warn hon. Members opposite that when they are referring to those facts they are skating on very thin ice indeed. They imply that those are the result of actions by the present Government when the fact is that they are not.

This process began four months before the last Election, as can be verified from the Digest of Statistics. All that hon. Members have to do is to refer to table 23, which shows that during the second half of 1951 unemployment in this country rose by 133,000, a process which began in July of that year when the figure stood at 209,000. [An HON. MEMBER: "It happens every year."] It usually happens in winter, but not in summer; but it happened in July, 1951. The figure went up by 19,000 to August, by another 13,000 to September and by 49,000 to October, and so on. As I said, that process began four months before the last Election. I do not attempt to draw any deductions from that except one, which is that it could not have been the result of any action by this Government. [An HON. MEMBER: "Who said so?"] Every hon. Member who has spoken today from the benches opposite has implied that it was so, and hon. Members opposite have been doing that for months.

Another point was raised by the hon. Member for Cardiff, West (Mr. G. Thomas) in particular. It has been dealt with previously, but I think that another word on the same subject will not come amiss. It is the question of the increase in the cost of living during the last year. I cannot understand hon. Members opposite persisting in flogging this horse, because it has been dead for months. The truth of the matter is that the cost of living rose remorselessly month after month under the previous Socialist Government. In 1951, it rose by 13 per cent. more than 2s. 6d. in the £—and it continued to rise for a little while after we came into office.

I had considerable faith in a Conservative Government, but even I did not expect the Government to be able to turn that off overnight as though by means of a tap. It took eight months to do it. The cost of living continued to rise until last June, since when it has been stable for nine months. That is a feat unparalleled since the war broke out in 1939, and I believe that the people are beginning to realise it.

Mr. Anthony Crosland (Gloucestershire, South)

With no help from import prices?

Mr. Price

I will deal with that in a moment.

If we exclude food—which I realise we cannot do—the cost of living has not risen at all during that period. We have been criticised for cutting the food subsidies. What my right hon. Friend the Chancellor of the Exchequer did in last year's Budget was to increase the nation's food bill by £160 million per annum, but he gave the people £250 million per annum with which to pay that bill. That is incontestable.

But that is not the end of the story. I suggest that hon. Members opposite should turn to another page in the Digest of Statistics and look at table 147, where they will find the next chapter in the story, which is this. To meet the increased cost of living in 1951 the wage earners of this country received wage increases of 11 per cent.—2 per cent. less than the increased cost of living. In 1952, to meet an increase in the cost of living of 4½ per cent. they received wage increases of 7 per cent. In other words, under the Socialist Administration, during their last year at any rate, they were 2 per cent. worse off, and under the Tory Administration they were 4½ per cent. better off. So much for the story that the Tories are attacking the living standards of the working people, which we hear so often.

I could have taken figures which would have made my story even better. I could have taken the average figures quoted at the top of page 120 of the Digest of Statistics, which indicate that the working classes were 4 per cent. worse off in 1951 and 5½ per cent. better off in 1952. I have been generous to Her Majesty's Opposition. I have taken the figures which were less favourable to my case.

The next point I want to deal with is one which has already been raised with regard to the way in which the terms of trade have changed in our favour. My right hon. Friend admitted that fact with no qualifications yesterday, and I think those who criticise him on this score are being unfair. He admitted the full effect of that factor, yet I suggest that he was being unduly modest. It is true that the terms of trade have changed in our favour, but it is not true that none of the credit for that is due to the Government.

I should like to tell the Committee of one case of which I have personal knowledge. I am sorry that the right hon. Member for Huyton (Mr. H. Wilson) has left the Chamber, because I think that he, too, would have personal knowledge of this matter. This country imports from Sweden about 250,000 tons of wood pulp every year. When this Government took over we were paying Sweden £110 a ton, £88 of which was for the wood pulp and £22 of which was export duty on the wood pulp. That £22 did not go to the Swedish producer of wood pulp; it went to help the Swedish taxpayer.

In other words, the consumers in this country, the general public, were helping the Swedish man in the street to pay his taxes, and that has been accepted by the previous Government. It was not accepted by this Government. We said, in effect, "We will pay you the proper price for your pulp, £88 a ton, but we are not going to pay you the other £22 in duty. The British public have quite enough to do to pay their own taxes without helping you to pay yours." The Swedish Government, no doubt reluctantly, gave in and we got our pulp for £88 a ton.

That, however, was only the beginning of the story. A reduction of £22 a ton in the price of pulp meant a reduction in the price of paper produced from that pulp, and for the first time in 12 years in this country the paper user got a reduction in the price of his paper, which set off a chain of events. First of all, he immediately ceased a policy of putting into stock every piece of paper he could acquire lest in a little while it became dearer.

Immediately there opened up to him the possibility that in a month or so there might be another reduction in price. Therefore, the demand for paper was reduced. The mills in this country received fewer orders and they therefore ordered less pulp, so that the price came down again. The price of that pulp today is less than half what it was in October, 1951. The people of this country have been saved £13 million or £14 million. That is not just the terms of trade swinging in our favour; that is the result of positive action by the Government and, what is more, it is not politics, it is not a quaint ideology worked out by longhaired men and short-haired women in a back room of Transport House; it is sheer business acumen and common sense.

Mr. Fienburgh

Why was this superlative "common sense" not applied in the case of the Argentine?

Mr. Price

As far as I know, the Argentine do not impose an export duty. I can give no other answer apart from that. Perhaps those who negotiated the 1949 Treaty will care to answer.

That is the conclusion of my comments upon speeches which have been made from hon. Members opposite, but I want to say a few words about speeches made from this side of the Committee. I do not suppose that any Budget could be perfect, but I believe my right hon. Friend produced very nearly a perfect one yesterday when we bear in mind the very small amount of elbow room he has and, even more, when we consider the Budget against the sombre backcloth of the position in this country 12 months ago.

It is possible to criticise the Budget. I have some sympathy with a criticism made by the right hon. Member for Leeds, South. I, too, would have preferred a greater reduction in Purchase Tax on essentials and household goods even if that meant leaving the 100 per cent. class untouched, but I appreciate my right hon. Friend's reasons; he was thinking not only of the consumers, but of the industries which produce these goods. I therefore accept his decision.

