BUDGET PROPOSALS

HC Deb 20 April 1953 vol 514 cc652-770

3.50 p.m.

Mr. Hugh Dalton (Bishop Auckland)

I am much obliged to the Prime Minister for listening to some of what I have to say. We now return to our public duty of debunking this Budget. This work was well begun by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) last Wednesday—so well begun that he obviously got under the Prime Minister's skin, as a speech made by the Prime Minister in Glasgow on Friday shows. The Prime Minister used these words of my right hon. Friend: This old-school-tie careerist"—

The Prime Minister (Mr. Winston Churchill)

It was not correctly reported. I said, "This old-school-tie left-wing careerist."

Mr. Dalton

That amendment will be helpful to emphasise a comment I shall make in a moment: This old-school-tie left-wing careerist may rightly claim to have been the worst Chancellor since Mr. Dalton. I could not let these words slip past unnoticed today, and in them I think I detect a sub-conscious guilt complex in the Prime Minister. He has been a pretty hot careerist for a longer time than most of us have been in politics at all, and since before my right hon. Friend was born. I will quote, if I may, a few apt words from a most attractive book written by Miss Virginia Cowles and published recently, dealing with the Prime Minister, in which she—a common friend of the Prime Minister and myself and a most charming and talented lady—says: From the very first day Winston entered the House he was openly and unashamedly ambitious, and he made it plain to all who would listen that he regarded the rapid fulfilment of his aims as a matter of the gravest urgency. He decided that only one of two courses were open to him; either to win the leadership of the Tory Party, or to abandon the Tories and make his way with the Liberals. He toyed with the second idea as early as 1901, when he had been in Parliament less than a year. That is a very interesting backward glance. The right hon. Gentleman is also an old-school-tie careerist, though I hasten to add that his old school is not much thought of either by my right hon. Friend's old school or by mine. For what it is worth, the right hon. Gentleman was at Harrow.

Now I pass to the comment on myself, of which I make no complaint. In these days we tend to be too polite in political exchanges and I welcome the robust and straightforward abuse from the Prime Minister, hoping he will not resent counter-attack. "The worst Chancellor since Mr. Dalton"—that may be a matter for argument.

The Prime Minister

May I assure the right hon. Gentleman that I did not attempt in any way to set myself up as a judge of the competition between himself and the right hon. Gentleman?

Mr. Dalton

May I shift the competition to another historic plane? I venture to assert that no later Chancellor, surveying all the Budgets of which this is only one in a long and unending series, has ever made more havoc, more Harrovian havoc, than did the right hon. Gentleman in 1925 when he brought us back to gold at the wrong parity and at the wrong time, and landed us in the general strike during which he ignored his duties at the Treasury in order to follow a journalistic sideline, and afterwards landed us in long years of mass unemployment in that terrible period.

Having said that, I add this: the right hon. Gentleman has big credits on the scroll of history, but not as a Chancellor of the Exchequer, not as a Budget maker. I felt it right that I should make these comments on his comments on my right hon. Friend and myself. I do not wish to detain the right hon. Gentleman any longer, but I thought it right to give him notice that I was going to make these few comments.

Now I turn to the Budget, the economic background of which has been well explored by a number of previous speakers. It is quite clear that this Government have had tremendous luck. Everything has gone wrong in their estimates and yet somehow they have scrambled through with a plausible grin on their faces. As compared with their estimates, the expenditure is nearly £200 million too much, the revenue is more than £200 million too little, and the surplus above the line, instead of being, as we were promised, £510 million, was only £88 million—only £420 million short! For loose, slipshod, inefficient, inaccurate, sloppy Budget forecasting, this one takes the prize.

I comment on one shortfall of revenue in particular, the Death Duties. The shortfall here is remarkable and very large in proportion to the total yield. The Death Duties yielded in 1951–52 £183 million. The estimated yield for 1952–53, just concluded, was £175 million, and the actual yield only £152 million. That is a shortfall of £23 million, or about one-eight of the total estimate. For this year, the estimate is only up to £160 million. Why is this? [HON. MEMBERS: "People live longer."] No, it is not that simple suggestion that I thought might be made. [Interruption.] My right hon. Friend the Member for Ebbw Vale (Mr. Bevan) puts the words into my mouth. In spite of all his efforts when Minister of Health to prolong the lives of the just and the unjust alike, the true explanation is not to be found in my right hon. Friend's activities but lies in those of the right hon. Gentleman, who has raised the rates of interest and thereby belittled the wealth of the rich, both living and dead.

The Chancellor of the Exchequer has promoted a depreciation of capital values, on which, of course, the Death Duties are assessed. [Interruption.] I did not catch the comment, but there can be no question that this decline in the Death Duties revenue has to be added to other elements which make up the total cost of the dear money policy being pursued by the present Government. I wish for a moment to speak about monetary policy as it is revealing itself in the Chancellor's successive statements.

There has been a great rise in the cost of the National Debt. Some of the figures have been set before us in these debates. I leave aside the Sinking Fund so as not to complicate the comparison. In 1951–52, the actual interest charge alone was £514 million. It was estimated for 1952–53 to be £540 million. Actually, it went up to £576 million, and it is going up a bit further next year according to the estimates. Therefore, on these figures there was an increase in the interest charge of no less than £62 million in 1952–53 as compared with 1951–52.

In fact, the cost of the right hon. Gentleman's dear money policy is higher than that, because the actual figures for 1951–52 include some five months when this Government were in office when the rates of interest were already going up. If this were taken into account, it would be found that the increased annual cost of the dear money policy is somewhere approaching £100 million a year, which is a very grave additional burden to be thrown upon the taxpayers.

What is it all for? Why do we need to have this continual increased tribute to persons who lend money? I shall in a moment ask the Chancellor to be so kind as to take note of a letter in "The Times" this morning. Perhaps, however, I may lead up to that by saying that in my view it is not reasonable to say, as the Chancellor has said, and as his Economic Secretary has said, seeking to belittle this increase, that one must think of the thing net and not gross and take account of the fact that we get some tax back on it. Of course, we get tax back on it, but that is true of every item of expenditure in the Budget.

Take the great figures for defence. [Interruption.] Some of those people are still paying the Excess Profits Levy, which we are so glad to see is coming off. The Government get a lot of this back on the contracts for defence. They get a lot of Income Tax, Surtax and Profits Tax back from the people who benefit from the defence programme. They get back P.A.Y.E. on salaries and wages of people who do work for the defence programme, and they even get some beer and tobacco money from persons who draw wages or salaries in connection with this expenditure. Therefore, it is quite wrong to try to get on the defensive about this increase of expenditure, on the ground that part of it comes back in revenue. That is true of every form of expenditure whatever and is not special to the National Debt charges.

This is a serious increase in the burden on the people. In my view it is quite unnecessary, so far as the charge on public funds is concerned. Even if there are restrictions in the private sector of industry with regard to credit and higher rates of interest there, in my view it would have been quite possible—this has been argued before—for the Treasury to have kept down the rate of interest which the Government themselves have to pay, particularly on the short-term debt, which is, of course, a very large element in this increase.

There is no reason at all why the short-term rate of interest should have been allowed to rise above the figure of one-half of one per cent., to which I reduced it in my first Budget in the summer of 1945 and at which it remained until the present Government came into office. That low figure could have been perfectly well held by arrangements between the Treasury and the City of London; or, if the City of London had refused to play on this and the Chancellor had reported that to the House, I am sure I could have pledged him the full support of this side in bringing the City of London into line, so that we should still continue to enjoy the benefit of a record low Treasury bill rate and large public economies resulting therefrom.

I also wish, in passing, to note the question raised by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) regarding rates of interest and bank facilities. It is very reprehensible, in my view, that the Government, although they have not made any serious effort to keep down the charges on the people through the National Debt interest, are none the less seeking to influence the bankers of this country to give facilities, I am not saying on the same level as for export, but to give favourable facilities for persons concerned with buying up denationalised public property. This is a most scandalous and blatant introduction of Tory Party politics into banking practice.

What have we been seeing? We have been seeing the continual creation of doubt and uncertainty as a result of the raising of these interest rates and as a result of the constant harping by spokesmen of the Government on the great importance and efficacy of their monetary policy; it is continually referred to by every speaker from the Government Ministerial group. This only means that more uncertainty must exist in the minds of industrialists, as to whether it may not be intended to push interest rates yet higher in the near future. The Government have created unemployment and uncertainty by this dear money policy, and it is high time that this was brought to an end.

That brings me to the letter which, I am sure, the Chancellor, who follows these things with close attention, will also have noticed, in "The Times" this morning, from Professor Richard Kahn, of Cambridge. I shall not touch upon more than one point in this very interesting letter. Professor Kahn raises the question why the policy of monetary restriction is to be continued at all at the present time. He quotes the Chancellor last year when, in winding up the Budget debate, he said: I am taking the steps I am taking, including the monetary steps, in order that we can push some of the products of engineering into exports …. No one wants to cut home investment if it can possibly be avoided. It would be much better to get more exports by increasing plant and machinery, but, having regard to the supplies of steel which are likely, we could not avoid the investment cuts …."—[OFFICIAL REPORT, 17th March. 1952: Vol. 497, c. 2051.] Professor Kahn then goes on: The steel can now be made available. Why then does monetary restriction continue? … the Chancellor appears to be relying on it to discourage any undesirable increase in stocks. Does this mean that the economy is to be subjected for an indefinite future to the cramping influence of monetary restriction? There seem to be two other possible explanations of the Chancellor's policy. I should like the Chancellor later to comment on this and to tell us whether Professor Kahn has rightly interpreted his mind.

One of these possible explanations, says Professor Kahn, is that … the cuts on investment, which were necessitated by shortage of steel but are not so necessitated any longer, are now being taken advantage of to enable consumption"— rather than investment— to expand. The other possible explanation is that the object is to economise on imports of steel. But, Professor Kahn asks, and I entirely agree with this question: Could anything be more shortsighted than to save foreign exchange on an imported raw material needed to make equipment for British industry? I hope that we shall get an answer to that, because I am quite sure that, whatever case there was a little while ago for this restrictive policy, it has now disappeared and the consequences should be drawn from this.

I turn for a moment to the repercussion of all this on local rates, which is very important. There have been great increases in local rates all over the country. One reason is that higher rates of interest have to be paid on all loans raised by local authorities, whether under the Public Works Loan Board or in the open market. They have generally to pay more, particularly on various commissions, if they go on the open market, than if they stay with the Board, but in any case they have now to pay very substantially more. This is a factor which will be increasingly important as time goes on and more loans are raised under the new conditions.

I have no regret at all for the time when local authorities were able to borrow at 2½ per cent. when I was Chancellor of the Exchequer. Nor have they. On those long-term loans they are secure as far as the rate of interest is concerned and they will go on paying 2½ per cent.—those who were lucky enough to get in during my time and did not have to wait for the right hon. Gentleman—for quite a long while yet, indeed until the dawn of the 21st Century, which some of us may not live to see. Those are the advantages, well understood by local authorities, of a cheap money policy.

The other main reason why local rates are rising throughout the country is the increase in wages and salaries of local authority employees of all kinds and also in the wages and salaries paid by firms who do work for local authorities. All that is a direct consequence of wage increases due to the cuts in food subsidies in last year's Budget. Therefore, it is very easy to see how the embarrassment of local authorities has arisen and is likely to continue to grow.

There are many suggestions which might be made for dealing with this problem. I shall throw out only one at this moment. Having abolished the development charge without too many tears being shed by anyone, it is regrettable that the Government have not made some suggestion for shifting part of the burden of local rates on to socially created land values and that we have not at least sought some partial easement of the problem, by the local rating of site values. I am sorry that there was no suggestion for that in the Budget speech, but it is not too late for the Chancellor to put something in the Finance Bill. Perhaps he will take that into consideration. I do not think the Finance Bill has been presented; so there is still time.

I turn to consider, briefly, some of the tax reductions in this Budget. I warn the Chancellor of the Exchequer, as I have had some disappointments about this myself, that gratitude for tax reductions evaporates very quickly. He will find in a few weeks that hardly anyone will be grateful for anything; they will be asking why we have to pay taxes at all. But in some cases the gratitude has not even begun, which I am sure must be very surprising to the right hon. Gentleman. Take taxicab proprietors, for example, and a number of drivers. It looked like a rather obvious pass at them in the Budget when we were told that the Purchase Tax would be taken off taxicabs and that they could make whatever hire purchase arrangements they liked. But they say it is no good at all, and none of them is going to switch over from Labour to Tory for this. So that has gone down the wind.

Then there are all the traders who sell Purchase Taxed articles. We have all read the Hutton Report—at any rate, I expect we have. I entirely agree with their main conclusion—it is what I always said when I was at the Treasury—and I thought it hardly necessary to appoint a Committee. I thought it quite clear that they would end by saying that there is no possible administrative means by which we could give a rebate to traders in respect of tax-paid stocks when the level of Purchase Tax on those stocks was reduced. There is no way of doing it and the Hutton Committee Report develops that argument. [Interruption.] The Government have accepted it, and we accept it, and we are all agreed, except the one hon. Member opposite who interrupted. I am convinced that the Committee are right.

The conclusion to be drawn is that we ought not to make these very large reductions in Purchase Tax, covering such a wide range of goods, selected without any discrimination at all, in any one Budget. If we do that we maximise the traders' losses. The President of the Board of Trade will, no doubt, have something to say about this later. The traders themselves say that they have been landed in a loss of £25 million. That was their estimate in respect of Purchase Tax paid on stocks, the tax having been suddenly reduced all along the line by 25 per cent. on all these goods. That may be an overestimate; we would not expect them to under-estimate their loss. But the "Economist" says that it is at least £15 million, and very likely a great deal more. So it is somewhere between £15 million and £25 million.

Is it really reasonable to impose that loss suddenly upon this large body of blameless citizens, most of whom probably vote Tory anyhow? Is it really good sense, is it good economics, or good finance, to do that? I would be very doubtful, and I will suggest how it could be avoided. It is no doubt true—I used to say this to them when they came to see me—that on a long view they would gain a lot more by the fact that, presumably, they would sell more cheaply and get a larger market when the tax had been reduced. But that is rather cold and distant comfort for them at the moment. The Chancellor is imposing these very big immediate losses on them.

The point is that for this and other reasons the Purchase Tax reductions are much too widespread and unselective and seem much too large while at the same time other articles might have been helped along the road a little. There is no reduction on clothing, as has been said already, and why that has been left out will be keenly pursued in future debates. It is all very well to say that the Chancellor did something in regard to clothing a little time ago, but that is never a good answer, because those concerned want to be kept in the running along with the others who are now getting something. I think the Chancellor has committed an act of great injustice to the textile industry. They have been hard hit by this Government. They are the most hard hit of any of the major industries and I think they should have shared some of the benefits of this Budget.

Broadly speaking, the biggest reductions are made on the most luxurious articles. That point has been made but it is a most important point. On expensive furs, jewellery and so forth, substantial reductions have been made. No object previously liable to Purchase Tax, except taxicabs and pianos, has been taken wholly out of the range—[HON. MEMBERS: "Batteries."]—and wireless batteries. That makes three. Are there any more? Would it not have been much better to make a much longer list not merely these three things but a long list of what one might call near-necessaries such as linoleum, carpets and all sorts of other things which hon. Members could add to the list, exempt from Purchase Tax altogether, sweep it right away and, meanwhile, leave the higher rates on the more luxurious articles? That would have been much fairer and would have immensely reduced the losses of traders.

The right hon. Gentleman mentioned umbrellas in his Budget. I have been puzzling about this because he gave them more than the average cut. I think this is a case for psycho-analysis. Why the umbrella? Has it anything to do with Munich? It does not touch me. I have no interest here and I have been completely above board. I said in public at the time of Munich that the umbrella had become a badge of national shame, and in a speech which was reported in the Press I swore that I would never own or carry an umbrella ever again. I have kept that vow up to now, even through the heaviest rains. I gain nothing from this relief. But why did the right hon. Gentleman do it? I think I have given the explanation.

There is another argument against reductions of this kind in Purchase Tax. The right hon. Gentleman wants to boost exports, as do all of us. But the Purchase Tax does not fall on exported goods. In effect, it is a subsidy for exports. Therefore, by making this wide range of reductions in Purchase Tax the Chan- cellor is channelling a lot of goods on to the home market which otherwise would have gone for export and would have earned us foreign exchange. If the Purchase Tax on goods for the home market is reduced, it reduces the incentive to export. That is so clear that I cannot imagine that it will be challenged, though it has not yet been mentioned.

I think we should—and here I respond to one point which the Chancellor made in his speech—view with great scepticism any exaggerated claims by manufacturers for a large home market if they are to do a good export trade. There is the case of motor cars, which is in the minds of all of us. The manufacturers did not make their case. It is a great mistake, if we are going to press forward with exports, to make this wide range of reductions in Purchase Tax. The greater part of these reductions will not benefit the great mass of the people of the country. We shall not find old age pensioners queueing up for cheaper television sets, nor in any other case shall we find any substantial alleviation in the cost of living for the great majority of our people.

I should like to say a word about the Entertainments Duty because I had a previous hand in some of the things that the Chancellor has been handling since. For my part, I welcome his proposal about cricket, but I wonder why he has not done something for football? I noticed on Thursday some scowling faces in the Gallery and I asked who they were. I was told that they were the Scottish team who were to play at Wembley on Saturday. They were very indignant, and rightly so. Why this discrimination between one outdoor sport and another? We on this side shall speak up for the footballers when we get the Finance Bill before us.

When I was Chancellor of the Exchequer I tried to help all these outdoor sports, but the Chancellor is not helping them all. I want to put one or two facts on the record. In my Budget in April, 1946, I said: There are now two scales of rates of Entertainments Duty. The lower scale now applies only to the theatres and to a few other live performances, the higher scale applies to all other entertainments. I have received many representations in favour of applying the lower scale to football, cricket and a number of other sports and I have decided that it is right to do so."—[OFFICIAL REPORT, 9th April, 1946; Vol. 421, c. 1825.] I did so. I cut them all down to the lower scale of Entertainments Duty and to that extent relieved the burden on them.

Last year the present Chancellor of the Exchequer put up the Entertainments Duty upon all these sports. He introduced what he calls an intermediate rate, which meant an increase in the Entertainments Duty on cricket, football and other outdoor sports. I regarded that as very reactionary. I do not know why he did it. Perhaps it was because of insufficient information from his Parliamentary Private Secretary the hon. Member for Chelmsford (Mr. Ashton) and others. I should like to see him going a good deal further than he has gone so far in taking out of Entertainments Duty altogether sports which give great pleasure to large numbers of people in the open air, not stuffed up in some indoor place. My emphasis is on the open air. I ask him, therefore, to approach with sympathy the Amendments that will no doubt be moved from this side of the Committee when the time comes.

With regard to the Purchase Tax on the equipment for open air sports, I did something which I should like to see him carry further. In my 1947 Budget, I said: I should like to do something more this year for the young and active members of the community, and those not yet too old to take vigorous exercise. I propose, therefore, to reduce the tax from 33⅓ per cent. to 16⅔ per cent. on sports requisites for football, cricket, hockey, boxing and rowing."—OFFICIAL REPORT, 15th April, 1947; Vol. 436, c. 72.] Could we not now clean the slate of this Purchase Tax on this equipment which would do a lot more good than taking a quarter of the Purchase Tax off the indoor luxuries I have been speaking about.

There is one thing on which we are all agreed. We are delighted with the prospective death of the Excess Profits Levy. I ventured last year to describe it as a disincentive, demagogic device, and I cannot improve on that now. It was the most ill-contrived of all the taxes that have ever been put upon the excess of one thing over another the whole history of our fiscal life. It was most injurious to business efficiency. It picked out all the wrong people both to tax and not to tax, and I am very glad it is coming to an end.

What did the T.U.C. say about it? I understand that that is a question which is sometimes asked in this Cabinet. The Prime Minister has been known to say, "What does the T.U.C. think about this?" or "Have you consulted the chairman of the T.U.C?" The T.U.C. were very clear about this. They said, "Kill it. Stab it soon." But they said something else. They also said, "You must combine that with an increase in the tax on distributed profits." Why has that mellow, mature judgment of these leading figures in the trade union world been brushed aside and ignored? If E.P.L. is abolished without an increase in distributed profits tax it means that the increased profits will simply be shovelled out to the shareholders of the concerns making these great profits. In our view, a great defect of this Budget is that it does not combine the death of E.P.L. with an increase of the distributed profits tax.

Nor did the T.U.C. stop there. They recommended—and I think with great wisdom—that there should be some form of dividend limitation in addition to the increase in the tax on distributed profits, either on the simple and straightforward lines proposed by my right hon. Friend in 1951 or on some other more refined and complicated formula. What is wrong is that, as regards dividend distribution, at the moment legally the sky is the limit. There is no limit lower down and that is a state of affairs which is not acceptable to the workers of this country.