There is, however, one implication about which I am very uneasy. I regard the recommendations of the Hutton Committee—about the non-return of Purchase Tax paid on stock bearing Purchase Tax —as being immoral. To suggest, as that Report suggests, that retailers should be able to recoup themselves when Purchase Tax goes up for the losses they incur when Purchase Tax goes down is the best example I have yet met of offering the shadow for the substance, and I hope that the Treasury will have another look at this matter because there are many right hon. and hon. Members on both sides of the Committee who are uneasy about it.

I add my weight to those who are pressing the Government for still further economies, and I will make one or two specific suggestions. Until the Government can make further economies, they will not be able to go very much further along the road we have been treading, which has produced the results which the country welcomed yesterday. I believe that if we are honest and can leave politics aside—I know the difficulty—we all realise that there is room for economies in the National Health Service without interfering with the efficiency of the service, and perhaps while improving it. We all know cases of five people doing the work previously done by two. I know of a case, not in my constituency but just outside it, and I am sure other hon. Members know of instances. That is the sort of thing which we must eradicate and it is one reason why I welcome the creation of the committee which the Minister of Health announced the other day.

May I be a little more specific about another matter? I believe there is room for economy in the administration of the housing subsidies and for a greater degree of justice in their administration. We all know that there are thousands of families who are living in subsidised dwellings who could well afford to pay the economic rent, while, at the same time, there are hundreds of families who are having to refuse the offer of council accommodation because they cannot afford to pay even the subsidised rent. Yet the latter, through their rates and taxes, are helping to pay the subsidies of the former.

It really is farcical, and I strongly urge the Government, although I realise that this is not entirely the responsibility of the Chancellor, to look at this problem. I would even be in favour of increasing subsidies to those who really needed an increase in order that they should have the accommodation they so urgently need, but I believe that, on balance, there would be substantial economies.

I believe that there is room for economy in the administration of education. I am sure those of us who are in close touch with education, who are or have been members of an education authority, know quite well that there is ample room for economies without inter- fering with the essential fabric of education.

Mr. F. Blackburn (Stalybridge and Hyde)

Would the hon. Gentleman give an example?

Mr. Price

Gladly, although I may run some risk in doing so. I know a case in my constituency where a motor mower has been sent out to mow a lawn the size of a pocket handkerchief. When a question was asked why the motor mower had been sent the answer given was, "The money for it is in our estimates, and if we do not spend it this year we shall not get it next." That is an example I give on the spur of the moment, but that sort of attitude, that if we do not spend the money this year we shall not be allocated it the next, leads to waste.

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

I am concerned with large workingclass areas where they have no grass to mow. In those areas it is common for our children to attend schools in classes of between 40 and 50. How can we economise in a situation of that kind?

Mr. Price

I will develop this a little further, since I am challenged. There is a school not very far away which has in the playground a futuristic piece of sculpture against which the children play cricket and for which the education authority paid £850. There is another example of waste. [HON. MEMBERS: "Where?"] Stevenage. If hon. Gentlemen opposite want further examples of this let them give me 24 hours' notice and I will provide them with plenty.

Mr. Blackburn

What of the "essential fabric of education" the Minister talks about?

Mr. Price

What I have said is that these economies could be made without interfering with the essential fabric. That is the whole of my case.

Mr. Dryden Brook (Halifax)

Would the hon. Gentleman come to my constituency and conduct an inquiry into our educational services and give us some insight how to economise?

Mr. Price

I should be delighted to do so if it were my job to do it, and if I could get leave of absence from my Chief Whip, which I doubt. Cannot we be a little serious about this for a moment? Do not we all know that these instances of wastage do occur frequently?

Mr. Fienburgh

No.

Mr. Price

Then I suggest it is time that hon. Members got a little closer to the problem, when they would find that what I have said is perfectly justifiable.

I completely support what my hon. Friend the Member for Louth (Mr. Osborne) said in his concluding remarks. Whatever economies the Government institute, whatever changes of policy the Government propose, we shall not solve our problems unless we can achieve what is so often called greater productivity. I prefer the terms greater efficiency and more hard work. It does not matter which we call it so long as we know what it is.

By this Budget the Chancellor has done what he can to encourage greater efficiency in industry. But that is not enough. Industry is composed not only of management but of men, too, and somehow or another we have to persuade them all to make their maximum effort. I have said in this Chamber before that we have the finest working population in the world. I believe that to be true. If we can persuade them to put forward their maximum effort there is little that is not possible.

The problem is how. The trouble is that we are dealing with a generation which has been taught for so long and by so many that to work harder is a mug's game because it puts more profit into the boss's pocket and helps them not at all. That is not true, and never has been. It was put very well by the leader in the "Daily Telegraph" on 20th March, which said that in America the workers will strike if the most modern machinery is not installed, but in this country the workers will strike if it is. They admitted that that was an exaggeration. I agree that it is an exaggeration, but it pinpoints the problem. There is no point in installing modern labour-saving machinery, more efficient machinery, if it is to be used to produce the same output with less effort instead of more output with the same effort.

This is a psychological problem. What we must do is to "unteach" the false teachings which have been poured into the workers' ears for so long. I believe that my hon. Friend the Member for Louth was on the right track when he said that we must convince them that greater effort will benefit not only the bosses—but also them and their neighbours. What we must do is to put into operation a document we published some little while ago, but about which not much has been heard since, a document known as the "Workers' Charter." I wonder whether somebody could tell me what has happened to it.

Mr. Tom Brown (Ince)

Surely the hon. Gentleman is advocating something that has already been done. Is he now suggesting that he would go to the men in the mining industry, who have responded so well to the introduction of some of the most advanced machinery science has produced without making a complaint, but have accepted it wholeheartedly, and who, a few weeks ago, in one district, were advocating greater output to help the nation's economy and have responded with a further increase of 10 per cent. in their output?

Mr. Ellis Smith

The same applies to the engineers.

Mr. Price

The hon. Gentleman is taking an unfair advantage of me, if he does not mind my saying so, because he knows that as Parliamentary Private Secretary to the Minister I cannot say a word on that subject in this Committee. If he wants to discuss it with me in the corridor outside, I shall be delighted to do so.

Mr. Smith

Are they working all right in Fenton?

Mr. Price

I think the hon. Gentleman has got the name wrong, but if he means the pit to which I went they are working very well indeed.

Let me get back to the theme of my speech and conclude, because I know there are others who want to speak. What we must do is to show the workers of this country that they can be capitalists and enjoy the fruits of capitalism; that capitalism is something not for the few but for the many. If we can do that— and I believe we can—we shall get all the results we want, and the Socialists' shibboleths can be consigned to the rubbish heap where they belong.

8.54 p.m.

Mr. Douglas Houghton (Sowerby)

Some parts of the speech of the hon. Member for Lewisham, West (Mr. H. A. Price) were astonishing and some were absolutely incredible. He began by accusing my right hon. Friends of not co-operating with the Government in the essential measures necessary to save our balance of payments situation. Surely he knows that on the necessary emergency measures taken before the Budget of last year we on this side of the Committee did co-operate with Her Majesty's Government in carrying them through.

What he has reproached us with was that we did not co-operate with Her Majesty's Government in making their mistakes. That is what we did not do. In the last Budget there were a number of matters with which we said we profoundly disagreed, and which we did not think were necessary for solving the balance of payments problem; which were not equitable; and which would not produce the results the Chancellor thought they would. The experience of the last 12 months has shown how right we were. The whole story in the Economic Survey is one of disappointment. The financial results for last year, as already pointed out by many of my hon. Friends, were surely not in accordance with expectations.

I want to refer to another matter which the hon. Gentleman mentioned— that of economy. Here in the background of the Budget is the public service and the level of Government expenditure. I think that it will be doing a great disservice to the public service if we now regard economies as a kind of propaganda platform, especially as they relate to members of the Civil Service.

The Chancellor of the Exchequer made a reference to the size of the Civil Service and joyfully said that he fully expected that when the figures were available we would find that it had been reduced by 22,000 during the past year. I do not stand for the retention of an inflated public service if the level of Government activity is to change so that there will be fewer people required in the public service, but I think that we shall be making a mistake if we exaggerate the effect of economies in the public service personnel on the level of Government expenditure. The sacking of 22,000 would save £1½ million in salaries. To abolish the whole of the Inland Revenue Department and the Customs and Excise Department would save only enough money to take 3d. off the Income Tax.

That is where the cry for economy will misfire if the Chancellor is seeking in that way to reduce the level of Government expenditure. I think that it will be a great pity indeed if members of the public service are to be regarded as some kind of parasites, because this Committee and the country owe an enormous debt to the public service for the way in which they have discharged an enormous load of administrative complexity and difficulty in the last 10 years. To do anything to undermine their morale and make them feel that they are doing less than a good job to the State will be, I believe, an unfortunate thing.

I wish also to refer to a matter mentioned by my hon. Friend the Member for Cardiff, West (Mr. G. Thomas), and that is equal pay for women in the public service. The Chancellor of the Exchequer has given away to taxpayers money which is part of the rightful rate for the job of women civil servants and others in the public service. I think that it is absolutely inexcusable that the right hon. Gentleman has said nothing whatever about his pledge on this matter, which he has repeatedly given; and one would have thought that this was an occasion for some mention to be made of it.

The right hon. Gentleman's pledge was that when the economic and financial position allows, he will implement the Motion to introduce equal pay in the public service. I do not know whether this is in the mind of the Chancellor as the occasion when the economic and financial position will allow this to be done—it has certainly allowed of a great deal to be done in other ways—but I hope that before the debate is over, someone on the benches opposite will say where Her Majesty's Government stand on this matter, because there is a very large number of women in the public service who want to know.

Mr. H. A. Price rose—

Mr. Houghton

I cannot give way. I think that the hon. Gentleman gave way far too much. The more he was interrupted, the sooner he got to his motor mower and the pocket handkerchief to put it on. I think that he had better listen for a change.

Another thing to bear in mind in connection with economies in the public service is that the Civil Service cannot help mistakes or changes in policy which bring about substantial alterations in the level of administrative costs. The Excess Profits Levy is an example of how the administrative machinery was mounted for this additional task and is now to be scrapped at the end of two years. Excess Profits Levy centres were set up in a dozen cities to deal with the complexities of companies which had associations with other companies and cases where the Excess Profits Levy could not suitably be dealt with in one tax district. Additional posts have been created.

The inspectors of taxes went to arbitration and got a lump sum of £175 for doing the extra work. The Arbitration Tribunal rejected the claim for a continuing annual allowance, restricting its award to one single payment, perhaps realising that this incredible tax was about to collapse and that one single payment would be an ample reward for the inspectors who would be asked to do the work. That is an example of how the costs of administration have nothing to do with the Civil Service, with whether it is working hard or whether it is efficient, but depend solely on Government policy decisions.

Leaving one of the features of the background of the Budget, I wish to say a few things about what the Budget sets out to do. The Chancellor repeated phrases and words which we have heard from him before. He said that this was to be an incentive Budget and that we needed a stimulus to both output and savings. He has chosen certain methods of bringing about the conditions which he hopes will yield greater output and more savings. The Opposition believe that he has been wise not to tamper further with food subsidies. At this stage that would have prejudiced very much indeed any possibility of getting the cooperation of the trade union movement. The cycle of wage increases since the last Budget owe their origin to the provocation of the substantial cut in food subsidies last year.

There are hon. Gentlemen opposite who still have not the matter of subsidies clear in their minds. A gentleman in my constituency writes to the newspaper and says that one thing about the cut in the food subsidies last year was that the working man has the satisfaction of knowing that he is paying an honest price for his food. If a cut in the food subsidies restores an honest price for food, what does 7½d. on a gallon of petrol do? Does that create a dishonest price? What do taxes on all sorts of commodities, especially beer and tobacco, do? The truth is that one can employ the device of subsidies to cheapen the things one wishes to cheapen and the device of taxation to make dearer the things that one wants to make dearer or that one feels one can make dearer and still not substantially reduce consumption, as in the case of beer and tobacco.

In deciding this year to offer no further provocation to the trade unions, the Chancellor has been wise indeed. If he can now hold the cost of living and combine higher consumption and greater output with fuller employment and a steady cost of living figure, he will not only perform a miracle but will at the same time have saved the trade unions from any major claim for further wage increases. What the Chancellor did not say in the course of his statement was whether he wants these tax remissions to be spent or whether he wants them to be saved. There were only two references in the whole of his speech to saving, and surely he must have from private and corporate savings as much as he feels is needful to use for financial and industrial investment. I believe he will be in need of somebody's savings before he has finished to cover the below-the-line expenditure. He has not stated how he proposes to deal with the substantial expenditure below the line; he has certainly made no provision for it in his surplus.