But the great injustice in this Budget comes out most startlingly in the Income Tax changes. It is only the standard rate, and the reduced rates which go with it, that have been reduced. If this is done and nothing else, then the Chancellor is bound, as was admitted by the Economic Secretary in a very talented speech, delivered with remarkably few notes, to give the largest reliefs to the richest. That follows from the simplest arithmetical consideration of the case. He is bound to give the largest relief to the richest; he is bound to give a larger relief to the person who does not work for his money than to the one who does and gets the same income. He is bound to give a larger relief to the person who has got no children than to the person who has many.

All this, as the Economic Secretary cogently observed, follows logically and necessarily from the Chancellor's present policy, provided he does nothing else— and this is our complaint. I once reduced the standard rate of Income Tax by 1s. The present Chancellor is reducing it only by 6d. But I did more than that; I also increased Surtax. That was much objected to by hon. Members opposite, who called it unjust, but the purpose of increasing Surtax at the same time was to limit the amount of income relief for the persons with the largest incomes.

At the same time, I also increased the exemption levels and I raised the personal allowances, and the result of that was to set the people free—millions of the poorest people—from paying Income Tax at all. In my Budget and in those that succeeded, large numbers of persons were exempted.

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

That was done last year.

Mr. Dalton

Why not do a bit more this year? The right hon. Gentleman soon gets weary of well doing. All his failures this year are excused on the ground that he did well last year. But in the national, if not in the party, interest we should like him to do well every year. He ought to have done more this year.

To the Economic Secretary, whose mathematical genius has been exhibited to us, I say, "You can get almost any result that you wish out of this most ingenious Income Tax scheme that we have devised, provided that you have properly combined the tax reliefs and adjusted the rates. You could easily get a plan by which you give bigger reliefs to the poor than to the rich and relieve large sections of the poor from Income Tax altogether." But that has not been done at all. That is why we are so disappointed with the right hon. Gentleman, who in some respects made a small virtuous beginning last year.

What did the Prime Minister say at Glasgow, when he got away from personalities and got to the broad issues of policy? He said: Sixpence off Income Tax is class favour to over 30 million people. There are about 50 million people in the United Kingdom, and so this Income Tax relief is class disfavour to nearly 20 million people. [Interruption.] Thirty from 50 equals 20. The Prime Minister worked all this out. He does not require coaching in these elementary points from the back benches opposite. The Prime Minister, of course, worked all this out before he made this carefully considered statement. He said that just over 30 million people were going to get this relief.

I assume that he is right in this one figure, but then I ask: What about the other 20 million people? I am not venturing to argue with him; I am assuming that he is right. What about these 20 million people who are left out—forgotten men and women? [HON. MEMBERS: "And children."] And children, certainly. As I have already said, the more children people have, the less Income Tax relief they get. Surely the Chancellor of the Exchequer must be very dissatisfied, when the Prime Minister has thus analysed the effect of what he has done. Nearly half the population—certainly a third—have been left out altogether from this distribution of Income Tax relief, and that is even worse than I thought it was. I knew it was pretty bad, but after the Prime Minister's pronouncement on it. we find it is even worse.

Should not the Chancellor of the Exchequer have thought about the other people who are entitled to something out of this share-out of largesse? There is the case of the old age pensioners. Their case is, and continually will be, stated by my hon. Friends. They are living at a lower standard and with less hope and happiness in their lives for the most part than any other section. Instead of dishing out all this money in the way that I have described, would it not have been reasonable to have given something to them?

Alternatively, looking a little further into the future, beyond the lives of old people nearly at the end of their journey, is there not a great deal to be said, in the interests of the children and of the mothers of large families, for giving a family allowance for the first child? That has been refused for a long time for reasons of economy. Now that things are so much easier, as the Chancellor has been explaining, and now that he has got so much to give away, would not a good way of spending part of it be to give a family allowance for the first child—even if you limit this concession to cases where there are already two or more children in the family, so that it would not be given for the first child if the first child were the only child?

The Tory Party do not like that kind of fiscal development. The Tory Party are against increases in public expenditure, except on defence and the National Debt. They are against that other investment programme which interests us. They are against investment in human capacity, health, talent, opportunity and happiness. They are threatening the National Health Service. They are threatening the national education service. They are against this other great investment programme in human capital and human values.

We for our part will keep this other investment programme always in the forefront of our aims. Partly for what it does and partly for what it does not do, this Budget will be held, as it is more and more clearly understood in the country, to be an unfair and an unjust Budget, and as such it will be judged.

4.37 p.m.

The President of the Board of Trade (Mr. Peter Thorneycroft)

I was glad to find that the right hon. Member for Bishop Auckland (Mr. Dalton) has lost nothing of his old exuberance. He has just the same confidence in his economic judgment as he always had. He will, no doubt, forgive me for saying that it is not a confidence that we altogether share on this side. As the right hon. Gentleman's speech proceeded, he reminded me more and more of the old, bold and baleful Bourbon who had learned nothing and forgotten nothing of his past iniquities. I have in mind the part that he played in creating the inflation which was a large part of the cause of the trouble.

I should like to spend some part of my time in examining an aspect of the Budget upon which the right hon. Gentleman has not touched—the impact of this Budget upon the productive industry of this country. After all, all Budgets are more than mere profit and loss accounts. Incidentally, they are much more than mere devices for redistributing income. Together with monetary policy and credit policy, they form the major method whereby all Governments can influence the pattern of our economic life.

As President of the Board of Trade, perhaps I may be forgiven a certain prejudice in the matter, but it seems to me that the main test of this Budget is not whether it is a popular Budget or not, nor whether it benefits one section of the community or not. The prime and first test of this Budget in the final analysis seems to me to be whether it helps productive industry to face the immense tasks which many hon. Members on both sides have described in extremely vivid terms.

If it is clearly the duty and privilege of Governments to help the weak, it is also their duty to help the breadwinners, to put tools into their hands, to provide incentives with which to spur them on and to attract capital to industry. Let us not forget in our anxiety to preserve the Welfare State the welfare of productive industry for, if we forget that, many other things that we stand for will inevitably fail.

In the office that I hold I see a good deal of the problems of productive industry. It is my day to day business to watch the efforts of British industry trying to win and to hold markets. I may, therefore, be forgiven if I say something about those problems and something about what we are seeking to do to help these firms. The problems which confront British industry are many and complex. Many of them were described in a speech made with great objectivity and fairness by my predecessor in this office, the right hon. Member for Huyton (Mr. H. Wilson) on Thursday. Some of these problems are imperfectly within our own control.

There is one problem, which in my judgment seems to be more intractable than any other, and that is the level of direct and indirect taxation. The effects of taxation upon industry are various. They vary between one year and another, and I want to mention one or two of them. Some companies in these post-war years have lacked the cash with which to re-equip themselves and fit themselves to compete in this difficult post-war world. I concede that there has been in the last year an increased liquidity in company positions, but not all companies—and not always those companies which are in the most urgent need of re-equipment—have the cash.

Mr. James Callaghan (Cardiff, South-East)

So the Government raised the Bank rate.

Mr. Thorneycroft

I shall come to that in a moment.

Another effect is that though some companies possess the cash they lack the willingness to re-equip. They feel, rightly or wrongly, that if they take the risk and win my right hon. Friend the Chancellor of the Exchequer will have a large share of the resultant benefits, and if they lose they themselves will stand the greater part of the loss. In some other cases demand has fallen, especially where there is Purchase Tax at the rate of 100 per cent. I hope that right hon. and hon. Gentlemen opposite will hesitate before they criticise the lowering of the Purchase Tax on some of the great craft industries. I wonder how many right hon. and hon. Gentlemen opposite who represent Birmingham or Sheffield are prepared to say that the tax on silverware and jewellery should stay at 100 per cent.

Mr. Frederick Mulley (Sheffield, Park)

With reference to silverware, does not the right hon. Gentleman know that the change from 100 per cent. to 75 per cent. is quite useless, and that if more selection had been made in Purchase Tax reductions it would have been much more helpful?

Mr. Thorneycroft

That is an argument which I fully appreciate, but it is not the argument advanced by the right hon. Gentleman the Member for Bishop Auckland. The right hon. Gentleman will find that his hon. Friends criticise the fact that the tax relief does not go far enough, not that relief was introduced.

Net personal savings have been virtually nil, yet personal savings have been the traditional method of financing the growing points of industry. In the main, reliance has had to be placed on institutional savings and on the expansion of existing companies. I can say without fear of contradiction that over the past eight years a new man would have found the very greatest difficulty in starting a new company and attracting risk capital from private savings, and yet that must be the essence of a successful capitalist system.

I have no wish to over-state this case. Indeed, it is too good to be spoiled by over-elaboration. But let no one be under any illusion whatever as to what this country has been trying to do during the past eight years. We have been trying to run a capitalist system while depriving it to an increasing extent of capital. I do not think that that is a workable proposition. It is not one of the ways in which we can successfully run a country. I appreciate that right hon. Gentlemen opposite may disagree and that the other side can be stated, but this is my view about it.

One can run a capitalist system as in the United States of America where one attracts vast accumulations of capital and places ever greater quantities of mechanical power and ever newer techniques at the disposal of the workers. Today in America they use much more power per worker than we do in this country, and the gap is widening. They are investing more than twice as much as we are per man employed. They have large rewards and incentives to success. I am not arguing the merits or demerits: I am saying that it is one way in which one can run a country.

Mr. Hugh Gaitskell (Leeds, South)

Will the right hon. Gentleman give the relative rates of tax in America and in this country on companies? Is not it the case that taxation in America is just about the same as it is in this country?

Mr. Thorneycroft

Taxation is high in the United States of America, but investment is high too. There is no doubt whatever that in the United States of America it is far easier to get rewards for effort than ever it has been in this country during the past eight years.

Mr. Aneurin Bevan (Ebbw Vale)

The right hon. Gentleman was putting the case that high taxation is the enemy of investment. In this country taxation was high and investment was high. In America taxation is high and investment is high. Therefore, the one is not the enemy of the other.

Mr. Thorneycroft

The right hon. Gentleman will have an opportunity of addressing the Committee later. I understand that he will make a cool and dispassionate analysis of our economic position. I hope that during the course of it he will describe to the Committee his view of this situation and explain how one can maintain taxation over long periods at 9s. 6d. in the £ at the standard rate without discouraging investment in productive industry. If he wishes to do that, I am sure that hon. Members will be very ready to listen. We regard the right hon. Gentleman's economic judgment with some little suspicion. After all, his attitude towards private enterprise and investment is well known. He regards it as a miasma which is poisoning the whole nationalised sector of the community. If one holds that view perhaps it tends a little to prejudice one's judgment.

As I was about to say, there is another way of running the country, and that is the method whereby the Government themselves do virtually all the saving and pre-determine the direction of investment and exercise over-riding control on all foreign transactions. That is the way that it is done in the Soviet Union. The right hon. Gentleman the Member for Batter-sea, North (Mr. Jay) said that in some respects it was done with some success.

But what seems to be clear is than one cannot run a country in which one depends upon a thriving private sector of the community while denying it the savings, the capital and the incentive and all those things which are an essential feature of the running of any private sector. It is like running a motor car without petrol. It runs all right down hill but at the moment when one comes up against a slope—and I must say that we are coming up against a considerable hill at present—the whole thing breaks down.

This Budget is primarily an industrial Budget. Its purpose is to help industry, and it is none the worse for that. If we help industry in a Budget we help everybody, rich and poor alike. If we continue rates of taxes which injure industry we do not injure just a few rich or idle shareholders; we injure the whole national fabric and the means of production upon which everybody's standard of life depends.

I recognise that hon. Gentlemen opposite hold a different view, but I think that one of the reasons why they argue against a reduction in the standard rate of Income Tax is that they themselves would have found the greatest difficulty in offering to the country any tax reductions whatever. Let us look at what they are committed to on the side of expenditure. I was reading the other day in the "Daily Herald," a journal which I study closely, an article by the right hon. Gentleman the Member for Bradford, Central (Mr. Webb), who is the ex-Minister of Food. He says: I say frankly that we must declare beyond all doubt that we will restore the subsidies. And we must say we will not be restricted in their operation by any artificial, so-called 'ceiling'. Is that the policy? If it is not the policy, I hope the right hon. Gentleman opposite will correct me, and I will willingly give way. If, in fact, it is the policy of the right hon. Gentleman opposite to restore all the food subsidies—in the exuberance of opposition, he asks that it should be without limit, but assuming that he might be persuaded by his right hon. Friend to have something in the nature of a ceiling—the cost would, of course, wipe away more than all the concessions that are made in this Budget So we must regard the suggestion which the right hon. Gentleman was making about tax relief as of a somewhat academic character, and not one which would readily fit into the general pattern of the policy outlined by his right hon. Friend.

Our case, at any rate, is that taxation has been too high too long, that it is time it was reduced, and that its reduction will be a great help to British industry. I should like to turn now to the performance of Her Majesty's Government in the new economic situation of the past year. I do not propose to rehearse again in detail the long list of events, which has been given many times, but I should like to deal with the arguments of the right hon. Gentleman the Member for Leeds, South, which have been repeated today by the right hon. Gentleman who preceded me, that all the benefits were fortuitous, that there was nothing which the British people had by their own efforts done during the year, and that there were no actions of the Government which led to these same ends. [Interruption.] If that was not the argument, let me read what the right hon. Gentleman said, taken from column 220 of his speech: One must therefore conclude … 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."—[OFFICIAL REPORT, 15th April, 1953; Vol. 514, c. 220.] It seems to me that that is a wholly inaccurate way of stating our affairs. Perhaps the fairest thing to say about the right hon. Gentleman's case is that it is part truth and part falsity, and I want to deal with both. What is true is that the change in the terms of trade was the largest external factor assisting us in closing the trade gap. That is an assertion which is beyond challenge, and, indeed, it has not been challenged. The prices of what we bought declined in relation to the prices of the goods we sold, and, after the adverse movements of 1950 and 1951, which added very much to the difficulties of the right hon. Gentleman at that time—which I readily concede—I think that, frankly, we as a nation did deserve to have that change in our fortunes.

If the source of that benefit is emphasised, let it not be forgotten that we paid a penalty as well. The very circumstances which were associated with the change in terms of trade in our favour at the same time also swung the market conditions very heavily against us, and if hon. Gentlemen opposite deny us credit for the one, they really must refrain from blaming us for the other. So much for the right hon. Gentleman's assertion that outside events affected our position. They did; they always have, and they always will. What I say is that we should have the whole truth, and not a part of it which happens to suit the arguments of the right hon. Gentleman opposite.

Now for the falsity. Though the terms of trade played a part, we should not be in the position we are in today if we had simply relied upon them. Hon. Gentlemen opposite seem to have too simple a faith in the play of blind economic forces. We were left in late 1951 upon the rocks. We could not just hope to drift away from them; we got a favourable slant of wind, it is true, but what we really can claim is that we took full advantage of it. The truth is that, within a few weeks, we were using both import cuts and monetary and credit policy in order to achieve both an external and internal balance, and we can claim without fear of contradiction that inflation was checked, the external account was balanced, and confidence was restored to sterling.

It is true that the criticism is made—and it is made with great clarity and force—that we have balanced at a lower figure than we would have wished, that, broadly speaking, we are paying for our imports with exports, but that both are smaller than we would like. These assertions are very proper, very fair and to the point, but I am bound to say that they come somewhat oddly from the benches opposite, and particularly from a right hon. Gentleman who has held the office of Chancellor of the Exchequer. Right hon. Gentlemen opposite are really comparing our present levels of trade with what they were spending, not with what they were earning. The actual earnings from our exports in 1952 were slightly more than in 1950 or 1951.

The right hon. Gentleman reminds me a little of a somewhat exuberant rake, happily now removed from control of his finances, comparing the earnings of the establishment with what he was spending in the heyday of his extravagance. The first essential, after all, is to balance—at a high level if we can, but, at any rate, to balance—and both right hon. Gentlemen will forgive me if I do rub into them the homely virtue of trying to make both ends meet. It does seem to me, after all, that it is the harsh preliminary to the more rewarding and enterprising policy initiated by this Budget.

May I therefore take one example to illustrate my case? I take it in the field of external trade—the liberalisation measures which I announced in the House, and which my right hon. Friend announced a few weeks ago in Paris. I believe that the initiative which the Government then took was of immense value to us and will be of immense value to European trade. We, more than any other country, benefit from liberal trade policies abroad, and it is our major interest to remove barriers, particularly quota barriers against our own exports.

But, as many hon. Gentlemen have pointed out, we cannot expect others to remove barriers against us unless we put ourselves in the position of removing the barriers against them. It seems to me that the conditions which make the removal of our own import quotas possible are not altogether generally understood. The essential preliminary to liberalising trade abroad is to get rid of inflation at home. To do the one without the other is to lead to the very balance of payments crises in which right hon. Gentlemen opposite continually found themselves.

That brings me to the speech delivered in Thursday's debate by the right hon. Gentleman the Member for Dundee, West (Mr. Strachey), who seemed to me to state with admirable clarity and precision exactly what I took to be the Socialist position on this aspect of the economy. He said: Last year the Government, partly in their Budget, but more importantly in their monetary policy, undertook a considerable programme of disinflation, deflation, or whatever you like to call it. In other words they reduced total demand, and by reducing total demand incidentally reduced the demand for imports as well. That seems to us the nub of the question, whether that is the right thing to do. Our criticism is essentially that that must be a most terribly indiscriminating way of reducing the demand for imports. He went on to say: … they set their face against controls at what, to my mind, is the critical point, controls over foreign transactions … either we have to push the Chancellor's line far further than he has pushed it now, or we must take a far more drastic measure of control over imports and foreign payments—that is the key point."—[OFFICIAL REPORT, 16th April, 1953: Vol. 514, c. 431–9.] I think it is, too; I think the right hon. Gentleman stated with absolute clarity the difference which exists between us and right hon. and hon. Members opposite, and I take this opportunity of saying how wrong I think his policy is, and how damaging it would be to our economy if pursued. As President of the Board of Trade, I have, of course, been the Minister principally responsible for the administration of the import cuts. For the past 18 months I have had a very good opportunity of studying in practice the working of that particular system. To my mind, any attempt to solve a balance of payments crisis by import control alone must inevitably fail, unless it also takes fiscal and monetary measures to get rid of inflation at home. It cannot be done by import control alone, and I hope I can persuade hon. and right hon. Gentlemen opposite of this.

What happens if one tries to do it by that method alone? When one puts down a prohibition over part of the field, the demand, though transferred, is still there. The goods still flow in—different goods perhaps—round the corner of the dam. What the right hon. Gentleman would then do would be to extend the dam, but, of course, the wider the import control, the greater the degree of retaliation would become, and therefore the fewer exports one would manage to sell. Meanwhile nothing whatever is done to remove the basic cause of the unbalance. Moreover, hon. Gentlemen who advocate these policies under-estimate the blunt-ness of the weapon of import control.

Mr. John Strachey (Dundee, West)

I am sure the right hon. Gentleman would not wish to misrepresent what I said. Is he saying that I suggested that import controls alone were a solution or ever could be to the balance of payments question? I am far from holding that view. I believe that controls over foreign transactions as a whole, which was the phrase I used, play a very great part in the problem, but it is the payments out which must be controlled as well as the imports which come in. It is the exchange control element to which I attach such great importance. Also, of course, the control of the internal economy is of great importance as well. No one denies that

Mr. Thorneycroft

The right hon. Gentleman attempts to blur the case which he put on Thursday when, with great force and pertinacity, he proceeded to launch an attack on my right hon. Friend for introducing deflationary measures over here. That was the purport of his argument, and he put it extremely well. I am saying that none of the other measures taken would have worked unless they had been accompanied at the same time with disinflationary or deflationary measures either in the fiscal or monetary field. That is my case

Import control is, in fact, an extremely blunt weapon, and there are really only two ways in which it can be used. Either one must base licences on the principle of what the trader has been doing before, in which case, of course, one tends to freeze the whole of the trading system on to some basic year, or, alternatively, one has to distribute the licences on the whim of someone in Whitehall which extends patronage on an indefensible basis.

Even supposing that the system which hon. and right hon. Members opposite are arguing for was administratively pos- sible—the use of these physical controls without some measure of disinflation— what would happen to the economy here? It would mean that the goods would be shut out, but that the demand would go on and that inflation would increase. The difficulty of solving the balance of payments problem would remain.

It seems to me that the measures argued for and urged by the right hon. Gentleman opposite and his hon. Friends are the best possible way of driving not only this country, but the whole of Europe into a steadily descending spiral of world trade. We believe it far wiser to take measures to put our internal economy in order and from the basis of those measures to take moderate steps towards liberalising trade outside.