The right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) congratulated the Chancellor on the decision to pay out the claims against chattels in the war damage scheme, but up to now there is no foreseeable source from which the money will come. If he is again this year going to use the fortuitous aid from private savings which assisted him so much in the Budget of last year, then he will have to urge that there should be more savings for the purpose—or worse, perhaps he may use monetary policy to get the frozen investment that he needs.

How does he propose to get these objectives? The tax remissions that he has given are, as I estimate, something like two-thirds of direct taxation and one-third of indirect taxation. At this time tax remissions are justified on this scale only if they are essential for the achievement of the major purpose of the Budget. The question we have to ask ourselves is whether they do and will boost output? I wish I could see that that would be the result.

Last year the Chancellor referred to all the needs which he has stressed again this year. He told us that we want harder work, and so on. He said in his Budget speech last March: A true and lasting solution for our present troubles can be found only through increased production, harder work and increased output. … I am convinced that the present weight of direct taxation, particularly on the lower and middle income groups acts as a very positive discouragement to extra effort."— [OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1302.] He pinned everything on the incentives of tax reductions in the Budget of last year, and yet we have this disappointing story as revealed in the Economic Survey. He gave tax concessions to mine workers along with others who were in the Income Tax field, but the mine worker was not content to yield greater output until he shared in the wage increases which other workers were getting, and which were a result of the financial policy of the Government and the cuts in the food subsidies. Output in the mining industry has not been up to the expectations of last year.

These are problems which every trade unionist has to face. The hon. Member for Louth (Mr. Osborne) has just delivered his customary lecture to Tory employers and has exhorted them to behave like Socialists. It is significant that he has to come across to the benches on this side of the Committee for the text on which to base his sermon to Tory employers. When the hon. Member said that he hoped that hon. Gentlemen on the other side of the Committee would copy my right hon. Friend the Member for Ipswich (Mr. Stokes), he should have said that the first thing they have to copy is his political philosophy. Until then they are not beginning to speak the same language. The explanation of the success with which my right hon. Friend can speak to his workers is that the workers know where he stands politically and ethically. They are not sure where hon. Members opposite stand in these two respects.

When the hon. Member for Louth says that we must stump the country and preach increased productivity and all the rest of it, is he unaware of what the trade unions and the Trades Union Congress have been doing all these years? Surely hon. Members on the other side of the Committee read the other day of the rebuke given to a member of the General Council of the Trades Union Congress who spoke out of turn at the Productivity Council. Surely all that correspondence has not been lost on hon Gentlemen opposite. Yet Mr. Hill, the rebuked member of the General Council, was saying what many workers are saying all the time, and there has to be an answer to that.

It is no good saying that we must get the worker on the shop floor to understand. He understands an enormous lot already, often a great deal more than his employer gives him credit for. Although the balance of payments and the higher mathematics of Budgetry policy may not be as clear to him as they are to some— not all—members of this Committee, other things are very clear to him indeed. He likes to see them stated in simple principles. One thing he wants is an assurance of greater partnership between employer and worker. He wants a full share of the product of his labour, and wants to see that it will not be distributed unduly generously to those who have their capital invested in the business. Until a new spirit of greater confidence can be built up, we are bound to have these differences of outlook between employer and workpeople.

We know what happens in America, but their industrial history is very different from ours. We have a lot to live down. Many workers have bitter memories of the past and we have to eradicate feelings of distrust, suspicion, and indeed of hostility towards employers as a whole. It has to be done painfully and slowly, but patiently. We hope that it can be done.

The hon. Member for Louth was certainly right if he was conveying to the Committee, as I am sure he was, that Budgets alone will not get greater output, and will not give all the incentives necessary to greater output. There is more in work than money, although there is a great deal in the money. There is the attitude of the employer and of the management, there are working conditions, and the acute problems of how to make dull work interesting and how to give rewards for higher output without any suggestion of exploitation or of discrimination. Those are highly difficult problems of human relationships in industry which we still have to study, and we have to apply as best we can the results of our study. I can only say to the hon. Member for Louth that, in addressing this side of the Committee, he was preaching to the converted and that we would have excused him if he had turned his back on us and addressed his hon. Friends on that side.

I reiterate the main criticism of the Budget from our point of view. The Chancellor has ignored the claim of the aged, the helpless and the sick and has given scant attention to those with heavy family responsibilities. It is no good saying that the reliefs given to them in reductions of Purchase Tax are anything like equitable, having regard to the reliefs given to the Income Tax payer. For the first time since 1941, reliefs in the higher ranges of taxation have not been accompanied by a corresponding adjustment of Surtax. That is why the 6d. by which the standard rate of Income Tax has been reduced goes right up to the top and gives what will appear to be excessively generous relief to those who have very large incomes.

One does not need to go to the hypothetical bachelor getting £100,000 a year in unearned income for an example. One has only to go as far as Her Majesty's judges, who have been given indirectly an increase in pay of £110 a year. I do not know whether that is enough to justify Her Majesty's Government now in finally withdrawing the Judges Remuneration Bill. At all events every little helps, even if it is only £110 on £5,000 a year, and it would be necessary to give quite a lot of gross income at that level to produce a net gain of £110.

The Income Tax payers share the tax reliefs from Purchase Tax. They get a double relief, while those who are not tax payers will get only the relief from the Purchase Tax reductions. So the former are double beneficiaries from the tax remissions in the Budget. Last night the Chancellor moved his listeners to his broadcast about those who care for their aged relatives and those who keep the home together. He will remember, of course, that the additional reliefs he is giving to the dependent relatives allowance is only 25s. a year at the bottom and 90s. a year at the top rate. I do not think he can crow too much about those modest reliefs.

The major relief is the 6d. off the rate of Income Tax, especially for those with large incomes. The inequitable distribution of the tax remains as the major flaw in the Budget from our point of view and we are bound to criticise that. I do not myself say that this is a rich man's Budget, but I say that it is a higher incomes Budget. It applies to a large section of the community with whom this Budget undoubtedly will be popular. However, popularity is not enough. Those who will feel discontented with this Budget have not such ready access to the columns of the Tory Press as those with whom it will be popular. That is why we had an almost universal chorus of approval from the Tory Press this morning. The discontented have yet to find their way into the correspondence columns. No doubt they will get there, but if they do not get into the correspondence columns, possibly there will be an opportunity for them to get into the polling booths—one never knows.

The inequity of these tax remissions is bound to appeal to all those who have a sense of social justice and who will not look at it solely from the point of view which the Chancellor apparently thinks they should, that he has imposed no further taxes upon them. What the final verdict of the country on the Budget will be depends on where we stand 12 months from now. That will be the real test of this Budget as it was of the last one. I conclude by saying that if the measure of success of this Budget is not greater than that of the last, the Chancellor will face far greater difficulties 12 months hence than he does at the moment.

9.19 p.m.

Mr. Anthony Barber (Doncaster)

I was a little surprised at the hon. Gentleman the Member for Sowerby (Mr. Houghton) giving a somewhat extraordinary example of the effect of saving to the community by a reduction in the Civil Service of 22,000. I am a little diffident about referring to his comments on that, because I am sure that he has a very great knowledge of these matters, but it seems to me that when he says that a reduction of the Civil Service by 22,000 would save the country £1,500,000, he must be doing so on the conclusion that the average wage of civil servants was £68 3s. 7½d.. a year. If he looks at it a little closer, and if he were a little better in looking after those people for whom he is supposed to cater, he would find that the saving to the country would be between £10 and £15 million a year.

Mr. Houghton

Twenty-two thousand civil servants did not go out for the whole year. The figure was distributed throughout the year, and I doubt whether the economy was greater than £1 million in the last financial year.

Mr. Barber

I certainly cannot agree with that.

Then the hon. Member went on to say that the whole story of the Economic Survey is one of disappointment. While we all agree that certain disappointments occurred during the past year, surely the main object of the Chancellor, both when the Conservative Government took office and at the time of his last Budget, in 1952, was to balance our overseas accounts. It is all very well for the hon. Member to say that this is a tale of disappointment, but the fact remains—it it cannot be denied—that in 1951 we had a deficit on our United Kingdom balance of payments of something like £400 million and in 1952 we had a surplus of £291 million.

That is something of which my right hon. Friend the Chancellor has every reason to be proud, and, like many of my hon. Friends, I am just a little surprised that the right hon. Member for Leeds, South (Mr. Gaitskell) did not give him just a little bit of credit for his efforts in that matter.

Mr. Houghton

May I interrupt the hon. Member?

Mr. Barber

The hon. Member a short time ago refused to give way to my hon. Friend the Member for Lewisham, West (Mr. H. A. Price). He will, therefore, perhaps, understand my not giving way now.

The hon. Member for Sowerby referred to old age pensioners and said that while they might be given some relief in Purchase Tax, Income Tax payers were getting a double relief. No doubt literally that is true, but if I understand the hon. Member aright it would be a corollary of his argument, and it would be Socialist policy, that when Income Tax is imposed or increased, the old age pensioner should also suffer some double burden; whereas, as the hon. Member knows only too well, it has been the policy of neither of the two major parties when Income Tax is increased that the old age pensioners should suffer an additional burden on that account.

It is not unnatural that there should be considerable criticism from the Opposition benches—nobody complains about that. But whatever we may say, what really matters is the effect of the Chancellor's proposals upon the economy of the country and upon the level of production. The second factor, perhaps not quite so important, but still of considerable importance, is the reaction of the great mass of the people to my right hon. Friend's proposals. By far the most significant indication of what people are thinking as a result of the Budget is indicated by the cry which one heard last night from all quarters of the Opposition that we would have an autumn election. Hon. and right hon. Members opposite know perfectly well that this is a good Budget.

I am concerned as much as Members opposite, and equally with my hon. and right hon. Friends also, with the fall in production by, I think, about 3 per cent. last year. It is fair to say, however, that whatever disagreements we may have as to the approach to these fiscal matters, the fact remains that in this Budget the Chancellor has done a great deal to make it worth a man's while to do just a little more. That is one of the most important things that any Chancellor, whatever his party, must bear in mind at the present time.

Whenever a Chancellor of the Exchequer is able to give some relief by way of taxation he is confronted with three possible categories of beneficiaries. First, there are those men and women, by far and away the vast majority, who toil in the factories, on the land and in the offices, and who pay Income Tax. Secondly, there is what is called, in a rather nebulous way, industry, as though it were a metaphysical entity divorced from the people who compose it, which is often a very bad thing.

Then there is industry itself, because, after all, nobody would disagree that British industry must have the wherewithal to re-equip itself and constantly be modernising its machinery and plant. Indeed, the right hon. Gentleman the Member for Leeds, South has consistently agreed with my right hon. Friend that, unless we are able to approve the efficiency of our industries and increase our exports, there can be only one result— that we shall not have the foreign currency with which to buy our food and raw materials and so keep our factories going and maintain full employment.

The third category of beneficiaries which any Chancellor would have in mind are those individuals, many of them old and infirm, who pay no direct taxes, and it seems to me that the most remarkable facet or achievement of the present Budget has been that the Chancellor has found it possible to do something for each of these categories. I know that there are differences of opinion between us, but it remains true, and I think nobody can deny it, that each of these three major categories has benefited to some extent in this Budget. For all those who pay any appreciable amount of Income Tax, there are the tax reductions, which may not be much, but it really is fantastic to suggest that anything but good can be derived from the reduction in the Income Tax.

Listening to the right hon. Gentleman the Member for Leeds, South, it seemed to me that he had considerable doubt whether he supported the cut of 6d. in the Income Tax or not. I can only say that he came to my constituency during the last Election, and that I would like him to come along again and speak in Doncaster and tell the people if he does not agree with the cut in the Income Tax. I can assure the right hon. Gentleman that he will not get a very good reception from the coal miners or the thousands of railway workers in my constituency if he goes about the country advocating that view.

So far as industry is concerned, I am delighted that the Chancellor has seen fit to restore the initial allowances. As is well known, they are not so much a remission of tax as an interest-free loan from the Treasury, but I do believe that this step, which I am delighted to see has the support of the right hon. Gentleman opposite, will have good results.

Perhaps I may now turn to one rather small matter which was referred to by the hon. Member for Sowerby, and on which I am in considerable agreement with him. It concerns the hon. Gentleman's remarks about the Excess Profits Levy, because, like so many of my hon. Friends, last year I came to the conclusion that it was probably the worst direct tax that had ever been invented. I want to be quite frank with the Committee and admit that I supported the Chancellor of the Exchequer of the Conservative Government, because it seemed to me that it was necessary in the economic conditions of that time. I do not mind admitting that, having had some concern with the operation of the Excess Profits Levy over the past year, and having had the unhappy task of having to interpret some of the provisions in the Finance Act, for which I so happily voted during its passage through the House, I agree with very much of what the hon. Member for Sowerby said.