I now turn to production and exports. I utterly reject the theory that this country is stagnating. To say that there is more room for production and greater investment is no doubt true, but to give the impression that nothing is happening is, of course, quite false. The truth is that after the war total production rose rapidly until 1950. For the last three years—not for the last 18 months—that curve has flattened out. There was a small rise in 1951, and a small fall in 1952. Two-thirds of the fall in 1952 was due to the textile recession which was part of a world-wide movement which affected many other people besides ourselves. Moreover, these global figures of production mask some very considerable achievements in certain fields.

In 1952, the production of pig iron, for example, rose by 8 per cent. and steel by 3 per cent. In January and February, 1953, steel was 10 per cent. up on the figures of two years ago, and 15 per cent. up on the figures of one year ago. The production of machine tools rose by 10 per cent., and was 30 per cent. more than in 1950. Production of generating plant rose by 15 per cent., and agriculture and coal production were up. Textiles, particularly wool, are recovering. It seems to me that to describe these achievements by our fellow citizens in both private and public sectors of industry as stagnating is a wholly false approach to the subject.

As hon. Members have said, I agree that in the field of exports we have faced very considerable difficulties. If our earnings were up, our export volume last year fell by 6 per cent. But let it be remembered that we were confronted by two factors for the first time in this postwar era. In the first place, we had to undertake an enormous switch from sterling to non-sterling markets. Exports to sterling countries fell by £60 million, while exports to non-sterling countries rose by £30 million. That vast operation, an essential factor of our balance of payments position, reflected immense credit on the flexibility and resilience of British industry.

Secondly, we were for the first time facing world wide competition on a buyer's market. We might have done much worse; we must do a great deal better. The most satisfactory factor in the export field was the fact that our exports to the United States reached a record figure of 400 million dollars, or over 6 per cent. above 1951. Clearly an important part of any solution to the dollar problem, which is an American as well as a British problem, must rest on an expansion of exports to the American market.

Mr. E. Fernyhough (Jarrow)

Can the right hon. Gentleman say what proportion of the increase in our exports to America is represented by the sales of tanks and other armaments?

Mr. Thorneycroft

Our exports to the United States were mainly in the form of manufactured goods.

Mr. Bevan

What proportion was represented by armaments?

Mr. Thorneycroft

I shall reply to that point later. I do not know the proportion. In this matter, America still has some very big decisions to make. It is not enough for us to be competitive if the Americans are to use artificial means of shutting our goods out of their markets.

I have been asked about the tenders for the Chief Joseph Dam in the Pacific North-West. I want to give the facts about that matter. The facts are that when the bids for two contracts for power transformers and generators for this project were opened last December, the bids of the British firm were 1 million dollars lower than those of the six competing American firms. If we take import duty into account, the saving to the American taxpayer would have been about 1½ million dollars.

Under the provisions of the "Buy American" Act, a decision on whether to award the contract to the only foreign firm involved was referred to the Secretary of the Army, and the reports show that the matter has been referred to the Secretary of Defence and has been discussed by the United States Cabinet. We took steps to make it clear to the Administration at the highest levels that a decision not to award the contract to the lowest bidder because the lowest bidder was a British and not an American firm would inevitably be regarded here, and indeed in all countries concerned with increasing their exports to the United States, as a bad omen for the future, as regards the foreign trade policy of the new Administration. We learned late last week that all bids have been rejected. I understand that no decision has yet been taken on the question whether to call for new bids or to negotiate with the lowest bidders; but if new bids were called for I understand there would be no change in the specifications.

We have been surprised and disappointed to hear this news. Whatever the reasons why all bids have been rejected, I feel bound to point out that the effect will be to give all or at least some of the American firms a second chance, as they failed at the first, to beat their British competitor on price. I find all this hard to reconcile with recent statements by the American Administration. Only the other day, the President's message to Congress about the renewal of the Reciprocal Trade Agreements Act stated: Our own trade policy as well as that of other countries should contribute to the highest possible level of trade on a basis that is profitable and equitable for all. All I would say in conclusion on this topic is that there is more involved here than the award of a 6 million dollar contract. We must regard the treatment and the eventual outcome of this case as in some measure a pointer to the future commercial policy of the American Administration. I can answer the question put to me by the right hon. Member for Ebw Vale. Exports of arms to America were virtually nil.

So much for that matter. We must continue all our efforts to maintain and improve our competitive ability

Mr. Harold Wilson (Huyton)

While welcoming the statement which the right hon. Gentleman has just made and for the very firm tone in which he has expressed it, may I ask whether he would answer the question I put to him on another aspect of exports. I said that the volume of exports for last year was down by 6 per cent. Should I be right in supposing that the exports for last month, which appear on the face of it very disturbing in terms of volume, were down by 12 to 15 per cent.?

Mr. Thorneycroft

No, Sir. The answer is that the percentage is approximately the same as the average for the last quarter of last year, about 6 per cent. I will get the accurate figure, but it is not the sort of figure which the right hon. Gentleman is now mentioning.

There is one matter on which I should like to comment, a question which has been raised by many hon. Members about the use of the credit terms which our exporters are allowed to quote in foreign markets. We have recently reviewed exchange control policy in order to ensure, subject to balance of payments considerations, that there are no unnecessary obstacles to exports. As the result of this review, exporters can be assured that they will be given greater freedom of granting credit terms which they wish to offer to overseas buyers. In so doing, exporters will naturally have regard not only to the needs of the situation but to the financial facilities available to them. Exporters will, of course, continue to apply for the necessary permission, but they can rest assured that we intend to speed up the processes of control so as to give them decisions as rapidly as possible.

The greatest help to industry will be provided by this Budget. An industry which is overburdened with tax, which is starved of the sources of risk capital and which lacks incentive is a liability and not an asset. It is unable to compete abroad and clamours for protection here at home. That is not our conception of the role of industry. We wish to cast it for a tougher and more adventurous part.

If industry wishes to survive it can only be upon a basis of working harder, producing cheaper, providing goods of better quality, practising the sometimes forgotten art of salesmanship, and expanding old markets abroad while producing new goods for new markets. That language can be used only by a Government who are prepared to lift off the backs of industry at any rate some part of the burdens which up to now have been weighing it down.

Nobody is complacent in this matter. Everyone recognises the dangers which may lie in the future by possible changes in the terms of trade and the possibilities of some American recession. These things do not escape us, but it would be a timid Chancellor who framed his Budget on the basis of expecting the worst of all possible worlds. The Budget is an act of faith, and the opportunities which it extends must be matched by the responsibility with which they are seized. We believe that our faith is not misplaced; and that the Budget will command the support of a largely united, confident and happy people.

5.17 p.m.

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

The best part of the speech of the Tight hon. Gentleman was his declaration of policy about the American contracts. The other parts of the speech were a reflection of the Treasury monetary policy which has permeated through all Departments, of which the Treasury now have perfect control. I should like to answer one or two points that he made.

How does the right hon. Gentleman get an unwilling industrialist to invest if we do not tax the industrialist? There have been plenty of examples of unwillingness to invest. I would draw the attention of the right hon. Gentleman to the time when Sir Stafford Cripps tried to get the cotton industry to take up new machines, which they did not do although the capital was made available for nothing.

The right hon. Gentleman said that the exports to the American Continent in 1952 were not fortuitous, but there was much of that character in the terms of trade. We know that we were lucky about the terms of trade, but the Government said that it was their action which prompted the high prices that they got for exports, despite the fact that the volume was less. It was not because the Americans and the Canadians were unable to take up their contracts. There were very few cancellations. Manufacturers averaged up in 1951 and averaged down in 1952 on the prices they paid for their materials; and they were delivering in the middle of 1952 at considerably higher prices than would have been the case if the contracts had been booked at current prices. That is one of the explanations which seems to have been overlooked.

The President of the Board of Trade said that it was his business to watch British industry to see what it was doing and how it was faring. I will give him something to look at. He talked about the things which hindered and the things which helped production. Throughout British industry during the last 12 months there has been a very sinister movement. The business people of this country had the best of all times under a Labour Government.

Mr. Cyril Osborne (Louth)

Not because of a Labour Government.

Mr. Rhodes

The hon. Member should wait a little. He has had his chance. These business people did well under the Labour Government. It only happens every now and again that an industrialist not only has the chance to do well when a Labour Government is in office but also has the chance afterwards to pay his taxes under a Tory Government and so do even better. I was hoping that somebody would question my statement about business doing well under a Labour Government because I have in my possession a record of what has been happening.

I hope that when we come to debate the Finance Bill we shall have a very bitter struggle on the point which I am about to make. It is one of the worst scandals that has blotted the face of British industry for many years, and I should like to hear any hon. Member getting up to defend it. It is the case of an industrialist who did well in 1952 and who did not do very well in 1953. In he makes a good profit and in his profits fall. I have received from a chartered accountant a number of examples of businesses in this category which I will not name but which have been mentioned in the Press.

I want to say at once that there is nothing wrong with the Act as it is whereby a business is assessed in the year of cessation or change of ownership on its actual profits from the preceding 5th of April to the date of cessation. There is nothing wrong with that, but the truth is that there is a racket by means of which no real cessation or real change of ownership takes place. That is at the root of the iniquity with which I want to deal.

One can take the case of a business that made a profit of £250,000 up to 31st March, 1952. I hope that somebody on the Front Bench is making a note of what I am saying, because I do not want it to be disregarded when the debate is wound up this evening. On the basis of a continuing business, the tax assessment would be on profits of £250,000. But if there is a change of ownership before 30th March, 1953, and during 1953 a profit of only £20,000 is made, it means that £20,000 is the figure on which profit is assessed. That is done by simply changing the business into a holding company. It can be done very formally. There is no change of ownership, of shareholders or of staff. There is no change at all, and I understand that the company can dither and dally even about the payment of Stamp Duty relating to the change for two years and get out of it in the end.

As I say, on this change being made, if the figure of profit for 1952–53 is £20,000 the company has only to pay on an assessment on £20,000. The result is that this company, on the basis of Income Tax at 9s. in the £, would be saving and putting into the hands of the shareholders £85,000 which really belong to Caesar. What are the Government going to do about it? Let them watch that point and get on with tackling that problem.

Mr. Osborne

How long has this been on the Statute Book? Why has it not been dealt with before?

Mr. Rhodes

The companies are only now beginning to suffer and the result is that they are taking advantage of what is on the Statute Book.

Mr. Bevan

Exactly.

Mr. Rhodes

I am not saying anything about that. I am merely relating the facts. The truth is that the Chancellor's concessions on Income Tax, in terms of 6d. in the £, would be found to be a flea-bite when everything is weighed up and there has been a proper investigation into the leakage of tax that has taken place in the last 12 months.

The President talked about loss in production and he quoted a lot of figures, but anybody can quote figures. Does he think that a firm which decides in 1952–53 to change itself into a holding company is concerned about its production and its hidden unemployment? Of course it is not. The President talks about the reasons for loss of production. I tell him that this is one of them. It permeates all the way through in industries that do not happen to be connected with re-armament.

I have another "beauty" for the Chancellor. The Chancellor talked about lightening the burden on industry and used beautiful phrases such as: … If we want vision, enterprise and an expanding future, we must, if we can, throw off some of our burdens."—[OFFICIAL REPORT. 14th April, 1953; Vol. 514, c. 51.] He said that industry must be as lightly burdened and as nearly competitive as we can make it. I can suggest one burden which the Chancellor can throw off today if he so desires.

I want to build an extension to business premises. I decided to do so before this Budget was introduced. The extension is not very big, but it is sufficiently important to be related to what is being done inside the building. I hold the view that unless there is a revolution in the ratio of building costs to what is produced on the machines inside the building there will never be any real encouragement to buy machines. I have therefore been interested in this question and have studied it in a number of countries. During the Easter Recess I spent a couple of days in Holland pursuing the matter. This is the situation which exists in this country. I will not give the name of individual firms, but I have them and will supply them on request privately.

After the war people were delighted if they could get hold of a licence to build. When a person obtained a building licence the architect would say to him, "Be sure and make your licence high enough so that it will cover all exigencies. You know what happens to people who exceed their building licence. If they are caught they go to prison." So everyone made their licences high enough, and there was always a margin, which had a direct effect upon the capital investment programme.

Then the architect obtains a price-only one price—from a steel supplier. When that price is referred to the licence holder he thinks to himself, "We are living in an age when enterprise and competition is a kind of favourite theme" —as the Chancellor says. The licence holder says to the architect, "I am not satisfied with this price. Let us have another one." The architect is very reluctant to obtain a second price, but is forced to do so. The tender is sent to someone else, and when a quotation comes back the licence holder discovers that, in terms of cost per weight, if the weight is less the cost is more and if the weight is higher the cost is less. But the second price is always slightly higher than was the first price.

Incidentally, in the case of metal windows for houses the prices are all the same and a local authority who wishes to build cannot do anything about it.

The hypothetical licence holder about whom I am talking says to his architect, "I am not satisfied with this second price either." He sends for another one and the same thing happens. This price is a little higher than the others. Then the licence holder hears of a man who, because of German competition, is losing export markets in Australia, New Zealand and Canada. The licence holder thinks, "If I go to this man surely he will have steel in stock." The man who is losing his exports proves to have thousands and thousands of tons of steel in stock.

The licence holder asks what he was exporting. The exporter shows him. They are "reach-me-down factories," the sort of buildings which can be put up at the right time in the areas where they are most needed. They are lightweight factories such as are being erected in America. But we are dull in this country and too far behind the times to be doing the same—

Mr. Osborne

Good old capitalist America.

Mr. Rhodes

Wait a minute. The licence holder asks for what figures the factories were exported to Australia, and being knowledgeable about the weight of steel per square foot, he can assess the answer. He calculates that it would cost £50 a ton for prefabricated steel delivered into Australia. He decides that such a factory would suit him. When he goes to order it he finds the price is not £50 a ton. To him it is £68 a ton. But if he had it sent to a friend in Australia that friend could send it back at less money than the licence holder could buy it at home. If the President is watching what is going on in British industry, will he please look at that?

I have three or four more examples of a similar nature which I could quote to the Committee, but I have promised not to speak for too long and I intend to keep that promise. I hope, however, that the Chancellor will attempt to answer these points I have put. I hope there will be some effort made to deal with these matters—even if it is only by the President of the Board of Trade referring them to the Monopolies Commission forthwith—so that we who are trying to invest, and who have never been unwilling to do so, may receive some encouragement.

5.37 p.m.

Captain Charles Waterhouse (Leicester, South-East)

The right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) made great play about the difference between the monetary policy of the Chancellor today and that policy which he himself operated when he was Chancellor of the Exchequer some four or five years ago. Not very many months after the period when the right hon. Member for Bishop Auckland was Chancellor I remember speaking to a man of a certain age in my constituency. He showed me a piece of Government script and said that it represented 50 years of work and saving. He added, "I have been robbed of a quarter of my savings in as many months as it took me years to earn them."

Mr. Osborne

Quite true.

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

We have been robbed all our lives.

Captain Waterhouse

That was perhaps a hard saying. But the remarks of the right hon. Gentleman today about money creating dividends shows quite clearly to this Committee, and the country, what he thinks about those who earn dividends and to whom dividends should be paid. After all, the right hon. Gentleman spoke as an ex-President of the Board of Trade, an ex-Chancellor of the Exchequer and as a man who had urged the country to save. Yet he referred to profits paid out as having been "slopped away" to shareholders. It was a most peculiar attitude for the right hon. Gentleman to adopt. He and other hon. Members opposite have urged the necessity of saving, from the point of view both of the nation and of industry. But as soon as anybody does save he is regarded as a pariah, to be attacked, hunted and mocked, and any money paid to him as income on his investments is referred to as having been "slopped away."

I believe this to be a first-class Budget. I regard it not merely as the Budget introduced by the Chancellor a few days ago but as part of a general financial, industrial and commercial scheme which this Government are putting into effect. As a background, we have de-rationing and de-subsidising. In the last few months animal feedingstuffs, eggs and sweets have all been freed. Two pairs of Ministries—the Ministries of Civil Aviation and Transport, and the Ministries of Pensions and National Insurance —have been combined. Under this Budget sugar is to be freed in a very short time.

There will be a reduction in direct and indirect taxation; the Excess Profits Levy has been removed and—this is a small matter but an important one, because it is a piece of real political honesty, which the President of the Board of Trade has probably been urging on his right hon. Friend for some time—we are repaying, under the Business Chattels Scheme, the tens of millions of pounds which have been completely and wrongly withheld from those who have paid in premiums the whole amount due in respect of insurance claims during the war. I congratulate the Chancellor upon that small but important measure.

He has done excellently with the means at his disposal, and the strength of what he has done is clearly shown by the weakness of the attack upon his Budget. The right hon. Member for Leeds, South (Mr. Gaitskell) made one of his admirable speeches. He speaks with clarity and, as an economist, with knowledge. I not only listened to him with a great deal of pleasure but I read his speech with great care. On this occasion he drew our attention to the fact, as he says, that last year production was down, employment was down, there was more short time, there was less overtime, the intake of protein was down, the intake of edible fats was down, the intake of calories was down and the intake of fish, eggs and sugar was down. It is a terrible picture.

The curious thing is that the morale of the country is up. People in every walk of life were infinitely more cheerful during the last 12 months than they have been at any time since the war. It may be just our charm of manner, but there has been a feeling of bonhomie—a feeling of good cheer, hope and confidence such as we have not known for the last seven years.

Mr. H. Wilson

Is the right hon. and gallant Gentleman suggesting that the facts stated by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) were not true? I presume he accepts that they are facts. Does not that rather suggest that the people with whom the right hon. and gallant Gentleman frequently consorts are happier because they are getting a bigger share of the national income? The majority are still worse off.

Captain Waterhouse

I am not denying the accuracy of the figures. I am not denying that these things have happened, but I am utterly denying the truth of the conclusion which is drawn, that things are worse. Things are not worse; they are a good deal better, and we have every confidence that if only the present Government can remain in power long enough, things will be even better still.

It is true that there is a certain amount of unemployment and that there has been a setback in the textile trade. I have the honour to sit for part of a city which is a textile city. I know there has been unemployment, but I also know that during the worst of the slump last autumn employment was available for everybody who was unemployed. Last week I came down in the train from Leicester with the managing director of a large firm, who told me that at no time since the war had he been able to run more than 60 per cent. of his machinery, because he could not get operatives. He could not even get them last autumn.

Mr. R. J. Mellish (Bermondsey)

He could get them now.

Captain Waterhouse

He cannot get them now. He has spent a very large sum of money in building a factory in a town which is between 100 and 200 miles away from Leicester. It is most inconvenient, and he will have to train operatives; but he cannot get employees in Leicester. At no time since the war has this large factory been able to run more than 60 per cent. of its machinery.

Do not let us over-play this industrial depression. As far as I can see it, trade and business are still resilient. People are still confident. Conditions are not so easy as they were; they were far too easy; but it is absolute nonsense to say that a major slump is round the corner.

Mr. Mellish

Whilst accepting the implications of the right hon. and gallant Gentleman's argument so far as his own area is concerned, will he accept an assurance from me that in my area, where the docks are the main industry—and the docks are the barometer of the nation's industry—there is a great deal of unemployment and short time? Will he explain how this Budget is going to improve that situation?

Captain Waterhouse

I accept the hon. Gentleman's statement. In the best-run economy in the world it is impossible to avoid pockets of unemployment.

Mr. I. Mikardo (Reading, South)

The docks are not a pocket.

Captain Waterhouse

The docks are a particular industry, and if from time to time circumstances arise which cause a recession in that industry it is too bad, but one does not cure it by Socialism, Communism or anything else. It is in the nature of things that recessions occur from time to time. But I completely deny that there is any sign of a major recession.

The right hon. Member for Leeds, South continued with another string of criticisms. This time he criticised my right hon. Friend the Chancellor of the Exchequer for being so terribly wrong in his estimates. He said that in production he was £350 million wrong; in Government expenditure, £175 million wrong; in terms of trade, £200 million wrong; in the invisible balance, £185 million wrong; in investment, £65 million wrong, and in stocks, £850 million wrong. That may or may not be so, but it is absolutely clear that it is not the Chancellor of the Exchequer who makes these estimates. Nobody thinks that for one moment. These estimates are made by his Department and in his Department— by the Statistical Department which, under the régime of the right hon. Gentleman opposite, has swollen out of all recognition. It is so large that it is almost as big as the whole of the old sections of the Treasury.

The fact that so many of those figures were wrong—if they were—is in no way a matter for which any blame can be attached to my right hon. Friend. It is an argument against the whole system. It is called planning, but it is really a matter of guessing the figures.

Mr. Michael Stewart (Fulham, East)

Is the right hon. and gallant Gentleman really saying that the Chancellor of the Exchequer is not responsible for the Budget estimates?

Captain Waterhouse

I am not talking about the Budget estimates. The part of the speech of the right hon. Gentleman to which I was referring—as the hon. Member would have appreciated if he had been listening—was dealing with the Economic Survey and the figures which were produced by the Treasury before the Budget. The point I am making is that if these experts, these planners, can be scores and hundreds of millions of pounds wrong in their estimates, then their estimates cease to be of much value. The suggestion I am putting to the Chancellor is that these learned and industrious men in the Treasury would be a great deal better employed in supervising expenditure, which, after all, was the old task of the Treasury, rather than in making these wild forecasts that are not confirmed in the event.

Hon. Members opposite have complained that taxes have been taken off for the benefit of the rich and have not been sufficiently reduced in the case of the not-too-rich. We have now reached in this country a state of taxation which is absolutely confiscatory. Taxes are cumulative. Take, for example, a £1,000 motor car. Hon. Members may say that none of us requires to have a £1,000 motor car, although those who represent Coventry will probably not hold that view. A £1,000 motor car, as it comes out of the factory, immediately attracts tax to the extent now of £500, and its price becomes £1,500.

If that car is bought by a Cabinet Minister, who used to get £5,000 a year, and paid tax at the rate of 10s. 2d., it would cost him rather more than £3,000 of income If such a car is bought by the bachelor friend of the right hon. Member for Leeds, South it costs him no less than £25,000 of untaxed income. Surely we are getting to a state of complete farce when taxes rise to that height.

It must be my object, in so far as I can achieve it, as it is the object of many of my friends whom I consult from time to time, to do what I can to urge the Chancellor to cut down administrative expenditure still further. How much my right hon. Friend can save by that it is difficult to say. [An HON. MEMBER: "Call in the experts."] I am trying to present a sensible argument. Suggestions have been made to my right hon. Friend, some of them practical, some of them impractical. An hon. Member has just interjected "Call in the experts." That is precisely what I am about to invite the Chancellor to do. I invite him, as I have done before, to go to his Treasury officials and instruct them to find ways and means by which he can, with the least possible delay, achieve a reduction of such sum as he specifies. That reduction should, in my view, be very substantial.

It is not only in the sphere of administrative economies that we need to watch our step. We are, in every way spending on a wrong scale; we have too big an idea of our financial potential. Foreign affairs cut very deep into financial expenditure. A little time ago we made a new arrangement with India. What is that costing us today? How has our position as a nation altered because of that change? If India is in danger we must certainly go to her protection; we cannot leave her to guard herself; but in the old days we should have had, as a quid pro quo for that responsibility, the benefit of Indian help, possibly in the Middle East. She would have borne part of the expense of the defence of the Middle East. Today all that falls on us. Was that thought of by hon. and right hon. Gentlemen when they embarked on this policy in relation to India?

Mr. Fernyhough

Would the right hon. and gallant Gentleman reverse that policy?

Captain Waterhouse

I am not speaking about the reversal of that policy; I am pointing out how desirable it is, in deciding on policy abroad, that we should have in mind the potential financial power of this country.

Mr. H. Wilson

Will the right hon. and gallant Gentleman give any estimate to the Committee of how many hundreds of millions of pounds it would have cost in troops, bloodshed, stores and materials to hold down an India opposed to the Government of this country?

Captain Waterhouse

That is not the question. The question is the general trend of policy; whether we watch, as matters are developing, with an eye to what we can afford. It is perfectly true that if a country develops into a hostile State and one has to go to war, it will cost a great deal more; I am not denying that. I am saying that a wiser policy earlier in India might have kept India in much closer accord with us and have given us the benefit of her support in our defence of the Middle East and elsewhere. I do not intend to spend more time on India.

I come next to Abadan, where in a matter of months we have been talked out of £300 million of British investment. Can we really afford that? Does £300 million not matter? After all, that amount represents about 1s. 6d. Income Tax in one financial year. Is that no matter for this Committee and the country to be concerned about? I suggest that the evacuation of Abadan has put on to us a burden which we cannot afford.

In the Sudan we have adopted a new policy. We have invested tens of millions of pounds in the Gezira scheme, which is of great importance to Lancashire. Does anyone really weigh the importance of Sudanese cotton to Lancashire when decisions such as these are being made? Is that consideration given sufficient weight?

The immediate problem now is the Suez Canal. There we have a base worth £500 million. We might be able to move the stores out if we had to but we could not move the base. Is that fully appreciated in this country and throughout the world? Is it fully appreciated by people who read day by day in the leading newspapers of the country words from which it would almost seem that we have already decided to give up that great base, that great strongpoint of security to the Middle East? This has a direct bearing on the finances of this nation.

I suggest that the time has come when we have to say that what we have we hold, and that where we are we stay. My right hon. Friend the President of the Board of Trade this afternoon has made an extremely clear and forthright statement on the American hydro-electric contract. That is the sort of statement that should come from the Front Bench, which occasionally does now come and which never came in the old days of Socialist rule. I hope that on other major issues of foreign policy no less than on the hydro-electric contract we may have equally clear statements.

I shall not detain the Committee any longer beyond saying that in my view the Chancellor has in his two Budgets first arrested decline and then given the nation material relief and real hope. If these were the only two Budgets which he were to produce, if they were the only two Budgets which this Administration were to produce, the country would be indebted to my right hon. Friend. I hope that that is not so. I hope that this is the first of a series of at least four Budgets. They would make a nice little quartet. If we have three more Budgets like this, Purchase Tax will have gone altogether, Income Tax will be down to 7s. 6d., and Britain will be on the high road to recovery.

6.0 p.m.

Mr. Gordon Walker (Smethwick)

The right hon. and gallant Gentleman the Member for Leicester, South-East (Captain Waterhouse), quite as was to be unexpected, thought this was a wonderful Budget, to use his words. What made this all the more extraordinary was that he argued that the Chancellor was not responsible for his own figures. Not only was this Chancellor not responsible, but apparently all Chancellors and all other Ministers had and have no responsibility for taking the advice given to them by civil servants. I understood the right hon. and gallant Gentleman to say that the Chancellor was not responsible for his estimates. If the right hon. and gallant Gentleman thinks that, then how he can pass judgment on the Budget I do not understand. If he does not accept the figures how can he then think this is a wonderful Budget? I cannot understand that.

It seemed to me unfortunate from the point of view of his argument that he started by laying so much stress on savings, and the need to encourage them, because it is accepted, I think on all sides, that a reduction of the standard rate of Income Tax is not really adapted to encourage savings. It is generally accepted that a reduction of Income Tax on the whole will lead to increased expenditure on consumption. Even if hon. and right hon. Gentlemen opposite do not agree, I think that it is the general view of economists of the Right and the Left at the moment, including the "Economist," that, on the whole, a good deal of the concession given in Income Tax will be spent on consumption and not on an increase of investment.

Mr. Osborne

"The Times" editorial this morning takes rather the opposite view.

Mr. Gordon Walker

I have not read the City article. I do not think the editorials touch on the subject. Certainly the "Economist" week by week, before the Budget and since, has been saying what I do not think the Economic Secretary would deny, that a considerable part of any relief though a flat cut in Income Tax is bound to go on increased consumption.

All the speeches that I have heard from the other side of the Committee in this debate have been typical of what I regard as the two great defects in this Budget. One is that the Budget is based on the most extraordinary complacency, that it rests upon the most hazardous assumptions about the continuing development of our economy. The second is that this complacency itself is based upon economic theory, sheer theory, a sort of child, like faith in Tory economic dogma and doctrine. Only if that dogma and doctrine are true will the assumptions on which the Budget and the whole economic policy of the Government are based come true.

What is hoped, of course, is that certain consequences will flow from the actions being taken in the reduction of taxes, and so forth, by the Chancellor. So far not from the Chancellor nor from anybody else on that side of the Committee have we been given any logical reason to show why the hoped for consequences should follow from the actions taken. Whenever we got to that point in the argument the Chancellor resorted to metaphor and analogy—"lightening the ship," and all the rest of it. He was like an economic witch doctor invoking the right incantations to make the charm work.

The most hazardous of the assumptions on which the Budget is based, and the whole economic policy of the Government with it, is that the improvement in our position this year was the result of the deliberate and careful planning of the Chancellor. That is not so bad in itself; you cannot blame a Government for taking propaganda advantage of the good luck that comes their way. What is dangerous is that this line leads automatically to the further dangerous assumption that there will be continued improvement, that the improvement we have had is going to continue steadily in the future. If that is not the assumption made by this Budget, the Budget does not make sense at all.

It is a very dangerous assumption to make that this improvement is going to be steady and continuous. The reason I say that is that it is extremely probable that we are now in the good year of a two-year cycle of alternating good and bad years, such as we have had since the war. There are good reasons for such a cycle. It comes from our reserves being too low. When the reserves are too low certain special factors work with magnified effect. The terms of trade, the leads and lags that the Economic Secretary talked about, the stocks at sea, these things move with an extremely exaggerated effect, whereas, if we had big reserves, the effects would be covered and absorbed. Some of these factors will not move in our favour next year because they are once-for-all things.

We cannot go on running down stocks, and the leads and lags cannot go on working our way. We cannot go on running down stocks at sea. If some of these factors work at all again they will work against us. Certainly some, like the terms of trade, may quite well turn against us next year. It would be only prudent national housekeeping to assume that we are now in the good year of a two-year cycle. The Government, however, instead of preparing for a rainy day, have been acting on the assumption that the sun will go on shining for ever.

The Economic Secretary to the Treasury (Mr. R. Maudling)

Does it follow from this that the right hon. Gentleman considers, unlike his right hon. Friend, that the Chancellor was wrong to reduce the amount of surplus for which he has budgeted this year?

Mr. Gordon Walker

I was going to say that the most grave consequences of this policy are upon our overseas economic policy. I think that, on the whole, the amount of tax remitted at home is about right, though, of course, it has not been done in the right way. Although, of course, to some extent in domestic matters, as in the use of reserves for the purchase of sugar, there are defects, I think that in the main these are showing themselves in our overseas economic policy and, above all, in the extraordinary doctrinal faith of the Government in early convertibility as the sovereign remedy for all our economic ills.

Convertibility is a good thing in itself, as the coping stone and the result of Government policy over a number of years, but to turn this hope, as the Government are now doing, of convertibility into a top priority is very nearly a lunatic course to pursue. The Chancellor told us that Ministers were giving their main time and attention to convertibility as a top priority. That leads to very dangerous consequences for us. It means we shall not develop and are not developing our resources in the sterling area and the Commonwealth as fast as we should. If we make convertibility a top priority it means we shall not engage in long-term agreements at sterling prices that are above ruling dollar prices today, because if we want convertibility as top priority we must keep parity as far as possible between dollar and sterling prices.

The only way in which we can develop our resources in the sterling area is by long-term agreements at sterling prices rather higher than the dollar prices— agreements like the Commonwealth sugar agreement, which hon. Members opposite support and praise. That is the very sort of thing the Government will no longer be able to do because if they give convertibility top priority it means they must not make those agreements where sterling prices are above ruling dollar prices. As long as the Government follow this line that will not be possible, and I cannot see, so long as they do, how we shall have agreements to develop Pakistan wheat and Southern Rhodesian tobacco, and things of that sort.

This optimistic complacency of the Government has led to a very shortsighted policy towards our gold and dollar reserves. It is essential to build up these reserves, in good times and bad; we must also remember they are not ours in the sense that we have earned them. It is the Colonies that have earned them. We should follow two principles in the use of the gold and dollar reserves. One is to use them for the benefit of all the sterling area, and the other is that this country should set an example to other Commonwealth countries. These two principles have been violated by the decision to buy dollar sugar.

Mr. Maudling

It is a fact that the United Kingdom is the only country in the entire sterling area and Commonwealth which still rations sugar.

Mr. Gordon Walker

I still say that, in these circumstances, where the surplus in the gold and dollar reserves is not earned by us, and where we must set a good example, we have violated the proper principles for running the gold and dollar reserves. The purchase of dollar sugar is very popular, but we must realise that what we are doing. We are using Malayan and West African dollars not for the good of all but for a domestic easement in this country, and that is a bad thing to do, in itself. We are setting a dangerously bad example to other Commonwealth countries. What happens when Australia, for example, says, "We want more dollars for American cars. You are spending a lot of dollars on sugar"? How do we resist that? There is always pressure for the running down of these reserves in the good year, and it is in the good year of the cycle that we ought to set a good example, yet here we have set a very bad example.

Let me make just one point about the Budget at home. Here we find this same Tory super-complacency, this same trust in doctrine. We find underlying the whole economics of the Budget the assumption that in order to get a greater incentive there has to be greater social inequality. That is what this Budget really boils down to. There is no doubt that this Budget does create greater social inequality. As my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) showed quite clearly, the bottom incomes remain the same as a result of the Budget while the top incomes are considerably bigger; the spread between the top and bottom incomes is substantially greater as a result of this Budget. There is greater social inequality. The Conservatives do not say, "We like this because we can put more money into our pockets." Oh, no. They say, "This is necessary for incentives. You cannot get an incentive unless you have this greater social inequality." I say that is a doctrinaire, out-dated and false conception of incentives in a modern society. That is why I think this Budget is radically a bad Budget.

This Budget is based on the assumption that incentive is only the affair of the leaders, of big business, of shareholders; whereas, of course, in a modern society, incentive is a matter of the whole community, particularly of the workers in the community—not only them, but particularly them. Social inequality acts as a disincentive because it undermines that spirit and will which alone leads to production, to good work and to increased output. Offending people's sense of social justice destroys the will and the spirit on which output depends.

When we were in office we showed that a policy of advancing social equality is not only just in itself but is efficient because it creates a spirit and a will in the people that leads year by year to greater productivity. If there is social inequality in a modern society, we believe—unlike the doctrine of the Tories, which is wrong in this—that it acts as a disincentive and not as an incentive. We cannot escape the simple proposition that, as a fact, the Budget increases social inequality. That is a great condemnation of the Budget because it is the very opposite of what the nation wants today, namely, more social equality as the true source of incentive.

6.13 p.m.

Mr. G. R. Howard (St. Ives)

I am sure that the right hon. Member for Smethwick (Mr. Gordon Walker) will forgive me if I do not follow him.

While, like many of my constituents and most of my hon. and right hon. Friends, I welcome the Chancellor's Budget, there is, unfortunately, one part of it which some of my constituents resent very much. They resent, I am afraid, the rather lighthearted sentence in the Chancellor's speech which completely upset the economy of the Isles of Scilly. He referred to this "happy state." I think there is probably a misconception in this country about these islands. People imagine that they are rather like the Channel Islands, to which people go from this country to escape Income Tax; but that is not so.

The population of the Isles of Scilly is composed entirely of farmers, people who cater for the tourist industry, and a few fishermen—although, alas, not as many as there were. There is no justification for the idea that this is a sort of tax dodgers' paradise. People who go there for their summer holidays—and what a lovely holiday it is!—see the islands under the best conditions. I suggest that some of those people go there and try to earn their living on the Island of St. Agnes in the middle of the winter gales. They would find a very different situation.

I should like to ask who advised this move. Whoever it was he reminds us of the man from Whitehall who, after the passing of the 1947 Town and Country Planning Act, wrote with eager enthusiasm to ask the Isles of Scilly Council what their plans were for the development of the Bishop Rock; or the man in the War Office who wrote to my predecessor about a soldier and said that they could not do anything about him because he had gone overseas, when, in fact, the soldier had gone back to his home in the Isles of Scilly.

This matter cannot have been "overlooked." I know that this has been the source of discussion and thought in the past. As the islanders said to me last weekend, Sir Stafford Cripps used to take his holidays there and perhaps he saw something of the difficulties and did not enforce the tax. What we particularly resent on this occasion is that, whereas before, when those discussions took place, the people concerned were consulted, this time—after all, no Budget secret is involved—neither the Duchy of Cornwall, the local county council, nor, of course, myself, were consulted in any way until this bombshell exploded.

I want hon. Members to realise that in the islands at the moment there is a tax on living, as these figures will show. The accepted cost of building a local authority house is 40 to 45 per cent. higher than on the mainland. A loaf of bread on St. Mary's Island costs 7½d., and on the off islands the same loaf costs 11½d. A bag of groceries costing £1 on the mainland would cost 25s. on the islands. The delivery cost of one ton of coal in St. Marys, including steamer freight and charges, is, I believe, 43s. a ton, and in the off-islands costs 63s. per ton more than on the mainland.

I hope that hon. Members will not forget, too, that the man on the off-islands has no coal merchant to dump it in his cellar; he has to carry it by hand from the pier. The rent of a three-bedroomed house on the islands is 35s., whereas in Penzance the rent is 29s. 11d., inclusive of cooker and boiler. If a man is ordered to go to the mainland for any kind of specialist treatment, although he is a National Health patient he has to pay his expenses.

What will the future effects of this tax be? We cannot tell yet, but two things have happened already. On the morning after the Budget a teacher who was going to one of the islands to teach sent a telegram to say that she was not coming. A farmworker told a farmer friend of mine two days ago that if this meant he was going to be laid off in October could the farmer give him plenty of warning as he would pack up and go to the mainland. What effect will this have on our educational projects? The standard of education in the islands has been very good. Due to the Education Acts high expenditure has been forced on the islands' council. If they cannot bear the cost now I am sure that the county of Cornwall will not want to take it on.

The Isles of Scilly have been compared with the Western Isles, but apart from the fact that I believe I am right in saying that the population of the Western Isles has been decreasing, whereas that of the Isles of Scilly has been increasing, there is this difference. The Isles of Scilly have their own county council. How will they be affected? I am sure that hon. Members of the Committee will feel for me when I tell them that I faced a meeting on Friday night where expressions of opinion were certainly very forcibly made but, on the whole, were extremely helpful.

I examined the situation with the council and asked them to let me have the real facts and, if anything, to understate the case because we know that the Treasury are apt to bowl one out if one's facts are not right. As a result of this meeting they immediately elected a deputation to wait upon the Chancellor and they hoped that he would see them before the Finance Bill, so that they can explain the position to him.

If my right hon. Friend will consider the facts of this case with an open mind it would be possible for him to decide how this matter could be tackled in the best interests of the islanders, remembering, as I have said, that they are not tax dodgers but hard working people whose whole economy has been upset by one sentence in the Budget speech. They are deserving of special consideration, and inquiry will, I think, back up these protests and, if it does, at least I shall not have spoken in vain.

6.22 p.m.

Mr. Frederick Willey (Sunderland, North)

I am sure that the Committee appreciates the difficulty of the hon. Member for St. Ives (Mr. G. R. Howard), and I am sure that the Chancellor will sympathetically consider all that he has said.

When. in November, I intervened in the economic debate, I said that the Chancellor of the Exchequer ought to have gone to the Bar where, I thought, he would have made a profitable living as a professional advocate. Now I agree with the hon. Member for Reading, South (Mr. Mikardo). The Chancellor is a man of many parts. He could have made an equally profitable living on the racecourse. Think of all the tips which he gave 12 months ago; many of those have been wildly inaccurate, and, indeed, some of the horses have not even stayed the course.

But last week, bold as brass, without a word of explanation or regret, he was at it again. With all the freshness of novelty, he described his Budget as an incentive Budget. Has he forgotten that that was exactly the description he gave on the previous year's Budget? Last year he said: It is by increased production and a new spirit of satisfaction in rewards well-earned that we shall pull through."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1302.] That was the relevance of the Budget to the then economic situation.

The present Economic Secretary, then on the back benches, in one of his pleasantly delivered speeches perhaps more confident than he was last week— he has still a lot to learn from his Minister, but he will regain that confidence—said: If consumption remains steady"— and the Chancellor's case is that consumption has remained steady— some are worse off and some better off. The United Nations Economic bulletin for Europe confirmed this. It shows that half the people were worse off and one-sixth were not only better off—but substantially better off.

The Economic Secretary then argued that this might be not a very desirable consequence socially of the Budget, but that this was inevitable. He said: That is inevitable if we are to try to increase production, and it is upon increased production that the well-being of our nation depends."—[OFFICIAL REPORT, 17th March, 1952; Vol. 497, c. 1987.] If that argument was valid then it is valid now, and the purpose of last year's Budget failed because it now cannot be denied that production fell by about 3 per cent.

So the Chancellor of the Exchequer and the Economic Secretary by their own arguments have proved that the efforts which the Chancellor made last year have failed. To meet this new situation the Chancellor, with all the aplomb of an indifferent conjurer, comes to us with the freshness of novelty, to say, "I am producing an incentive Budget."

In fact, it is not an incentive Budget. It is a Budget along exactly the same lines as last year's Budget. The President of the Board of Trade does not like the Budget being described as a device to redistribute income. That is the obvious purpose of this Budget, of last year's Budget and of any Budget. This is a political Budget. The Chancellor of the Exchequer, after all, is the pale pink hope of the Tory Party. When Mr. Flanagan and Mr. Allen were singing "Umbrella Man," the Chancellor of the Exchequer was one of the most plausible defenders of Munich and appeasement.