The tax was, in effect, a deliberate penalisation of success, and I know that the right hon. Gentleman the Member for Leeds, South has made much fun this afternoon about the action of my right hon. Friend the Chancellor in imposing an Excess Profits Levy in the last Budget and deciding only a year later to do away with it on 1st January, 1954. Perhaps I may say that the decision of the Chancellor to abolish the levy shows not only that he is a good economist and one who is willing to learn by experience of the operation of the tax for a year, but, also, that he is a man of most unusual political courage in coming to this Committee only a year later and saying, "We are going to abolish it."

There are those who, by inference, seem to suggest in their speeches that help for industry is not help for the millions of people who inhabit these islands. People who make that suggestion, whether directly or by inference, are deluding not only themselves, but many other people in this country, and are actively engaged, albeit unknowingly, in a campaign for lowering the standard of living of those they represent. It is a happy thing for this country that neither the T.U.C. nor the average working man or woman pay much heed to those who put forward that line today.

The Government have given us a lead in this Budget. The opportunities for increased production in this country are enormous. After all, we are members of a Commonwealth and Empire which are rich in untold raw materials. We have among our numbers the finest technicians and craftsmen in the world. I know that our population is not very great, but the right hon. Member for Battersea, North (Mr. Jay), who, I am delighted to see, is present, admitted a long time ago that the United States of America produced half the world's goods with only 7 per cent. of the world's population. The opportunity is there, and it is for the British people, with the help and guidance of the Government, to grasp it.

While I am on this question of reliefs for industry, perhaps I may be permitted to diverge for a moment to say that there are some people who have been suggesting and hinting that there should be industrial action by the workers against the policies of the present Government. Frankly, I was astonished and a little disgusted on the day before we adjourned for the Easter Recess to hear the right hon. Member for Ebbw Vale (Mr. Bevan) suggesting that there was a desire for industrial action among the railwaymen of this country. That was a wicked taunt against a very loyal section of our community, and it was only made slightly amusing by the fact that the right hon. Gentleman seemed to classify himself among those who were resisting such a suggestion. I can only say that there are thousands of railwaymen in my constituency, and that there is not the slightest sign of any suggestion of industrial action.

The fact is that working men and women know full well that they are better off under a Conservative Government. [Laughter.] Hon. Members opposite may laugh, but during 1952 wage rates rose on the average by the same percentage as the cost of living. Indeed, the "Daily Herald," if hon. Members care to look it up, quoted without comment the Ministry of Labour Gazette in saying that this is probably the first time that wage rates have gone up in the same proportion as the cost of living. In the same period trading profits fell.

The right hon. Member for Leeds, South made some play this afternoon with the Chancellor's forecasts during the Budget debate last year. I can only remind the Committee that the working people would have some cause for alarm if they listened to the tale of woe which has been expounded by so many right hon. Members opposite. What about the last Socialist Minister of Labour, the right hon. Member for Blyth, (Mr. Robens), who forecast that before the end of 1952 the unemployment figure would reach one million? What utter nonsense. It did not reach anything like that; it was less than 400,000.

What about the spending power of working people in this country? Apart from reading the more responsible newspapers, I am also an assiduous, regular reader of the "Daily Herald," and of "Punch." They seem to have very much in common these days. I was very interested to note the Financial Secretary's reference this afternoon to the "Daily Herald" advertisement in the "Advertiser's Weekly." He quoted from one issue of that great paper, the "Advertiser's Weekly" and perhaps I may be allowed to quote from another, of 1st January this year. This was the advertisement: 'Daily Herald' families will buy more of your products this year. Their incomes are higher than ever. Finally, there are those people—the third category about which I spoke initially—who pay no Income Tax at all. There may be some difference of opinion with regard to degree, but the fact remains that by slashing Purchase Tax by 25 per cent. the Chancellor has done something to help everybody; and it is nonsense to say that the old, the infirm and the pensioners have nothing to gain from this Budget.

The hon. Member for Cardiff, West (Mr. G. Thomas), a man whom all of us in this Committee like and respect, said that the old age pensioner gains nothing. He asked what it meant to the old age pensioner that Purchase Tax had been reduced on a mink coat. I was a little surprised that he did not ask what it meant to the old age pensioner that the Purchase Tax had been reduced on kettles, buckets, kitchenware, linoleum, fire screens, radios, electrical and gas fires, to name only a few articles. It is utter nonsense to suggest that this Budget does not benefit those who do not pay Income Tax. My only regret is that the Government have seen fit to accept the report of the Hutton Committee on tax-paid stocks.

It seems to me that the recommendations of that Committee are completely out of touch either with present economic and fiscal trends or the commercial activities of retailers. The only real help that the Committee suggested was help in the event of an increase in Purchase Tax, which we all knew, even before this Budget, was most unlikely to occur. This is not the time or place to discuss it, but I hope that the Chancellor will yet do something to assist retailers in this connection.

It seems to me to be a remarkable feat that the Chancellor, in addition to providing these reliefs from taxation, has also found it possible to spend an additional £80 million on the social services, an additional £18 million on the National Health Service, an additional £27 million on education and yet, at the same time, to reduce the aggregate of civil supply expenditure by some £60 million. Whatever we may say in this Committee about the Chancellor's proposals, I have no doubt that the British people are well satisfied with the Budget of 1953.

9.38 p.m.

Mr. Anthony Crosland (Gloucestershire, South)

The Chancellor claimed— and so did a number of hon. Members on the back benches opposite, whose references to the Chancellor were so adulatory as to suggest very widespread expectation of coming Ministerial vacancies—that this Budget represented an entirely new departure. The Chancellor said that it moved for the first time for many years in a new direction, the reason for this being that there was no increase in taxation and, on the other hand, there were substantial remissions.

A number of newspaper writers this morning seem to have been taken in by what seems to me, if I may say so, a brazen claim which on examination turns out to be quite false. All the remissions of taxation made in this Budget are remissions of taxes imposed solely for the temporary period of rearmament. The remissions are, first, the Excess Profits Levy, introduced by the Chancellor himself purely for the rearmament period and now remitted before that period is over. Secondly, there is the restoration of the initial allowance, which my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) took off in 1951, again purely for the period of rearmament. Thirdly, there is the 6d. off the Income Tax, a 6d. which again was put on by my right hon. Friend the Member for Leeds, South in 1951 purely with the rearmament programme in mind. Lastly, there are the concessions on the Purchase Tax, a great number of them merely reversals of Purchase Tax increases imposed by my right hon. Friend in 1951 purely to deal with the rearmament situation.