What the right hon. Gentleman did then was to confuse sectional interests with the national interest and, as I said in November what the Chancellor has done now has been to choose the present crisis to begin, and it is only a beginning, what he would term the redress of the redistribution of income achieved by the past Government. He is putting before national recovery the reversal of the policy of the late Government of fair shares for all."—[OFFICIAL REPORT, 11th November. 1952; Vol. 507, c. 822.] Nowhere is this more plainly clear than with regard to the food policy of the present Government.

Let me say at once, that I disagree with my right hon. Friend. I welcome the agreement with Cuba to provide us with more sugar. After all, we imported a quarter of a million tons less sugar this year than in the previous year. I think that it is a very good thing to have bought sugar well below the world market price by the machinery of bulk purchase. We on this side support bulk purchase in appropriate circumstances. Personally, I am particularly delighted because I urged the Government in the summer to take advantage of cheap Cuban sugar and, as I understood it then, the offer was for sterling. I am still at a loss to understand why the offer was not accepted, but at any rate I am grateful to the Government for following the example of the late Government.

We bought 1½ million tons of sugar over three years and the present Government have bought one million tons over two years and I am pleased that the Conservative Party have eaten their words about the "Black Pact" they uttered at the time we signed the agreement with Cuba. This, I feel, is a ray of Socialist sunshine in a very bleak economic picture. All the official figures show that we have eaten less in 1952 than in 1951, in spite of the fact that we have been running down stocks. The cupboards which, a year ago, were bare, now, we are told, were indecently over-stocked. In spite of that the fact remains that we have eaten less. I do not want to exaggerate. I am not suggesting for a moment that we are starving or that anyone is suffering malnutrition except the particularly hard hit groups—the lower income groups with large families and possibly the old-age pensioners.

I do not want to exaggerate, but the fact remains that last year we ate less food than we have eaten for four years. We were eating less food than pre-war and less food than in 1944. The relevance of this is that it is in these circumstances that the Government have chosen to pursue this new policy about food. Price controls have not gone in the face of increasing supplies, but in the face of restricted supplies and supplies restricted by deliberate Government policy.

Take milk as an illustration. I have quoted it in aid before. Milk and bread were the key points of our nutritional policy during the war. By the price increases imposed by the Government the consumption of fresh milk has drastically fallen in the past 18 months. The last official figure is 4 per cent. down on that of 12 months ago which, in turn, was seriously down on the 1951 figure. This is at a time in which the production of milk, which is one of the few foodstuffs we produce wholly at home, has increased. That is why the Minister of Food has abandoned his controls on milk for manufacture. We may soon be in the position in which the Milk Marketing Board was before the war and the farmers will have difficulty in disposing of the milk even to manufacturers.

However, I am dealing with the general policy of the Government towards food, and that is only an illustration. Last year, we paid £347 million more for less food. As the Economic Survey admits, this was substantially due to the food subsidy policy of the Government. Over the past 12 months subsidised foods alone cost £177 million more than they did the previous year, and many of the increases, such as that on flour, had the effect of causing a host of consequential price increases.

What the Government did not do was to transfer this saving to the social services. The Tories said, "Instead of helping everyone, we will help those in greatest need." It sounded well, but it was untrue. Out of the saving, the social beneficiaries—the old-age pensioners, the war pensioners, those on National Assistance and those receiving increased family allowances—altogether received £49 million or, if we allow for the increased public pensions, £53 million. The major part of the saving—£80 million if we allow for the increase in procurement costs and social services—went in relief of Income Tax. We took from all absolutely equally and shared it out differentially to people according to their wealth.

Mr. Angus Maude (Ealing, South)

I am sure that the hon. Gentleman does not wish to mislead the Committee, but he is doing it most grossly. No one on this side ever suggested that if the food subsidies were cut last year the whole saving would go to one class of the community. We said that we would fully compensate people who lost in accordance with their loss. In the case of the welfare beneficiaries we more than did that.

Mr. Willey

I shall deal with the beneficiaries in a moment. I was dealing with the £80 million which was taken equally from everybody and distributed differentially. That is why I made it the net figure of £80 million after taking out the increased moneys paid in social benefits and allowing for the increased procurement costs.

The result is that the food subsidies last year cost £330 million, although the Parliamentary Secretary said that the Government did not quite succeed in reaching the £250 million level at the end of the financial year. The Chancellor is now continuing and even accelerating that process. What he said in his Budget speech was "a pretty fast one"; it was a "bumper" and, under the new ruling, I ought to warn him. He said: The provision for food subsidies in 1953–54 is, in round figures, £220 million, which compares with the rate of £250 million which I set in last year's Budget as the objective to be aimed at in a full year."—[OFFICIAL REPORT, 14th April, 1953; Vol. 514, c. 43.] However, only recently the Parliamentary Secretary to the Ministry of Food said: … I am not going to pretend that it has been brought down to the actual level of £250 million."—[OFFICIAL REPORT, 18th March, 1953; Vol. 513, c. 75.] Why, then, did the Chancellor pretend that it did?

My objection to the Chancellor's statement is much more fundamental than that. The figures he gives are not comparable at all. There is no comparison between a level obtaining on a certain date and the expenditure over the year. The comparison is between the £330 million spent on food subsidies last year and the estimate of £220 million to be spent on food subsidies this year. In short, there is to be a reduction in the expenditure on food subsidies this year not of £30 million, as some of my hon. Friends and the newspapers imagine, but of £110 million, or, if we allow for sugar, £120 million. What are the social beneficiaries getting back this year? Not £49 million. Against the extra £120 million which has been taken from us all equally, they are getting this year, according to the Chancellor, £24 million.

How does the Chancellor obtain the £120 million that he is saving from the food subsidies? He obtains it by taking absolutely equally from all of us. Because the food subsidy is not subject to tax, the millionaire and the old-age pensioner make precisely the same contributions towards the £120 million. In fact, the man on the lowest wage rate with a large family makes several times the contribution made by the eligible bachelor to whom my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) referred. That is how the Chancellor obtains the £120 million which we can reduce to a net sum of about £100 million.

How does the Chancellor redistribute it? This time the Chancellor has gone much further than he went last time. There is no question of allowances this time. This subsidy saving largely finances the cut in the standard rate of Income Tax. See what happens. All of us—the widow, the old-age pensioner, even the smallest child—make exactly the same contribution. The rich practically scoop the pool, and, moreover, we get all the anomalies about which my right hon. Friend the Member for Battersea, North (Mr. Jay) spoke, such as families without children taking to the disadvantage of families with children, who, in fact, have contributed most. This is straightforward political fraud. The people who made the contributions and do not pay tax at all this year get absolutely no benefit in return.

There was another significant thing in the statement the Chancellor made in his Budget speech about food subsidies. Last year he told us the level at which the food subsidies would be at the end of the financial year. That is just the thing he will not tell us this year. What he tells us this year is that £220 million—£110 million less than last year—will be spent on the food subsidies. The Financial Secretary knows well enough that under this formula it is possible to abolish all the food subsidies this year, except possibly the welfare food subsidies and the agricultural food subsidies.

Think of some of the steps that have already been taken. After the Budget statement of last year, and outside that Budget statement, we had £22 million saved on eggs, £30 million on feeding-stuffs, £7 million on flour, and, to come, £10 million on sugar, and anything up to £40 million on bread. The extent to which the Chancellor goes this year in reducing the level of food subsidies will depend entirely on the timing of the price increases.

Some speculators are trying to decide whether or not the Budget points to an autumn General Election. It does not point to an autumn Election but it leaves an autumn Election open. Nothing could have been sillier than for the Chancellor, with that prospect open, to have announced in his Budget statement his price increases for this year. Now the Chancellor can decide as the occasion arises when to impose price increases and, in fact, if he is determined to eliminate food subsidies this year the longer he delays the date from his point of view the better. He will want a suitable pretext for each occasion.

On eggs, we had the black market. On bread, it will be white bread. If it be margarine, it will be branded margarine. The Chancellor knows that the Ministry of Food have been discussing for some time the decontrol of margarine. The difficulty is that the manufacturers have given notice that it will take them six months. The Chancellor would not be so foolish as to announce that he intended to take this step, but we all know that he is considering it. Why are meat traders so excited about a possible in- crease in the price of meat? Will the Chancellor say that the price of meat will not be increased this financial year because he did not announce it in his Budget speech? Of course not. What he is going to do is to await the opportunity.

In passing, I mentioned the confusion of the sectional and the national interest. This is what worries me. We have been talking about sugar, oils and fats. We know the steps we have been taking about cereals. In this country we have large strategic stocks. We do not know what they contain, but it does not take much guesswork to suggest that they include foodstuffs which can be easily stored. They may consist of cereals. They may consist of sugar or oils and fats. It is with the strategic stockpiles behind him, which are for another purpose, that the Chancellor is prepared to disregard the broad national interest and to use the pretext of decontrol to take off the food subsidies.

All this has nothing to do with increasing production. If it has any effect, it will decrease production. I am surprised that nothing was said in the Budget speech about food production. What did the President of the National Farmers' Union say after the Budget? This is what Sir James Turner said the other day: There is increasing anxiety at the absence of any formulation by the Government of a long-term policy for agriculture as a whole and at the inevitable effect which this is having in prejudicing the prospects of increased food production for which the Government have called. We shall not get any long-term policy from this Government about anything except the persistent serving of sectional Tory interests. The Chancellor wound up by hoping, as he did before, for increased production from industry and the people of this country. I hope that we shall have increased production from industry, in spite of the Chancellor. I hope that the people will awaken to the Tory purposes of the present Government and, in their awakening, get rid of the Tories once and for all.

6.43 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

The hon. Member for Sunderland, North (Mr. F. Willey) made the remarkable statement that this year's Budget was on exactly the same lines as last year's Budget—or something to that effect. If that is his judgment of the matter, all I can say is that he has missed a lot of good openings, because I should have thought it was quite clear to anybody that, whereas the purpose of the Budget last year was to stop inflation at any price, the purpose this year, when we have reached a position which some hon. Members have exaggerated but which is certainly a certain amount of slack water, is to stimulate demand. The two purposes are quite different and the two instruments to deal with those situations are equally different.

It was the "Economist" on Saturday which pointed out what is really a remarkable decision in these matters— that, in spite of the great obfuscation of figures which has been produced, and which I do not altogether understand, this is, in fact, very nearly deficit budgeting; this is a very bold bid of a Chancellor who, as far as I know for the first time in the history of this country, has taken the lesson which we were taught by the late Maynard Keynes to heart and, in a time of slack water, instead of drawing in his horns, has deliberately stimulated demand.

It was very interesting to read what the right hon. Member for Ebbw Vale (Mr. Bevan) said at Paddington over the weekend, when he took a very Gladstonian view of our affairs. He said this Budget is not prudent, when we are not yet out of the wood. That is following Adam Smith and Mr. Gladstone and all the other strict orthodox economists who said that when we were in slack water we must draw in our horns and must not stimulate demand—an old-fashioned view which I should have thought went out of favour with the publication in 1936 of Maynard Keynes' doctrine on employment, interest and money.

This old-fashioned view was expressed not only by the right hon. Member for Ebbw Vale over the week-end but has been expressed by quite a number of right hon. Gentlemen—the view that this is a sunshade Budget and that too rosy a view is feeing taken of the picture.

Mr. Bevan

If I sat here and allowed that to pass without contradicting it, it would be assumed that I agreed with it. In fact, I made no such statement. In certain circumstances I am in favour of deficit financing, but I cannot reconcile the application of Keynesian principles in this case of deficit financing with the retention of a high Bank rate.

Mr. Fletcher-Cooke

The right hon. Gentleman must not assume that the high Bank rate is necessarily to be retained for ever. I quoted from a reliable report of what he said, but if I am wrong I will withdraw. May I ask him this in return? Does he think it dangerous to stimulate demand at this moment?

Mr. Bevan

I will give my answer at once, although I hope later to have an opportunity of answering in a little more detail. What I consider we want is an increase in investment, but that increase in investment must be canalised in the right direction.

Mr. Fletcher-Cooke

I take that to mean that the right hon. Gentleman is not too keen on stimulating demand.

Mr. Bevan

I did not say that. I do not want to interrupt too much, but I hope the hon. Member is clear now: I believe in stimulating demand for the right sort of investment.

Mr. Fletcher-Cooke

The purpose of all these reliefs is twofold—to stimulate not only demand but also investment. I suggest that my right hon. Friend has struck a very good balance in that matter, because in the Purchase Tax reliefs he is undoubtedly stimulating demand. Speaking as an eligible bachelor who has to do his own shopping—a very undesirable state of affairs—I may say that over the weekend, in chemists' shops and places like that, I found a lot of people buying things in excess of their usual demand and at a much cheaper price, as one chemist told me. Even Purchase Tax concessions on small things like that are already beginning to have their effect.

Mr. Fernyhough

What about textiles?

Mr. Fletcher-Cooke

I come from a textile area and we are very sorry that nothing has been done this year for textiles, although something was done last year. Since that point has been raised, I am bound to remind the Committee that the hon. Member for Stalybridge and Hyde (Mr. Blackburn) made these remarks in the debate on Thursday: This year we are expecting that the improvement which has taken place in the textile industry will continue. …"—[OFFICIAL REPORT, 16th April, 1953; Vol. 514, c. 489.] In those circumstances, when a Chancellor is being hard pressed for concessions, I can see that it is difficult for him to give concessions to textiles this year when he made some to textiles last year, when other indsutries are beginning to feel the slack water and when the textile industry is for the moment improving, at least on the evidence of the hon. Member for Stalybridge and Hyde.

In my submission, most of the speeches which we have heard from hon. Members opposite have been attacking the wrong Budget. They have been attacking the Budget which the Chancellor might have introduced and which he was under considerable pressure to introduce, but which he did not introduce—a Budget which would have cut Government expenditure a good deal more, which would have cut food subsidies a good deal more, which would have given greater remissions on Income Tax. It struck me that the disappointment of hon. Members opposite was in a way due to the fact that the Chancellor did not take that action and that all their speeches had been written before the Budget.

Let me take an example from the speech of the hon. Member for Northfield (Mr. Chapman), who said, Awaiting this Budget there are a number of wage claims which will now be pressed with the vigour which they deserve."—[OFFICIAL REPORT, 16th April, 1953; Vol. 514, c. 449.] That would be a perfectly fair comment on a Budget which put up the cost of living by cutting food subsidies considerably and by cutting other things which benefit the workers, but it is a ridiculous encouragement after a Budget which lowers the cost of living—an encouragement which, unfortunately, has already been accepted.

Mr. C. R. Hobson (Keighley)

Does not the hon. Gentleman think that, on his own hypothesis, the abolition of E.P.L. and the failure to alter the Profits Tax, with the consequence of increased profits being made, is an incentive to the trade unions to go forward with wages claims?

Mr. Fletcher-Cooke

I understood that the reason for increased wages in the immediate past has been that more money was needed in the wage packet to pay for the cost of living. If, however, the cost of living is to be reduced, as clearly it will be by this Budget, it is wrong for the hon. Member for Northfield and others to encourage people to think that the reason still obtains. And nobody has denied that the cost of living will be reduced by this Budget.

I think the attack has largely been directed to the reduction of Purchase Tax on luxury articles such as jewellery, furs, pianos, and so on. The moral indignation expressed about these inanimate chattels has been so great that one almost feels that they themselves are largely to blame. I much prefer the attitude taken up by the president of the 80,000 amalgamated weavers in my area of Lancashire who has been pressing for a reduction in the tax payable on the highest quality of textiles. I think that is the right attitude to take.

It may be unfortunate, but the world is wicked and those are the things we can best sell abroad. These luxury goods, which are sometimes called luxury goods when one wants to attack them and quality goods when one wants to defend them, are the things for which there is a ready market abroad. It might be nicer if we could re-design the world ourselves and sell ordinary grey cloth or utility or under-the-D-line things abroad. Unfortunately that is not what the foreign trader looks to England for; he looks to England for quality goods of a high price. He is prepared to pay for those and not for the kind of articles which perhaps attract greater moral worth.

We have had a recent example of that over the question of some embroidery and decoration for the Coronation. These high-quality crafts have died to a certain extent, and in order to get the cloth embroidered properly, we have had to go abroad for work which was formerly the pride of this country. The same thing is happening with other crafts and will continue to happen unless the load of Purchase Tax can be taken off them, in which case we can hope to retain some of our export markets which pay us well for a relatively low effort but, of course, involve high and specialised skill. That is why we are all hoping that the horrible Purchase Tax, which crystallises in a purely fortuitous stream British industry as it is today, will go as quickly as it is apparently withering.

I want to make one serious observation about the White Paper on a point made fairly both by the right hon. Member for Leeds, South (Mr. Gaitskell) and the right hon. Member for Dundee, West (Mr. Strachey). In Table 30 on page 41 of the White Paper relating to the distribution of manpower we see in bold relief the fact that during this period of relatively slack water manpower has not moved as we hoped it would. Do not let us deny this point to the Opposition, because it is their best point in the entire debate, and it is a serious one. It is worrying that the engineering industries do not seem to have attracted the labour one might have expected during the last year. My right hon. and gallant Friend the Member for Leicester, South-East (Captain Waterhouse) made the point earlier today that he knew firms in his area whose machinery has been working at only 60 per cent. capacity because of the shortage of labour. If that happened last year, when there were relatively more people on the labour market than for some time, it is a serious matter.

I hope we shall all do a little more thinking on the subject, because my hon. Friend the Economic Secretary to the Treasury pointed out some of the difficulties. He said, for instance, that in order to get employment one cannot move from the South Coast up to the Midlands and change one's sex. We know all that, but what we want to know is what the Government, and particularly the Minister of Labour, will do to try to stop the freezing that is going on with regard to the mobility of labour. All pulls and tugs in the modern State are against mobility. The employers are against it— they like to keep as many people in their industry as possible even if it is contracting. The trade unions are the same. The local authorities are the same—they reserve houses for people who have been in their area over long periods. All these great, responsible authorities tend, no doubt with the best will in the world, to preserve and freeze the labour structure as it is. This must not be allowed to happen.

Although the right hon. Member for Dundee, West, mentioned this point, I do not think he had any solution to offer. He asked, does it not show that in all modern economies you cannot transfer manpower by financial policy? I do not think it does show that, because I do not think that the reserve has yet been exhausted. I should like to ask the right hon. Gentleman what he meant by that rather sinister question. Does he mean that the only way one can transfer manpower in a modern economy is by direction? Since he is not here, I shall have to take another opportunity of asking him that question, because it is perhaps at the root of our economic problem in this economy today, since it is upon the mobility and flexibility of labour, upon our opportunities of taking advantage of the various winds of demand that blow upon this country, that our survival may well depend.

Mr. William Shepherd (Cheadle)

My hon. Friend has said with some concern that the engineering trade does not show a substantial increase in its labour force. Is he not aware that, although there has been no total change, there has been a substantial change from the light engineering products to the heavier side of the engineering industry, which was very desirable?

Mr. Fletcher-Cooke

I am glad to hear it and I am obliged to my hon. Friend. However I would have preferred to see, as would most hon. Members, a global increase in the labour employed in all the branches of the engineering industry over the last year. However, I do not want to detain the Committee long because many hon. Members want to speak and we are drawing to the close of this debate.

I ask myself and the Committee, through you, Mr. Hopkin Morris, will this deficit Budget, this bold bid, succeed? For that is what this is, stripped of all the figures. The predictions of gloom that we have had from the other side perhaps give the impression that nothing can succeed. The right hon. Member for Dundee, West, said: … sooner, rather than later, we are bound to run into heavier economic weather."—[OFFICIAL REPORT, Thursday, 16th April. 1953; Vol. 514, c. 437.] All these predictions of gloom, culminating perhaps in that of the hon. Member for Gloucestershire, South (Mr. Crosland) who said that sooner or later we are bound to have a tax on coal, imply that we are somehow puppets, and that nothing we can do will make the slightest difference. Prediction of the future is to my mind the hall-mark of the charlatan. If anyone pretends that he knows what is going to happen, which the economists, perhaps because they are a young profession as professions go, are apt to do in order to make their position more important than it is, his forecasts are always falsified.

In the present circumstances, no other Budget would be as likely to succeed as this one. The economy is being given a great and valuable injection and there are incentives and motives for harder work, increased energy and greater skill. That is as much as we could hope for.

Mr. Frederick Peart (Workington)

Would the hon. Member apply that also to the agricultural industry, which labour is leaving and which this year has 23,000 fewer workers? What is the incentive for workers to go back into agriculture?

Mr. Fletcher-Cooke

I was saying that as far as the distribution of labour is concerned, I am not at all satisfied with the present state of affairs, but that the other criticisms of the Budget are groundless. As far as the attraction of labour to the countryside is concerned, I am waiting to hear the answer and am hoping that the hon. Member for Workington (Mr. Peart) may catch the eye of the Chair so that he may let us know his answer. Perhaps when my right hon. Friend winds up the debate he may be able to give some assistance in that direction. Apart from that, this is as good a Budget to meet the present needs as could be found.

In the course of these debates, various names have been suggested for the Budget. We have had, "The Cricket Budget," "The Bankers' Budget," "The Bachelor's Budget" and "The Sunshade Budget." I have another suggestion to offer. I suggest that it should be called "The Butler Budget," because although we hope and believe that my right hon. Friend will hold his office for many years, it is too much to ask that he will ever again be able to achieve the right thing, at the right time and in the right way, to the same extent.

7.3 p.m.

Mr. E. Fernyhough (Jarrow)

The hon. Member for Darwen (Mr. Fletcher-Cooke), like all Members on the other side of the Committee, has joined in the universal praise which has been forthcoming for the Chancellor on the Budget. I wonder, however, how sincere are their tributes. There did not appear to be any real enthusiasm on the benches opposite on Budget day, and looking back to the Tory Party Conference of last year, when against the wishes of the Chancellor a resolution was carried demanding a 2s. reduction in Income Tax, one can only think that Members of the party opposite must be very disappointed and that their praise of the Chancellor is hardly as genuine as he would like it to be.

The Chancellor said that his Budget last year was an incentive Budget, a Budget to create more enthusiasm, to give us more production, and in every way to assist in getting the country back on its feet. He planned for increased production, increased exports, increased revenue and less expenditure. On each of those four counts, upon which his Budget was based, the right hon. Gentleman was wrong. He had less production, fewer exports, less revenue and more expenditure.

Sir Edward Boyle (Birmingham, Handsworth)

Let us be quite fair. My right hon. Friend in winding up the Budget debate last year ended his speech by saying that our prime duty was to save the £. In that respect, at any rate, he certainly proved extremely successful.

Mr. Fernyhough

Time will tell how positive have been the right hon. Gentleman's plans for saving the £.

What is so annoying about the predictions of the Chancellor is that the Prime Minister was equally wrong. He went to America last year and enjoyed the very great privilege of addressing Congress. This is what he told them: Our production is half as great again as it was before the war. Our exports are up by two-thirds. Recovery, while being retarded has been continuous, and we are determined that it shall go on. The truth, of course, is that our recovery has not gone on. The ever upward trend in exports and in production stopped immediately we got a Conservative Government in power.

It is not difficult to understand why that upward trend stopped. The Chancellor appealed for increased effort and increased production, but what does the Prime Minister do with two of our basic industries? He denationalises steel and road transport. Does the Chancellor think that that kind of policy will evoke the response from the workers that is needed if we are to get production to the heights that we require? Of course not.

Not satisfied with denationalising steel and road transport, many hon. Members on the other side are now demanding that an attack should be made upon the miners. They want an inquiry into the Coal Board.

Mr. Fletcher-Cooke

Some of the miners want to do that themselves.

Mr. Fernyhough

But for different reasons. I do not want to weary the House with all the quotations of what hon. Members opposite have said about miners being pampered, appeased, and so on. There are many hon. Members opposite who want district agreements, the splitting up of the industry, and a general attack upon the miners' standards. Of course, they do not say so in so many words, because that would be too dangerous, but many of them are playing a clever game. The party opposite have written off the mining constituencies almost for ever. They know that not for another century at least will it be possible for a Tory to go into a mining constituency and to win the seat for Toryism.

What, therefore, is the attitude of Tory Members? They start to agitate in all the non-mining constituencies with a view creating against the miners as much prejudice as they can. They hope that this will pay good dividends—good Tory dividends—but it would be disastrous industrially for the nation if their purpose were to succeed. It is conduct to which they ought not to be a party.

The Chancellor has decided to reduce Income Tax by 6d. all round. Does he really believe that it is equitable to put an extra 2d. on the cost of school meals and to reduce Surtax by 6d. in the £? The Surtax payer will get the relief at the same time as the price of school meals has been increased and cuts have been made in education.

The recovery of the country depends entirely upon increased production. It does not matter how the financiers may juggle. Ultimately, the well being of our people depends upon the amount of coal, steel and food, to name only three items that we produce. These are the basic factors. Therefore, it is to the people in productive industry that the Chancellor has need to make his greatest appeal. He can appeal to all the financiers in the world, but they cannot assist him. The men who can help are those doing the hard, dirty and, to a large extent, dangerous work of our society.

But what response is there in this Budget for those people compared with the people at the top? What response is there for many people now outside the Income Tax level? The truth is that the Chancellor, as has already been said, introduced a class Budget, leaving those at the lowest end of the scale without any easement of their burden, and giving those right at the top, those with the biggest incomes and whose lives are easiest, the largest measure of favours he has been able to distribute.

I was glad to hear the President of the Board of Trade say what he did today in reference to the Americans refusing to allow the British electrical industry a contract which was rightly ours on the basis of the tender we submitted. I ask the Chancellor whether in view of that, and if the Americans remain adamant, he is prepared to tell us what is going to be done in the interests of this nation.

I believe we should go to the Americans and say, "If this is to be your policy in regard to trade, then we want to contract out of the Battle Act." We cannot permit the Americans to determine what we should export and to whom we should export if at a time when we are desperate for trade they place obstacles such as this in our way. It would be quite reasonable to say, "If you demand that our trade with Eastern Europe, with Russia and with China shall be in any way restricted we are entitled, as a quid pro quo, to be sure that you will not place undue obstacles and heavy burdens in the way of us doing trade with you."

The truth is that we are chasing a will-o'-the-wisp if we believe that it ever will be possible to make big inroads into the American market. If at a time when so much of the American economy is taken up with the rearmament programme they are prepared to keep us out, what is to happen to British motor cars and British engineering products if peace should break out? Will not General Motors lobby in Congress effectively against us to prevent imports going in and will not every American industry take the same line? The Chan- cellor, the Government, and the country have to look elsewhere if we are to maintain and build up our exports in order to maintain full employment in this country.

I wish to close on a note in regard to full employment. It is a terrible reflection that in our society at a time when there is a little glimmer on the horizon which we all hope will become a bright light for world peace that that glimmer should cause fear in the hearts of men and women in industry in this country. Many men and women in this country are already very concerned that if peace should break out it may mean mass unemployment once again.

Hon. Members opposite do not believe in planning, except for war; then of course they plan to the last detail. I ask the Chancellor and the Government whether now is not the time to begin to think about planning also for peace? Just as we plan in the event of war down to the last detail, and just as Tories believe in planning and controls for war purposes, I ask the Chancellor and the Government to plan for peace, because of the possibility, which everyone hopes will be realised, of an easing in the international situation and a peaceful settlement in Korea.

I ask the Chancellor and members of the Cabinet to do everything to produce a plan to give hope to people of this country that even under a Tory Government never again will they have mass unemployment. That would show that even the Tories have learned and are prepared to plan in order that men now employed, many doing work for war, will not be unemployed if peace breaks out.

7.16 p.m.

Mr. Angus Maude (Ealing, South)

I am going to start my speech by making one observation which may surprise hon. Members opposite, but I urge them to restrain expressions of approval until I have explained my reasons for it. It is a matter of considerable difficulty to make a speech saying why this Budget is a good Budget. The reason is that I have found when trying to talk about it outside the House that, with the single exception of hon. and right hon. Members opposite, such measures as the reduction in Purchase Tax and a cut of 6d. in the standard rate of Income Tax seem to people in the country so obviously good in themselves that they look at one with amazement if one tries to justify them. They do not consider that there is the slightest need to advocate a Budget of this kind.

When one is asked to speak about it all one can do is to turn to sort out the extraordinary discrepancies in the arguments against it made by hon. Members opposite. They have been placed in the very difficult position of trying to make political capital out of a Budget which is almost unassailable. Where they are mutually inconsistent to a considerable extent the arguments can be ignored. One need not spend too much time, for example, over the hon. Member for Sunderland, North (Mr. F. Willey) who welcomes the sugar agreement, and the right hon. Member for Smethwick (Mr. Gordon Walker), who thinks it a thoroughly bad thing. The right hon. Member for Smethwick thinks we ought to have been piling up our gold reserves to the exclusion of extra purchases of foodstuffs overseas, whereas the right hon. Member for Leeds, South (Mr. Gaitskell) thinks we ought to have been increasing stocks.

The same sort of discrepancies are visible all the way through the speeches of hon. Members opposite. They have attacked this Budget more or less in the following order: First, that the Chancellor of the Exchequer produced the wrong Budget last year; second, that the results of the Budget were quite different from what they ought to have been; third, even though many of them were saying last year that last year's Budget would turn out to be dangerously inflationary—the right hon. Member for Battersea, North (Mr. Jay), I believe, said that it was the most openly inflationary Budget since the war—now they are attacking my right hon. Friend for having carried through a policy of deflation during the year 1952– 53. Having said that last year's Budget was the wrong Budget and the results were not what my right hon. Friend intended, they now say that this Budget was a dangerous, gambling Budget—a rich man's Budget in which all the benefits have been taken from the poor and given to the rich.

The height of folly in this respect was reached by the hon. Member for Sunder- land, North whose disquisitions on the food subsidies have to be heard to be believed. He said that what happened to the food subsidies last year was entirely unjust because a certain amount of money was taken from every citizen in the country through the removal of food subsidies and only a small proportion of it was given back to the social service beneficiaries. That is as much as to say that if there had been only five social service beneficiaries in a particular class in the country, when food subsidies were cut for every individual in the country that particular class should have had a grossly disproportionate retain made to them in the form of welfare increases. Of course that is ridiculous. What matters is that adequate per capita compensation should be given and that is what we pledged ourselves to do and what in fact my right hon. Friend did.

When I hear the sort of talk that we have heard from the right hon. Gentlemen the Members for Leeds, South and Bishop Auckland (Mr. Dalton) about the need to give extra compensation in respect of old age pensioners, family allowances, etc., I must say that I think that an element of hypocrisy is present. When I listened to the right hon. Member for Bishop Auckland today discoursing on the hardships of old age pensioners my gorge nearly rose. Does the right hon. Member for Leeds, South really believe that the old age pensioner is worse off now, at the present cost of living, with 32s. 6d. per week than he was under the Labour Government with 26s. per week? Of course he does not. We all know perfectly well that he is better off.

As my right hon. Friend the Minister of National Insurance said the other day in answer to a Parliamentary Question, the increase in benefits has been, on a percentage basis, about twice as great as the increase in food costs, and has been slightly greater than the total increase in the cost of living. One would not think that to listen to the speeches of hon. and right hon. Gentlemen opposite. What they have tried to indicate is that nobody should get anything unless everybody gets something. I shall have a little more to say about that philosophical doctrine a little later. That has really been the idea behind almost every speech made from the benches opposite.

I wish to deal, first, very briefly—I do not wish to detain the Committee for long —with one or two of the other observations of hon. and right hon. Gentlemen opposite. In his speech today the right hon. Member for Bishop Auckland made some remarks on Purchase Tax which call for some comment. He appeared to indicate that he was quite ignorant of the real reason for the reduction of Purchase Tax on luxury goods. He said that he could not understand what had been done about umbrellas and a few other things of that kind. Then he appeared faintly to recognise that there might be an argument that it was an encouragement towards making prices in export markets competitive if an increase in the home market were permitted through a reduction in Purchase Tax. He said that he did not believe that was true and that it was not necessary to encourage home demand in order to encourage the lowering of export prices.

That was precisely why the late Sir Stafford Cripps reduced the Purchase Tax on high quality motor cars in 1950; that is the answer to the right hon. Gentleman. So far as I know there were no objections at that time from right hon. Gentlemen opposite. What was right in the case of high quality motor cars then is surely equally right in the case of high quality goods now, in fact more so, because we have had several years of restricted demand at home and we are meeting greater difficulties and a more competitive situation in our export markets abroad.

I must also say that the hon. Member for one of the Birmingham Divisions who intervened on the question of Purchase Tax on jewellery and silverware seemed to me to be a little ungracious. Birmingham Members have, as we know, quite rightly been canvassing for a reduction of the luxury rates of Purchase Tax in order that their hard-pressed craft industry should get a little encouragement and stimulus. Yet hon. Members opposite now say that a reduction from 100 per cent. to 75 per cent. is derisory and will do no good.

I would ask them to bear in mind what we have heard from the retailers in the jewellery and silverware trade. If this tax had been cut back from 100 per cent. to 25 or even 50 per cent. the loss which retailers would have had to bear over- night on stocks would have been terrific. I should have thought that if it was essential that this tax should be cut to 50 per cent. in order that this industry should be stimulated, it was probably right, since the Treasury believes that it is not possible to insulate retailers against this sort of loss, to take that step in two leaps instead of one.

Sir E. Boyle

As I initiated a debate on this subject a short time ago, I might say that I have had a number of letters from manufacturers of jewellery in Birmingham who say that this reduction will certainly be of assistance to them.

Mr. Maude

I am much obliged to my hon. Friend. It seems to me incredible that a reduction of 25 per cent. in tax should not be helpful. To suggest the contrary is merely another indication of the slightly ungracious attitude towards any sort of improvement in fiscal burdens which is generally met with from hon. Members opposite.

The right hon. Member for Bishop Auckland then proceeded to discuss old age pensioners and to say how he would have distributed the available surplus had he been budgeting now. He asked, for example, why family allowances should not have been given in respect of the first child. The reasons against that are very obvious and well known and have frequently been canvassed. He then went on to recommend a proposition which I can fairly claim to have invented, that is, that family allowances should be given in respect of the first child when there are already three children in the family. That of course means the doubling of the family allowance on the third child.

That is a proposition in respect of which I am glad to have the support even of the right hon. Member for Bishop Auckland—which I do not think will do it much good. Even with that handicap, however, I would still recommend it to the Chancellor when be comes to consider the question of family allowances. Incidentally, in view of all this talk and interest in family allowances, we are entitled to ask who raised the family allowances for the first time since 1945. The answer is that it was raised last year by my right hon. Friend, and that the compensation which that gave more than outweighed the increase in food costs which accompanied it.

So one can go through all these extraordinarily bald and mutually contradictory arguments which we have heard from hon. and right hon. Gentlemen opposite. There was the argument about stocks which we heard from the right hon. Member for Leeds, South, which if it was not meant to be deliberately misleading came at least pretty near to being so. He has been going about the country and writing in the newspapers for some time trying to insinuate that stocks of imported raw materials in this country are lower whereas, in fact, they are higher.

When these arguments are boiled down and examined dispassionately, one cannot escape the feeling that there is really one major question of principle which divides us on this side of the Committee from hon. Members opposite. It is that, having achieved a record level of taxation during their period of office, which was violently, and in our view dangerously, redistributed, they are prepared to fight almost to the death rather than see even the smallest burden taken off the shoulders of the higher and middle income groups in this country.

Nobody can pretend that this Budget puts any burdens on the poorer sections of the community. It does not; if anything it will reduce the cost of living. There are no new taxes; there is only the reduction in Purchase Tax. But when one listens to remarks such as that made by the right hon. Member for Smethwick today, when he said, "If you destroy people's sense of social justice you weaken their will to work and so lower their productivity," then one comes up against the basic principle which divides us. "It does not matter what I have not, so long as the other chap does not have it either. It does not matter whether you give me the extra incentive to work so long as you do not give the other chap anything which I have not got."

Is it really conceivable that the workpeople in British industry are actuated in their will to work by no higher motives than that of jealousy of their fellows? I do not believe it. I never have believed it, and I do not think that right hon. and hon. Gentlemen opposite will have much success if they try to spread this feeling throughout British industry. That is what they are trying to do. If not, the remark of the right hon. Gentleman has no meaning whatever. It is just a meaningless form of words which may sound well in public but cannot bear any other interpretation in fact.

I believe that this Budget marks a turning point in the economic history of this country. Last year my right hon. Friend the Chancellor was faced with great difficulties. The decisions he made then were courageous and in fact the out-turning has been pretty good. Memories are getting short, I think, when my right hon. Friend is taunted by the right hon. Gentlemen the Members for Bishop Auckland and Leeds, South with sloppy, slipshod, inaccurate estimating and with having all his forecasts falsified.

One of those right hon. Gentlemen was responsible for the most dangerous runaway inflation this country has ever seen. He went into convertibility in a debacle such as we have not seen certainly since the war. He saw his 1951 Budget falsified in every particular within six months and found himself, before the ink on his Estimates were dry, in the middle of another inflation and a balance of payments crisis which proved one of the most serious since the war. My right hon. Friend cleared up the debris which he found. He has halted, at least for the moment, the deplorable decline in our balance of payments position; and saved the £ sterling.

We have lived far too long under the control of a band of people who believed that monetary weapons would inevitably fail in their effect and who believe that controls, restrictions and exhortations would inevitably succeed. We have found that the tax, the fiscal weapon, is on the whole a bad weapon for producing the results we wish to achieve in the way of restrictions. We have found the monetary weapon is a much better one. If there is any surprise to be expressed, it is that my right hon. Friend found himself able this year to go as far as he did with his tax concessions. I did not believe a year ago that he would find it possible to go so far this year, and I think he will be proved right.

Were I to make any criticisms there would be just two. I hope that by next year my right hon. Friend will find it possible to make some reduction in the rate of duty on petrol and oil. I believe this to be a serious burden, both on industry and on the travelling public. I realise fully that he could not have done that this year and also reduce the standard rate of Income Tax.

My second criticism would be that the professional practitioners of this country are on the whole getting less out of this Budget than are businessmen. I am not at all sure that some form of tax reform is not necessary. We hope they may benefit as a result of the reports soon to be presented to the Chancellor. There is no doubt that the position of private professional partnerships is very serious, and some tax reliefs ought to be given.

Having listened to the greater part of this debate, I have heard no satisfactory argument advanced against the Budget, but merely hon. Gentlemen opposite whistling, or rather hissing, through their teeth to keep up their courage. I think the reaction of the country to their efforts will be very marked.

7.36 p.m.

Mr. C. R. Hobson (Keighley)

However welcome may be the reductions in the Income Tax and Purchase Tax, the fact remains that this Budget benefits the City rather than working people. The contemplated abolition of the Excess Profits Levy is not accompanied by any alteration in Profits Tax. Whatever may be said by the hon. Member for Darwen (Mr. Fletcher-Cooke), one consideration of workers looking for a wage increase is the amount of profit made by the firm. We may rightly say that there will be wage claims in those sections of industry where profits are high. What did hon. Gentlemen opposite say during the election campaign? They said they were in favour of an Excess Profits Tax. That was part of their electioneering propaganda, but they are taking no steps to implement it. It was just another of their pious promises.

We must regard this Budget in the light of the financial policy pursued during the past year. There have been considerable increases in the interest rate, with the result that an incubus has been placed not only on the private and public sectors of industry, but also upon local authorities in their borrowing. The actual increase in interest payments this year amount to £62 million, which is a considerable amount of money. Our invisible earnings have been lessened by the increased interest payment on sterling balances, and I wish to say a word about invisible exports.

The problem facing this country, whatever party may be in power, is that of survival as a great trading nation. Never since 1903 have exports paid for imports. From 1931 to 1939 there was an aggregate deficit of £129 million in the balance of payments, allowing for invisible exports, which was made good by the sale of gold and securities. The fact is, therefore, that even had there been no war our standard of living would have been reduced had there not been increased production. It seems, therefore, that our exports can never pay for imports without the help of invisible exports and that these invisable exports are something which we have to consider seriously. Last year's picture is rather sorrowful. They were down £85 million.

I wish to deal with shipping, and this is the main subject of my remarks. Shipping is our biggest invisible earner. In 1952 our earnings were £453 million, which is £6 million less than 1951. In 1914, we owned 50 per cent. of the worlds' tonnage. In 1939, we owned 25.9 per cent. and in 1952, 20.6 per cent. Those are the tonnage figures. The figures showing the number of vessels make it clear that the position is considerably worse, because we have some of the biggest vessels in the world. In terms of the percentage of vessels, we own about 18.6 per cent. This is with Japan and Germany just beginning to compete. We have 26 per cent. of the world's tonnage.

The position in the shipyards is satisfactory. The shipyards are working to full capacity, with the limitation on steel plate referred to by the Economic Secretary. We are constructing 35.1 per cent. of the world's tonnage, but 42 per cent. of that is for foreign owners. We are building fast modern cargo ships for our potential competitors. I do not see any reason why the shipping companies engaged in foreign trade should not have a 40 per cent. initial allowance to put them in the same category as companies conducting mining works. I am not asking for a subsidy, but in view of the importance of their activities I suggest that we could reasonably make the initial allowance 40 per cent. instead of the present 20 per cent.

There is no need to argue the strategic importance of an up-to-date merchant marine. It is obvious that such a fleet is a strategic necessity. We need a modernised merchant marine to ensure speed and quick turn-round. This is a highly competitive industry. I am confident that if the Chancellor of the Exchequer will consider this matter and be a little generous, the shipping companies will weather the storm. If there is one thing the British people can do it is to build ships and sail them, and may they ever do so. Shipping should be placed in a special category.