Almost every single remission of taxation, therefore, is a remission of tax which was imposed with this one object in mind of paying for a large but short rearmament programme. Now that the Government have found that rearmament can be financed more easily than was thought possible a year or two ago, they naturally find themselves in a position to take off these taxes, and any Government in their situation would have been able to remit taxation to this extent this year. There really is nothing in the claim that all this is a completely new departure. It is merely getting rid of additional taxes which were imposed with this one special object in mind. There is nothing for the Chancellor or his supporters to make such a song and dance about.

The second reason that the Chancellor finds himself in a new situation, and enabled to introduce a new type of Budget, is a reason which has already been pointed out in many speeches on this side of the Committee. What is new, after all, is not the fact of a lenient Budget. What is new is the fact of a fall in production. Naturally it hardly comes as a surprise that in a situation where output is lower, and where the economy has a considerable amount of slack in it, taxation can be reduced.

Of course, it is true that under the Labour Government taxation was higher, but at least the national income was rising every year. Now that we have a quite different Government in power—I am not saying for a moment that it is all their fault, although it certainly is partly their fault—we have lower production, slack in the economy, and, therefore, the possibility of lower taxation. But it is only fair to warn hon. Members opposite that if the Chancellor is successful in his purpose, which I hope he is, of expanding production, with the risk that that will bring of a new inflationary pressure, hon. Members opposite are in for an unpleasant surprise in next year's Budget, as the Chancellor knows quite well.

If I could digress for a moment on this question of production, the fact that total output has fallen has attracted a great deal of comment. What has attracted much less comment is the equally, if not more, significant fact that not merely has total output fallen but productivity has fallen, too. The Economic Survey this year speaks of a significant decline in output per man, and it is a rather ironic situation that the party of business efficiency, the party that spoke so big about productivity and the need for higher output per man, should provide the first Government since the end of the war under which productivity has fallen compared with the year before.

Turning to the positive proposals made in this year's Budget, the first effect and the one that has been most discussed this afternoon is their effect on the distribution of incomes. A number of references have already been made to the effect of this Income Tax concession on the degree of equality of incomes in the country. My right hon. Friend the Member for Leeds, South spoke about this, and attempts were made by the Financial Secretary and the right hon. Member for Blackburn, West (Mr. Assheton) to pooh-pooh his allegation, which I should have thought was unchallengable enough, that this has the effect of making income distribution much more unequal than before.

The right hon. Member for Blackburn, West said that a concession in Income Tax was bound to benefit most those with high incomes because they pay the most tax. Precisely; and it is precisely the reason why this particular method of tax concession does not seem to us the best that could have been chosen. We would very much have preferred—most of us on this side, as indeed would the "Economist," rather surprisingly—the same amount of money to be given away, if the Chancellor decided that he could afford it, as I agree that he could, by way of an increase in the earned income allowance and an increase in other allowances which would not have anything like the same effect on the distribution of incomes after taxation, as would 6d. off the standard rate.

The Financial Secretary, in a speech which, like a number of his speeches, was a very agreeable knockabout but did not add anything to the serious part of the debate, had a great deal of fun this afternoon with this rakish dissolute figure which my right hon. Friend the Member for Leeds, South, conjured up—the bachelor living on £100,000 a year wholly unearned. Everybody agrees that this is perhaps a figure of the imagination. I see that the Leader of the House has entered the Chamber. The only difficulty about identifying the Leader of the House with this definition is that my right hon. Friend referred to "an eligible bachelor" and not just to "a bachelor."

But the fact remains, as everybody knows, that there are a great number of people—many thousands of people—in the country with incomes, after taxation, of £3,000, £4,000, £5,000 or £6,000 a year, and the fact also remains that all these people will benefit, some of them by hundreds of pounds and many of them by thousands of pounds a year. There is no getting over this fact, and equally there is no getting over the fact that people in the lower wage earning class, if they pay Income Tax at all, will benefit only to the extent of a few shillings a year. These are irrefutable facts and in the light of them it cannot be denied that the equality of incomes after taxation has been greatly diminished by the Budget.

Before this Budget, we had a range of incomes after taxation which extended at the bottom from, I suppose, about £400 a year—one could easily find lower incomes —up to a little over £6,000 a year. That was the range of post-taxation incomes two days ago. Today the range is from £400 at the bottom end to £8,500 at the top. In the light of these figures it cannot be denied that a very considerable social change has occurred as a direct result of the Budget.

I should like also to consider for a few moments the effects of the changes in profits taxation. My right hon. Friend the Member for Leeds, South made it quite clear that we did not oppose the concessions which were made to profits, on the understanding that they were used for re-equipment; and the Chancellor himself obviously agrees with this view because, in his Budget speech yesterday, he refers to them as … a potent augmentation of company reserves available for … development, upon which, I trust, it should be spent."—[OFFICIAL REPORT. 14th April, 1953; Vol. 514, c. 60.] The Chancellor may trust, but others, alas, dispose. It is a significant fact that we have had today a considerable rise in share values on the Stock Exchange which, indeed, is only the culmination of a fairly steady rise in values over the last two or three months, based almost entirely on the expectation of precisely the sort of Budget which we had yesterday. Why has there been this rise? It is perfectly clear; there is no mystery about it. It has been due to an expectation that reduced profits taxation would be followed by a great number of dividend increases.

There are two points to note about this. The first is that this rise in share values and the untaxed capital gains associated with it are another factor making for greater inequality as a result of the Budget. The second point to notice—and I think the Chancellor would agree with this, because he implied agreement in his speech—is that there cannot be a strong economic case today for a general increase in dividends in order to attract new capital to industry. We have seen in the Economic Survey figures showing the extent to which industry last year saved a great deal more than it required for investment, and was able to repay bank indebtedness on a very large scale.

On top of this, we now have the E.P.L. concession, the Income Tax concession, much of which will accrue to profits, and the initial allowance relief. That, coming on top of a situation in which industry was already saving much more than it was investing, means that no case can be made for saying that industry in general is so short of capital that higher dividends are absolutely necessary in order to attract new capital. Since there is neither a social justification nor an economic justification for a general increase in dividend payments this year, my right hon. Friend was surely right to suggest that if these concessions were made they should be accompanied by other measures to ensure that they were not dissipated in higher dividends but were used for the purpose for which they were intended.