I also wish to refer to local government manpower. There has been a lot of foolish talk about the size of the Civil Service. It is often forgotten that over half of the Civil Service are employed in the Post Office, and I have never heard hon. Gentlemen opposite suggest that there should be a reduction in the number of postmen, counter clerks or telephone engineers. They usually plead for the reverse. Obviously, there have been economies in the Civil Service because of retrenchment in the Ministry of Food and the Ministry of Pensions. But there is never anything said from the other side of the Committee—and I have listened to the whole of the debate—about the size of local government.

I ask hon. Gentlemen to consider the figures. There are 1,448,291 people employed in local government. If we take away from that figure those employed in industrial capacities and those engaged in transport, who number 195,049, there remain 1,253,242. In 1937, excluding industrial employees, there were 846,000 employed in local government and in 1947 there were 1,028,000 employed. I say quite frankly that the country cannot afford a local government service of those dimensions. It is about time that on this question there was criticism from the Treasury bench and action.

During the terms of office of the Socialist Government, my right hon. Friend the Member for Ebbw Vale (Mr. Bevan) showed that he was fully alive to the empire building which was taking place there. He went so far as to send out a special circular to local authorities drawing their attention sharply to this spawning that was taking place in local government. I put forward what I hope will be a useful suggestion. Where there is proven efficiency and economy in local government, that ought to be regarded as a weighting factor when block grants are considered. That is one way in which the central Government could consider the problem.

We certainly cannot afford a continuous growth in the number employed in municipal services. We must bear in mind that local government clerical officers work two hours a week less than civil servants. As we are placed today, with the country fighting for its life, it is the duty of the Government at least to draw sharply to the attention of local authorities the need for economy in manpower. That was done by my right hon. Friend the Member for Ebbw Vale. It is about time that the right hon. Gentleman the Minister of Housing and Local Government and the Minister of Health did likewise.

Dr. Barnett Stross (Stoke-on-Trent, Central)

Does not my hon. Friend also agree that it would be useful if there were more freedom given to local authorities. For example, this is the point I want to put to him. Many people employed in local authority work are concerned with the preparation of plans which they have to submit to Whitehall. If there were much more freedom at the periphery, then we should get a saving in both directions. If we had the kind of freedom which I am sure my right hon. Friend the Member for Ebbw Vale (Mr. Bevan) had also considered, there would be a saving in both directions and—

The Deputy-Chairman (Mr. Hopkin Morris)

Order. Interventions should not develop into speeches.

Mr. Hobson

Those proposals are certainly worth consideration. All I am concerned about is to draw the attention of the Committee to the fact that, while we have a lot of talk about the size of the Civil Service, we hear few complaints about the size of the local government service.

I wish to mention a minor question which the Economic Secretary may like to draw to the attention of the Chancellor. Last year the Chancellor put a ban on all new building in the Post Office. The position in the Post Office is that one in every five telephone exchanges is full up. That means that many complete new buildings are required. This is not a question of the shortage of cables or equipment. The fact is that if we had the cables and the equipment we should not have the buildings in which to house the equipment. But we have 500,000 people waiting for telephones. I hope that the Chancellor, who had a lot to say on this matter last year, will reconsider his decision about building new exchanges.

I also wish to mention a matter which was referred to this afternoon by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), who spoke of the fact that the Government had removed development charges and put nothing in their place. I agree with my right hon. Friend. In place of development charges there should be taxation on site values. The value of these sites is created by public effort and enterprise and not by the individual. What happens today is that every improvement in the social order, every improvement in production, puts up the price of land. That creates an obstacle. We are deliberately creating a barrier to our own progress. Forcing up rents puts money in the pockets of the landlords who in many cases neither toil nor spin.

We should compel owners to pay a tax on land whether they use it or not. We should make it unprofitable to keep any land idle or to use land improperly. There is no reason why the taxation from site values should not be allocated in part to the local authority and in part to the national authority. It might interest the Economic Secretary to know that in Sydney and Johannesburg 90 per cent. of the rates are levied in this way. In view of the complaints about high rates common throughout the country, this is certainly a proposal worthy of examination. Why should not we recover by taxation for the benefit of the community land values which the people themselves have created?

I hope that this proposal, which has been made many times, will be considered by the Government. I have endeavoured to put several points before the Chancellor. I suggest that all are worthy of consideration. To sum up, I want a 40 per cent. initial allowance for shipping; I want something to be done about the empire building in local government; I want more money for telephone exchanges, and a tax on site values.

7.50 p.m.

Mr. Douglas Marshall (Bodmin)

I wish I had more time in which to go into detail on some of the matters about which the hon. Member for Keighley (Mr. Hobson) has spoken, but I could not let the opportunity pass without referring to one point he made concerning the shipping industry. I sincerely trust that the Chancellor will take due note of this particular point, because, as the hon. Gentleman opposite so rightly said, invisible exports are one of the most important factors in the whole of our economic life. It was with pleasure that I heard the hon. Gentleman say that, if there is one thing which the people of this country can always do, it is to build ships and also navigate them to all parts of the world, and I think that remark would find favour in every part of this Committee. I trust that the Chancellor will pay due attention to the point concerning shipping which the hon. Gentleman has drawn to our attention.

There are several special points that I wish to raise with regard to this Budget but the first thing that I should like to say—and, although it has been said already many times during the debate, I still feel that I must mention it again— is that, listening to the arguments that have been adduced by hon. Gentlemen opposite, I have gained the impression that their attitude is one in which not so much point has been made in regard to this Budget, but very striking comments have been made to suggest that the Budget of last year did not succeed. I find that completely and absolutely astounding.

If hon. Members opposite will reflect on the position of the country last year, and will remember exactly what was our situation in regard to the balance of payments, when we were in deficit to the tune of £398 million, and will recall that we have now corrected that deficit, and, at the same time, hon. Gentlemen opposite still suggest that last year's Budget in fact failed, I think they must have failed to appreciate what the Chancellor said at the conclusion of his speech last year to the effect that the whole design of that Budget was to rearrange our balance of payments position and get it straightened out.

In introducing his present Budget, the Chancellor mentioned the question of the importation of sugar, and, although it has nothing to do with the design of the Budget, I wish to make a brief reference to it. I gained the impression that the de-rationing of sugar could not come about, or at least no date could be stated when it might come into effect, because of technical reasons concerning the refining of sugar.

I should like to point out to my hon. Friend the Economic Secretary to the Treasury, who probably knows all about this question of the jam-making season, that there is no necessity to have refined sugar for that purpose. If sugar can be imported unrefined into this country, I cannot understand why it should not be issued in time for the jam-making season so that the general food position of the country can be assisted by this means. I can assure my hon. Friend that the jam made in that way will not suffer any ill effects.

The re-introduction of the initial allowances to industry will not only help agriculture, but will be of benefit to all interested in mining operations and the development of our mineral wealth in this country. In this connection, it would be extremely odd if I did not refer to the china clay industry. It appeared to me that the Chancellor's decision on the reduction of the Purchase Tax not only brought an immediate benefit, but was the beginning of a design to rid ourselves of this abominable way of collecting revenue.

When the Chancellor referred to the removal of Purchase Tax from dry batteries, those hon. Members who, in the last eight years, may remember the discussion on the Motion for the Adjournment which I initiated, as well as the many times on which I crossed swords with both the late Sir Stafford Cripps and the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), will realise with what pleasure I have received the Chancellor's decision to remove the Purchase Tax from dry batteries.

The point I want to emphasise concerns not only the reduction of direct taxation, but the Chancellor's approach to the problem in the reduction of 6d. in the standard rate of Income Tax. I feel that this approach indicated by the Chancellor is quite different to that which has been shown over the last few years, and I felt that there was much more importance to be attached to the Chancellor's statement that, in recent years, high taxation has been used as an instrument for warning off inflation, and his comment, "What a blunt instrument it is." That in itself was much more important than the Chancellor's action in reducing the tax by 6d., for here is an indication of a design to promote action, initiative, ingenuity, ability and adventure in this country. As the hon. Member for Keighley so rightly said, it is not just a question of a Budget surplus, but one of survival.

On this question of survival, I want to refer to the question of Empire development and fiscal policy in assisting that development. I have had the honour recently to spend two months in the West Indies with the United Kingdom Parliamentary Delegation, and I have had both the pleasure and the honour of seeing a good deal of the Caribbean. In the last 18 months, I have also seen a good deal of other Colonies, such as Uganda and Kenya, and it is my considered belief that this nation cannot possibly improve or even maintain our standard of life in this country unless we develop those parts of our Empire that lie undeveloped at the present time and which have the capacity for development.

It is my belief that this development cannot come about by great schemes promoted by the Government. I will not go into the whole story and picture to illustrate why I think that must be the case, but I think that that is the wrong instrument. I think that the best instrument must come from schemes originated by private enterprise, and I believe that it is from such private schemes expanded into more elaborate schemes that this development can best be accomplished.

It is true to say that, on the question of risk capital at the present time, the amount of such capital available outside the great institutions is not very great, and I would therefore put a suggestion to the Chancellor for his consideration. It is a suggestion which has come to my knowledge, and to which I have myself given great thought and consideration. I fully realise that it may not be perfect, but I do suggest that it offers a basis on which the Chancellor may work in order to improve it.

My suggestion is simply that the fiscal policy of the Chancellor should be devised in such a way in regard to Empire development that any developing company in any part of the Empire where, in order to promote that development, the Colony concerned has made an allowance of tax, by let us say a tax free holiday, to help the company, the United Kingdom should also help by allowing a percentage allowance—say 20 per cent., or whatever may be thought the right figure —to go into a blocked account not subject to United Kingdom taxation. That blocked account would not be released unless the money were being utilised for the development of the Colony in which the company is located, and in order to stop anybody from attempting to release the money by liquidating the company, I suggest that a balancing charge should operate and that the whole of the money should then be subject to full United Kingdom Income Tax. I hope that my right hon. Friend the Chancellor will examine that suggestion and that it will find favour in his sight.

In conclusion—and this is my chief point—I believe this to be a good Budget and one which will lead to expansion. I also believe that if we do not properly consider the question of expansion within this country and the Empire we shall never, no matter what Government is in power, maintain the standard of life we desire or indeed improve that standard of life which is something which every hon. Member in this House desires and demands.

8.2 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

I understood the hon. Member for Bodmin (Mr. D. Marshall), in the earlier part of his speech, to say that he could not understand why we on this side did not regard the events of the last year as a great vindication of the Chancellor's Budget for that year. We regard those events in this way. Above all, it has been a year of contrast, a year, on the one hand, of very great improvement in the balance of payments position brought about—as was admitted by the President of the Board of Trade and other speakers—primarily by the fortuitous improve- ment in the terms of trade, but, on the other hand, a dismal story here at home.

Judged by almost every other test than the strength of sterling, it has been a year, not of triumph, but of failure. Production, exports, consumption, investment and stocks are down. I hope that even if hon. Members behind me forget them for purposes of their speeches, the Chancellor will not forget these other aspects of the situation, because it is important that he should bear them in mind in considering the difficulties that will face us in the future.

The Chancellor should also bear one other factor in mind, that in 1950 when we adopted a straightforward, honest method of showing our balance of payment results, they were in a still healthier position than in 1952. In 1950 none of the very disturbing features in the situation applied. Production, so far from being down, was up 8 or 9 per cent., exports were up 15 per cent., consumption was rising, as was employment, and it was in all respects a very much healthier situation.

When the Chancellor talks about his Budget being the new point of departure and about our recovery being on a firmer foundation, I just do not know what he means. I do not understand how a fall in production and exports as compared with 1950 can possibly constitute a firmer basis.

Another contrast about the past year is this. It is because the Chancellor, paradoxical though it may seem, failed in many of the objectives which he set himself last year that he has been able to be comparatively generous in his Budget this year. Had he succeeded in raising production and exports—the run-down in stocks was only that budgeted for and not the very much larger amount anticipated and which, in fact, took place—and had he had the economy of a fully buoyant State, then I doubt whether he could have afforded to give away £169 million this year, because his task would then have been to damp down instead of stoking up.

It is an odd thing that from the purely Budgetary point of view a Chancellor is in a more fortunate position when the economy fails. It follows that the Chancellor's ability next year to meet the demands of the right hon. Member for Blackburn. West (Mr. Assheton) will depend to a large extent on his being unsuccessful in his other projects this year. If exports and investments do not go up, he may have to take 1s. off Income Tax next year in order to stimulate other things. On the other hand, if he is successful in his objectives, then it will be more difficult to give the concessions demanded by his back benchers.

How likely is the right hon. Gentleman to be successful in achieving these results? He says he wants to use our resources a bit more to the full in the coming year, and proposes to do that if he can by stimulating investment. I do not think there can be any quarrel with that at all. We certainly want to use our resources as fully as possible and the slack should be taken up by investment. But what are the methods by which the right hon. Gentleman hopes to achieve these objectives? How likely are they to succeed? That seems to me a very much more doubtful question.

What was the factor which limited investment during the past year? One thing that is absolutely clear from the Economic Survey is that it was not a shortage of funds by companies in this country. They had £600 million over and above what they used for investment which they used to repay debt. The President of the Board of Trade said this afternoon that, although that may be so, some companies had been short of funds. But one cannot deal in a Budget with a situation in which every company is going to have plenty of funds. It is not a very satisfactory way of going about it to give funds to companies in the hope that those which do not need them will siphon them off to other companies that do. Companies are extremely unlikely to invest their surplus funds in risk and equity capital. That is not a common company practice.

It is quite clear that what limited investment last year was not any shortage of funds in the possession of companies. Never since the war has that been the limiting factor except, possibly, in the wholly exceptional circumstances of 1951. when we had a great rise in stock prices. I find it very difficult to think of any system of taxation that could deal with such a position.

Before 1951 it was the physical shortage which, above all, limited investment. Last year it was not lack of funds; it was primarily lack of confidence in the future on the part of the business community, which was the result of the Government's monetary policy. That being the case, we are not going to get investment merely by providing companies with more funds. There is no evidence that one single penny of the money accruing to companies from the ending of the Excess Profits Levy or the change in the standard rate of Income Tax will be invested over and above the amount invested last year.

It was made clear by the Chancellor in his Budget speech that he does not intend to make any change in his monetary policy. That was a matter dealt with in a letter published in "The Times" this morning from Professor Kahn, to which my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) referred. The Chancellor does not intend by his monetary policy to give any incentive to increase investment in industry. How, then, is the Chancellor looking to increase investment? There can be only one way, by stimulating it indirectly as a result of increased consumption, which he thinks may give better business and may encourage business men to make greater investment. Most of the concessions are directly and primarily for stimulating consumption. That was said quite clearly by the "Economist" this week.

Mr. Maudling

I have listened to the hon. Gentleman's speech with the greatest interest. I would refer him to the initial allowances, which I think have met with agreement from his right hon. Friends and which are designed to stimulate investment by improving business conditions.

Mr. Jenkins

I agree that the one point which is wholly desirable in the Budget is that of the initial allowances. I am sorry that this is the one aspect which the Chancellor himself regarded as ungenerous, because he was only going half as far back as the position which existed before 1951. That was the one concession to companies which tries to make them invest, because they can only get their money if they do invest. The effect of the other concessions is that they get the money whether they invest or not. Perhaps that is the reason the right hon. Member for Blackburn, West, no doubt speaking as he often does for the City, said that he did not like this concession very much. It is a concession with strings attached to it, and the right hon. Gentleman wants concessions without strings.

Apart from initial allowances, the only way in which increased investment seems likely to be brought about is indirectly, through an increase in consumption, in the hope that that will lead to a better business situation. Two comments can be made upon this method. The first is that it is a very indirect and clumsy way of going about it when a much less wasteful way of stimulating investment would be to do it directly. This is a roundabout way, stimulating a lot of consumption.

The second comment is that if the Chancellor is to get his increase in investment indirectly as the result of increased consumption and if the main purpose of the Budget is to stimulate investment, the taxation concessions have to stand on their own distributive feet. We stimulate consumption to the same, and perhaps to a greater, extent, when we give any taxation concession as when we give it in the form of 6d. off the Income Tax or in other forms particularly helpful to companies. From this point of view, it is as useful to stimulate consumption generally as to give to companies additional funds which they do not need.

I do not want to say much about the distributive effects of the Budget, but I cannot understand how hon. Gentlemen opposite can be surprised when we say that the Budget is a move away from equality in this country. One of the important things about the Budget, which hon. Gentlemen opposite may welcome, is that it marks an end of the 19s. 6d. in the £ rate of Income Tax and Surtax upon the biggest incomes. That rate was a symbol of the equality that we had built up here since the war and that had resulted in a far wider spread of incomes than before the war. The Financial Secretary to the Treasury, in his speech last Wednesday, stated that the only purpose of taxation was a necessary means of raising the national revenue."—[OFFICIAL REPORT, 15th April, 1953; Vol. 514, c. 254.] On this side of the Committee we disputed that proposition, and I was surprised that it should have come from the Financial Secretary. I hope that the Chancellor may repudiate it when he speaks. Surely it is not the view of the Government or of the Chancellor that if it were not for the unfortunate evil that we have to raise a bit of money to pay for national expenditure there would be nothing at all wrong with the pre-tax distribution of income in this country.

I should have thought, quite apart from the injustice of such a distribution of income, that many economists somewhat to the right of the Chancellor would have taken the view that unless we had continuance of Government interference on a big scale with the distribution of income we should have stagnation so complete and continuous that some of Karl Marx's wild prophecies about the future of capitalism would be realised. I hope that the Chancellor does not accept that extraordinary principle which was enunciated by the Financial Secretary.

Turning to the external situation, I think it will be generally agreed that the balance of payments situation is extremely precarious. We have had the March figures, and they show what may be a development and a change in the wrong direction. At any rate, it is clear that a lot of things can go wrong which would very much upset the balance which we had obtained. It is extremely important to remember that the balance which we obtained and which we were holding has been achieved at the height of a boom in the United States. In the non-Soviet world the United States has at the present time an unusually high level of demand and of widening production, in a restrictionist and deflationary world.

Despite that situation, a great number of countries are still short of dollars, and therefore are applying a number of restrictions on their imports in an undiscriminatory way. Other countries are short of sterling and we are short of their currencies, although both of us have surplus export capacity. This is exactly the sort of situation in which discrimination, bilateral deals, and barter arrangements are made for the expansion of trade, and where non-discriminatory moves towards convertibility inevitably mean a contraction, yet this is all done on top of the United States boom.

If we have two developments of this sort in the coming year, we shall have a really difficult situation, becoming almost catastrophic. If a recession develops in the United States, and there are further moves in the non-dollar world towards convertibility and non-discrimination, countries will be still shorter of dollars. As soon as a United States recession began to develop, shortage of dollars would inevitably mean that countries would not merely cut down on dollar imports but on everybody else's imports as well. By pursuing a policy inclining towards convertibility, we are building up enormous difficulties for ourselves in the future.

The chief task of the Chancellor of the Exchequer at the present time ought to be to prepare the economy of the country for the difficulties which are bound to arise from the repercussions as soon as there is any slight falling off of activity in the United States. There is no evidence at all in his Budget statement and Budget proposals that the Chancellor is using this comparatively easy period for that purpose, so for that reason and many other reasons I say that this is a bad and unsatisfactory Budget.

8.20 p.m.

Mr. Norman Cole (Bedfordshire, South)

In the very few minutes at my disposal, without disrespect to the hon. Member for Stechford (Mr. Roy Jenkins), I want to turn away from the close economic analysis that we have had during the last few days and speak of those who will immediately experience the effect of this Budget. A great deal has been said about the economic background of the Budget, but not enough has been said about the psychological effect on the people of this country at having something taken off the Income Tax at last.

This is the first time for 16 years that a Budget has not imposed any extra taxation. This is the first time since the war that anything has been taken off the standard rate of Income Tax. [HON. MEMBERS: "No."] A couple of years ago there was an increase in the standard rate of Income Tax under the previous Government, and that in a time of peace. Here we are eight years after the end of the war and we have to look to a Conservative Government for the first time to give some uplift to the people of this country.

Hon. Members

What people?

Mrs. Alice Cullen (Glasgow, Gorbals)

Old age pensioners, for instance?

Mr. Cole

I think that this Budget could go down to history and be known as the "Springboard Budget." The purpose of a springboard, for the information of hon. Members opposite, is to enable those who use it to surmount obstacles which lie ahead. The purpose of this springboard Budget is to enable the people of this country to make use of it to leap over the obstacles which lie ahead of them.

I believe that people will regard this as a springboard Budget, not so much because of the monetary incentive which it provides, but because of the incentive to their spirit, provided not by the few pounds a year or a few shillings a week extra which they will receive, but by the fact that it is a step in the right direction.