In this connection the Financial Secretary attacked my right hon. Friend the Member for Leeds, South for suggesting that Profits Tax should be raised when E.P.L. disappears. He said that this showed the fundamental difference between the two parties and their attitudes to taxation. He said that hon. Members opposite wanted taxation only for the one purpose of covering minimum Government expenditure, but that we on this side of the Committee wanted high taxation for its own sake. It is certainly true that on this side of the Committee we do not treat taxation solely as a method of paying for minimum Government expenditure—for the Army, the police forces, the essential services of the State. We also treat taxation as a prime weapon for ensuring that distribution of incomes which we think is right.

After all, the distribution of incomes before taxation is grotesquely unequal even today, and taxation is much the quickest, simplest and easiest method of making that distribution more equal. We certainly, therefore, do not regard any reduction in taxation of whatever kind as being necessarily good, because it may have a very powerful effect in making the distribution much less equal. If the Chancellor wants to reduce taxation on the lower incomes he will find hon. Members on this side very sympathetic. If he wants to reduce taxation by eliminating Surtax he will find hon. Members on this side very hostile. If the Financial Secretary then says that this represents a fundamental difference in attitude between the two sides we shall be the first to agree with him.

In the few minutes still available to me, I want to turn to the economic effects of the Budget. I am very glad that the Chancellor did not take some of the more austere advice tendered to him in the economic weeklies. I am glad he was willing to take a risk on the side of demand as a whole. I think that that was an absolutely correct decision as against some of the advice which was tendered to him. On this side of the Committee we would thoroughly support his desire to expand production once again, to get us back on the rising curve of production on which we were from 1946 to 1951. However, there are two very important corollaries of this policy of expanding industrial production, and I would say a word on each.

First, and much the more serious, is this question, is there going to be coal to support the higher output? I take the view that the coal situation at the moment is extremely alarming. The shortage of coal threatens to frustrate the entire policy of raising output. I do not want to go into the details about the facts. They are fairly well known.

The demand for coal is likely to be very much higher this year than last. Exports, it is hoped, will be three million tons higher. Home demand will be about four million tons higher on a very conservative estimate. We are losing—and nobody grudges this loss—a great deal of output owing to the second week's holiday, which, after all, is a good deal overdue today; and we shall lose some output because of the Coronation holiday. We are faced with a possible gap between the supply of and the demand for coal of over 10 million tons. This is a situation which really threatens the whole of our economic recovery.

One can approach this problem from the side of supply or the side of demand. I do not want to say anything about supply, about which I am not competent to speak. But on the side of demand, in order to release more coal for export and for industrial production, I believe the situation is so serious that the Chancellor should now make it his personal responsibility to take measures to encourage fuel economy. All that we have had so far is a Government offer of £1 million in loans, at full commercial rates of interest, to be used for installing fuel-saving equipment. Those loans have been quite ineffective. Only a small part of this sum has been taken up. There is an overwhelming case for a 100 per cent. initial allowance on fuel saving equipment. The hon. Member for Kidderminster (Mr. Nabarro), with not all of whose recent public utterances all hon. Members will agree, nevertheless on this particular subject has done nothing but good by his constant insistence that there is this overwhelming case.

We have had the principle of discrimination in respect of initial allowances accepted in this Budget, and I urge the Chancellor to consider this as a matter of desperate urgency. But I am sure that by itself it will not be enough. I am quite certain that we shall some day have to adopt what will be highly unpopular on both sides of the Committee, and even more unpopular in the country, namely, a tax on coal. I am absolutely certain of it. The situation is so serious that, however unpopular it will be in the Labour Party, the Tory Party, or any other party, we shall have to come down to this in the end.

The next point to which I wish to draw attention is the effect of a policy of expanding output on the balance of payments. There is clearly a very serious danger that higher output will lead to higher imports, and will plunge us back again into a balance of payments crisis. Now how are we to avoid this? It seems to me inescapable that the corollary of a policy of expanding production at home is determined planning and strict control in the sphere of foreign trade. The Chancellor has spoken—and it is a rather disturbing attitude—of freeing trade from restrictions, moving towards convertibility, and the like. We are going to spend more dollars on Cuban sugar. We shall spend more dollars on oil as a result of re-introducing branded petrol. We have relaxed restrictions on E.P.U. imports. If this kind of derestriction of imports is to continue we shall be plunged into the most appalling balance of payments crisis again.

I urge the Chancellor—and I hope he will be sympathetic to this attitude—to realise that strict control over imports is a necessary accompaniment of any policy of expanding production at home. I think the principle should be only to relax restrictions on imports from those countries which at the same time will take higher exports from us. This applies very obviously to the sterling area countries. It applies, I would say, also to countries such as the South American countries, with whom there are very promising possibilities of bilateral agreements to increase two-way trade. I hope the Government will very seriously consider the possibility of making bilateral payments agreements with countries such as South American countries. They are short of sterling and we are short of their currencies. We have both got surplus export capacity, and it is ridiculous that trade between us should be stagnating. Neither of us can afford much higher dollar trade than we have now, but we can both afford, and both gain from the effects of, a much higher level of trade between us than we now have.

It is my personal opinion that there is a very strong argument for going further than this in the case of South America. It seems to me a market with enormous potentialities looking ahead. It is also a market in which we have lost much ground both to Germany and America. It is a market in which at the moment, judging by reports coming from there, competition is not a matter of price or delivery dates but of the provision of credit, and I think the Government should seriously consider whether it is not worth while now offering credit facilities to South American countries in order to encourage our exports. It might be a magnificent chance of getting a large share in a market which in future will be of overwhelming importance.

Lastly, just a few sentences on the question referred to by my hon. Friend the Member for Edmonton (Mr. Albu), namely, the possibility, indeed the likelihood, of an American recession in the quite near future. I have spoken about this more than once in this Committee, but obviously the likelihood looks much greater now than it did a few months ago. Even the "Economist" had a whole supplement on this subject, which suggests that it is at least something worth considering seriously.

Are the Government really making their plans to deal with the situation when it comes? Are they really making preparations now to deal with it? —because an American slump is not something that can be improvised against in a few days, a few weeks, or even a few months, when it suddenly comes upon us. It is something which has got to be planned for, and it is only right to say to the Chancellor that the country will not forgive him if, in his pursuit and decontrol and laisser-faire, he dismantles our defences, and leaves us helpless, against a recession which might sweep away all the advances of the last few years.

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress; to sit again Tomorrow.