Much has been said in this debate about production. It has become a sacred word which means more than any other to the future of this country. But production is not enough. By itself it is not a solution to any problem. What is important is production at the right price at the right time for the right market; and I suggest that the spirit underlying this Budget will enable production to go ahead to meet many of our future problems.

Despite what hon. Members opposite have said, the improvement in our economic position has been due to the efforts of the people of this country; and that effort had leadership from the Government. I believe that the spirit which lies behind this Budget will give an extra spur to that effort. This is where the contrast lies between the views of the two sides of the Committee. On the Government side this Budget is an act of faith; on the Opposition side we have had speeches from the prophets of gloom. I know which side the people will prefer.

There are two or three points which are not points of criticism of the Budget but to which I should like to refer because they are concerned with matters which affect the happiness of the people. The first is a technical matter and refers to the duty on light hydro-carbon oils. The whole purpose of the Budget is to lower the cost of production and increase exports. This duty on light hydro-carbon oils enters much into production costs. I ask the Chancellor to consider whether, in the course of the Finance Bill, he can make a full concession of the duty where the oils are used in industrial processes in the same way as the concession is now made in respect of heavy hydro-carbon oils.

The next point relates to war disability pensions. I know from personal contact that the Government are not complacent about this subject. I hope that, as the scene unfolds and as prosperity returns to this country, this ever-recurring need will be kept in the forefront of the minds of the Government and that they will give help at the earliest possible opportunity.

The third point refers to tax-paid stocks. It has been discussed in previous years. It is very unfortunate that, when perhaps the greatest concession has been made on Purchase Tax since the war, this should be the year when traders are heaviest hit by Purchase Tax on stocks already in their possession. I am sorry that the Chancellor has not seen fit to accept the recommendations of the Hutton Committee. One statement from that committee's report sums up the whole position. The committee state: Throughout our inquiry we have been impressed by the fact that whilst the long-term benefits of the tax reduction accrue to all sections of the trade concerned—manufacturers, wholesalers and retailers alike—the immediate losses to which it may give rise have to be met at the expense of one section alone. That, of course, is the retail section.

The right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) referred to a £25 million computed loss by retailers through Purchase Tax on this Budget. I do not know whether it is within the compass of hon. Members to visualise such a sum, but I received from a constituent a simple letter which, whilst not criticising the Budget, points out that he sustains a loss of £450 because of the alteration in the Purchase Tax. I do not want to see the tax continue any longer than is absolutely necessary but the right hon. Gentleman the Member for Bishop Auckland seemed to suggest that it would be a good thing to keep it in existence for as long as possible so that nobody would lose. This is a policy of defeatism. I hope that some way will be found round the difficulty of reducing the Purchase Tax while at the same time avoiding losses to retailers who hold these stocks.

it is not for nothing that it is said that Budget day is one of the most important days in the Parliamentary year. It is so because every man, woman and child is concerned to know what will be their individual financial position during the ensuing 12 months. This year has been no exception, but I believe that this Budget will remain in the minds of the people as something which has shown them a new way. I believe that they will thank the Chancellor for a Budget which will be a stimulus to them. They will thank him for the faith which he has expressed in bringing forward this Budget. I believe that the people will stand by him and support that faith. This Budget is one move forward towards a new era of happiness and prosperity.

8.30 p.m.

Mr. Aneurin Bevan (Ebbw Vale)

I should like to start what I have to say by expressing to the Chancellor of the Exchequer my appreciation for at least one thing that he did. He has provided a slight relief for authors, and lest I be accused of having a special interest in this matter, let me say at once that it has no benefit for me.

I have thought for a very long time that the position, not only of authors but of artists generally in Great Britain, ought to be seriously considered by the House. There is no doubt that the present system of taxation as it applies to the earnings of artists is the only capital levy in existence in Great Britain. For painters, sculptors, authors and composers to have to pay heavy rates of taxation on immediate earnings is, indeed, a form of capital tax.

It is not. I think, in the last analysis in the interests of the country that creative thinking should be so discouraged. There was slight relief given to authors earlier. I remember—although I have not his permission, he will not perhaps mind my using his name—that I got some information from Mr. Priestley some years ago as to the incidence of double taxation upon authors on their works abroad, and I was glad to find that my friend the late Sir Stafford Cripps was able to get that anomaly removed.

I think that the time has come for the Treasury to make a serious investigation to see whether it is not possible to relieve authors and artists generally from the anomalies under which they at present suffer. That was one feature of the Budget which aroused my gratitude, and I am afraid that is the last friendly thing I have to say about the Chancellor's Budget statement.

Having listened to many Budget statements over a number of years, I have come to the conclusion that, despite the opposite impression that is created, the position of the Chancellor of the Exchequer is one of the easiest posts in the Government. The reason is not far to seek. All await a new Budget from the Chancellor of the Exchequer with so much eagerness and anxiety as to what is going to happen to them that they have no curiosity left as to what is happening to them as a result of his previous exertions. So always he is practically blameless or, if he is not blameless, he very rarely has any blame, because everyone says, "What is going to happen now?"

I have come to the conclusion also that the Chancellor of the Exchequer has his Budget made up for him by a number of different teams of people working in the Treasury quite independently of each other. They then hand their results to him, and he presents them to the House of Commons. The more lucid he is, the more obvious the discrepancies become. I therefore listened to his speech with very great gratitude indeed, because everyone must admit that, for lucidity of expression, it was one of the best we have heard. The crevices were even more obvious than they normally are.

I say that obviously the Budget was put together by a number of people working independently of each other—because look at the outcome. What did the Chancellor of the Exchequer expect from the raising of the Bank rate? What was the purpose of it? Obviously the purpose of it—in fact he has said so, and the Economic Secretary has also said it even more specifically—was to depress trade and industry. It was to restrict employment, and the restriction of employment is bound to affect the absolute earnings of profits. That was its intention. Credit restrictions by the banks, announced by the Chancellor last year, and a raising of the Bank rate were directed to bringing about a certain degree of unemployment and, therefore, a certain degree of what this year has been called "slack" and a certain amount of depression in industry.

If that be the case, if that was the intention of one part of the Chancellor's plan, how did he base his figures a year ago on the assumption that part of the plan would fail? We really have had no explanation yet of the fact that, whereas he intended by his credit policy to bring about a fall of earnings in industry, he based his expectations for the year just closed on the assumption that all the profits would increase. He ought really to have a conference at the Treasury and get them all together so that each would have an opportunity of knowing what the others intended to do.

How, for example, does the Chancellor explain that he expected to obtain from Profits Tax £76 million more than he got when his credit policy was designed to prevent profits from occurring? How does it come about that he expected people earning less in industry still to be able to pay him £68 million more in Income Tax than he got? How does he explain it? Did he assume that an increase in the Bank rate would increase profits? What was behind it?

I say nothing at all about the expenditure side because over that he had not the same amount of control; but here we have a situation in which a Chancellor of the Exchequer is £222 million out in his expectations of revenue and £200 million out in his expectations of expenditure, and in the year in which he does that he is applauded as a wonderful Chancellor of the Exchequer. That is why I say that it is one of the easiest jobs in the Government, that the Chancellor of the Exchequer is permitted a margin of error far in excess of what is permitted in any other Department. [Interruption.] I know what hon. Members have in their minds and I shall answer at once the implied rebuke.

A Minister, in presenting his Estimates to the Chancellor of the Exchequer, is not permitted to gamble. The Chancellor does not allow a Minister to speculate; the Chancellor is the only one who is allowed to do that. Every Minister is expected to base his Estimates of what he will require upon what he has already spent the year before. If a Minister wishes to speculate and feels that he will need more money, the Chancellor says, "No, if you find you need more money than is provided in your Estimates, then you must have a Supplementary Estimate." That is good practice.

But if one is bringing into operation a new scheme one is unable to base one's Estimates upon predictable behaviour until one has enough experience about how the people propose to behave. It is one of the most remarkable and one of the greatest of tributes to the sanity and restraint of the British nation that, after only one full year's experience of the National Health Service, I was able to put in an Estimate which was exactly right. Only one year! That is the answer to those people who have been trying to convince the country that the Minister of Health has no control whatever over the expenditure in his Department. The fact is that it is only a Minister of the Crown who is not permitted a development charge. Every other form of activity is allowed one.

Here we are, face to face with a situation which I think the Chancellor should explain. How does it come about that there is such a wide discrepancy with his Budget estimates of a year ago? If he cannot explain it, he must not expect us to have very much confidence in his expectations of the year to come.

In the course of his speech this afternoon, the President of the Board of Trade said that the Budget must be viewed not merely as a means of obtaining money from the population and distributing it by way of reliefs or by way of public expenditure, but that we must have regard to its effect on industry and production as a whole. With that I entirely agree, and it is from that angle that I want to examine the Budget.

When my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) was making his speech on Wednesday, the Prime Minister continued to interrupt him by saying, "Bankruptcy, Bankruptcy, Bankruptcy." I should like to ask how much truth there is in that. When the Labour Government took office in 1945, they inherited not only six and a half years of the consequences of war but, at the same time, the consequences of neglect in the between-the-war years. I should like to ask hon. Members opposite to make a comparison between seven years after the 1939–45 war and seven years after the 1913–18 war.

We are accused of having left the nation in a bankrupt condition. [HON. MEMBERS: "Quite right."] I am glad to get that interruption. In 1925 the output of Great Britain was 16 per cent. less than it was in 1913. After the exertions of the businessmen's Government, assisted by the now Prime Minister, production in Great Britain lagged seriously behind what it was in 1913. In 1951, when the electorate decided to change Governments, we handed over to our successors industry in Great Britain in a more flourishing condition than had been known since 1913. Even in the case of the output of coal, productivity was up and, for the first time since 1937–38, a much healthier situation existed in the coal mining industry and an increase in manpower was taking place.

In electricity, we had increased electrical consumption and production by 144 per cent. over and above 1939. The Chancellor of the Exchequer is now able to take the Purchase Tax off electrical goods because of the power stations built by us. Indeed, we have in the last few years heard less and less about power cuts. Why? For two reasons. One, because electrical production is up, and the other because electrical consumption is down—because unemployment is up, as we have seen, though the Tories have succeeded in producing the appearance of abundance in exactly the same way as before the war, and there are less bobs to put in the meters.

No one in any part of the House can deny that the power stations and the hydro-electric installations which were started and finished by direct Government action have meant an important and invaluable equipment for British industry. When the right hon. Gentleman talks about slack, the slack consists in the fact that Conservative policy has failed to keep in full production the plant we handed over to them in 1951.

These figures have an important bearing upon future policy. Steel production is up 50 per cent., largely as a consequence of new steel works built by the Labour Government in 1945. I will give an illustration. We had to curtail the production of steel in order to build new steel works—and hon. Members opposite do not seem to know that steel works are built out of steel. Therefore, throughout the years 1945, 1946, 1947, 1948, 1949 and 1950 we had to have steel allocation schemes in Great Britain in order to find enough steel to finish the steel works they now enjoy. That is how far we are bankrupt.

In the next place—these are the figures of a bankrupt nation—aluminium up 20 per cent. sulphuric acid up 61 per cent., refineries 10 times—[An HON. MEMBER: "Private enterprise."] Private enterprise? What is the hon. Gentleman talking about? In point of fact, in all those years we had to do something to which hon. and right hon. Gentlemen opposite really ought to pay serious attention, and that was to place investment in those places without which future consumption could not be enlarged.

I always thought it had become by students of the industrial nation of today a commonly accepted view, but I find it is not the case, that where it was necessary to invest large sums of money in heavy industry, it could not be expected to come from the private initiative of individual investors. This was the case before the war. The Chancellor of the Exchequer hopes—in fact, the whole of his Budget is a gamble on it—that the private investor in Great Britain, the individual entrepreneur, by having more cash put in his pocket, will bring about an increase in production. That is what the Chancellor expects.

Will the Chancellor of the Exchequer, when he replies, inform us on what account he expects the private investor in 1953 to behave differently than he behaved in 1935? In 1935 there was plenty of slack. There were two million people on the registers of the employment exchanges. Throughout the country there were idle blast furnaces, idle pits, idle factories and idle money. In fact, in the years before the war there was exactly the same situation as the Chancellor created in 1952 and which he proposes now to add to in 1953.

No hon. Member in the course of this debate has yet explained how we can expect the individual investor in Great Britain to behave differently in 1953 than he did before the war. The fact of the matter is—and this is a serious thing to which we must all direct our attention, because it is not only true here; it is true all over the Western capitalist world—that where there are industries like steel, where we have long-term investments and where large sums of money are involved, in other words, where we require equity investment on a very substantial scale, it has not been accomplished merely, first of all, by stimulating the consumption of end products. On the contrary, it has only been done by direct Government intervention.

That is as true of the United States as it is of Britain. Indeed, most of the heavy industrialists of the United States refused to expand their productive capacity at the request of the United States Government without having guarantees from the Government that if any capital equipment was not used by new markets, they would be compensated. It is also true that before the war in this country, the new plant that exists in my constituency would never have been completed if the Bank of England had not stepped in and taken the place of the private investor.

Mr. Osborne

It was a private institution in those days.

Mr. Bevan

It is also correct to say that not one single new steel works was built or reconditioned before the war without the bankers' Industrial Development Corporation, established by Philip Snowden. Hon. Members opposite ought to learn the elementary facts of industrial life.

What we have learned is this. It is perfectly true, first, that by a reduction of Purchase Tax the Government can stimulate the consumption of certain products and, therefore, can make the industries producing them more prosperous. It is also true that theoretically the time can arrive when that stimulus has passed by a series of chain reactions to the heavy industries, but long before it has effectively reached the heavy industries the stimulus dies down, and we get no expansion of the heavy industries.

That is why we on this side of the Committee—our philosophy is entirely different from that of the party opposite—believe in the case of these industries in direct State intervention, because only by that sort of State action can we get an expansion of the broad base of modern industry. Only by that means can we get an increase of production of heavy goods which enables an expansion of the light industries to take place.

That is why we think—this is our view —that if we leave the whole of the British economy to the initiative of the private investor alone, there is no hope whatsoever of adding to the industrial equipment of Great Britain where it is most required. That is why in those years between 1945 and 1950, under the leadership of Labour Chancellors of the Exchequer—and if I may be allowed to discriminate, particularly under the leadership of Sir Stafford Cripps, who was jeered in this House—a higher percentage of the British national income was ploughed back into new industrial equipment than at any other time in the recorded history of Great Britain.

Year after year more than 20 per cent. of the total national income was ploughed back into new investment. In fact, in those years, we had very high Income Tax, high employment, high profits, higher wages and better health—and I notice now that no one says "Marshall Aid." We do not now have the familiar jeer of "Marshall Aid." Why not? Because the Government have got Marshall Aid. When the British Labour Government had Marshall Aid, they used that Marshall Aid in order to repair the damage done by the Tories before the war. Now the Tories use their Marshall Aid gifts from the American people in order to reduce the standard rate of Income Tax.

If we take into account—and last week an answer was given on this from the Treasury Bench—what we were spending in those years overseas by way of direct gifts to other nations, by way of overseas military expenditure, by way of the releases of sterling credits, the British Labour Government spent £320-odd million more than they received. At the moment the Chancellor of the Exchequer reckons upon the receipt of assistance from the United States for the military equipment of Great Britain.

I say solemnly and sincerely, speaking for myself in this Committee, that I consider it is an humiliation for the British nation to continue its economic dependence upon the United States in this way. I believe that the people of this country want British economic independence, whereas the Tory Chancellor of the Exchequer reckons the assistance from America as part of his income.

Indeed the situation is even worse than it is made to appear. What happens? I was speaking the other day to an industrialist—[HON. MEMBERS: "Oh."] He happened to be a Member of this House, a Member of the party opposite. He was telling me that he had tried hard to win markets in Australia, that he had sought to displace dollar purchases by Australia for certain types of machinery, and that he had succeeded in doing so; at last, and under severely competitive conditions, he had won a considerable foothold in the Australian market. Just after he had succeeded in doing that, the Ministry of Supply approached him and said they wanted him to switch his factory to the production of parts of tanks. He replied, "No, I do not want to do that. I have just won this very valuable Australian market where we are no longer having to pay in dollars for this equipment."

The Ministry of Supply said, "But we need the tanks; the nation's security requires more tanks; and therefore we ask you to switch over." He did so. Then the Australians, no longer able to obtain the machinery in Great Britain, bought it from the U.S.A. As a result of that there was a greater expenditure of dollars. Now we are selling Centurion tanks to the U.S.A. in order to get the dollars back again. That is regarded by the party opposite as organising a healthy pattern of trade. We have put the Americans in possession of a peace-time permanent market, and in exchange for it we have merely the impermanent and highly precarious market of selling arms.

It seems to us that that is a dangerous state of affairs, and that, therefore, this situation ought to be re-examined as quickly as possible, because I believe it to be unwise for us to hope that we can ever get a sufficient lodgment in the American market as to make the foundations of British exchange secure. I believe that markets have to be found elsewhere, because the markets in Great Britain and America are not mutually complementary, whereas markets in other parts of the world are.

Accordingly, the difference between hon. Members opposite and ourselves is very clear. We believe that the only way in which we can get a safe expansion of industry in Great Britain is by returning to the measures and the policy that rescued Great Britain from 1945 to 1951. Furthermore, we also believe that the policy now being pursued by the Government holds some dangerous results for us in this country. As I said, we believe in qualitative investment, that is, in redirecting the flow of investment where it is most required.

The Chancellor of the Exchequer has made only one discriminatory relief in his Budget, that is the 40 per cent. relief for the first two years for mining exploration, which is a characteristic example, in my view, of how not to do it. The most effective way of doing exploration of that sort is for the nation itself, for the Government, to assemble geophysical teams and send them out to explore. [HON. MEMBERS: "Groundnuts!"] It is no use hon. Members talking about groundnuts. As my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) said the other day, the fact is that the Chancellor of the Exchequer has given more money away to the moneylenders than was lost on groundnuts.

Now I come to one aspect of the Budget to which I must refer. The Chancellor in his speech—[Interruption]—I warn hon. Members that I propose to make my speech. This is a repetition of what we had before. The Chancellor of the Exchequer desires to rise at about a quarter past nine. I wish to honour my arrangement with him. but I propose to finish what I have to say.

In his speech the Chancellor spoke of his plans to give certain reliefs. He relieved certain categories of consumers of certain goods and he relieved the taxpayer of his standard rate of Income Tax. At the same time he defended the decision of the Minister of Health to send the structure—[HON. MEMBERS: "Oh!"]—yes, to send the structure and the organisation of the National Health Service to a committee. I have no objection to that, not the slightest. In fact I would support an investigation into the organisation of the National Health Service—[HON. MEMBERS: "Hear, hear."] What is wrong with that? But why has not the right hon. Gentleman the Minister of Health been doing it? What is he paid for? After all, be has nothing else to do. He has plenty of machinery at his disposal; why has he not used it?

I invite the attention of hon. Members to these figures, because there is obviously on the other side of the Committee a deep antipathy towards the National Health Service—[HON. MEMBERS: "Nonsense."] They are seeking, by every means at their disposal, to try to undermine the structure of the National Health Service. They have created the impression that the finances of the National Health Service are out of hand. They are creating the impression that there is extravagance, that there is universal abuse, and that some means ought to be found for bringing it under control. That is the impression they are creating.

The fact is that if all the charges on the National Health Service were abolished, if the whole of the Danckwerts Award were set against the expenditure made on the Service, the expenditure in 1952–53 would still be a smaller proportion of the national income than it was in 1950. In other words, it is not true to say that the expenditure on the National Health Service is going up or is out of control. The fact of the matter is that there is a climate of opinion being created in order to facilitate another cut in the National Health Service.

If the Chancellor of the Exchequer had any reliefs to give, here was a field in which they ought first to have been given. From all over the country we are receiving letters of complaint from hospital management committees that they are very short of money and are having to threaten to close down wards. In the last few days I have had letters of complaint from old age pensioners all over the country who have been harassed by the charge for prescriptions.

It seems to us on this side of the Committee that the Chancellor of the Exchequer got his priorities all wrong, and that if he wanted to relieve any body of taxpayers at present the people to relieve were first of all the aged and the sick. Instead of that, it is noteworthy that in the first Budget where the Tories had what they thought was money to disperse, the money did not go in the first instance to the sick and the poor: it went first of all to the rich. And as these facts are becoming known the Budget is of course becoming more and more unpopular in the country.

Instead of directing their attack against the dollar ill-balance, they are using dollars to buy sugar. They are reducing the extraction rate of wheat in order to provide white bread—condemned by every nutritional expert in the country. I want to change my metaphor from last night. Last night I said that the Prime Minister had converted John Bull into a gigolo. He has now converted him into a sugar daddy, hoping to win favours that his own virility cannot command.

We on this side of the Committee think that the economics of the Budget are unsound. We believe that it is unjust. We believe that it does not make any effort to assist in the economic recovery of Great Britain. Furthermore, the Chancellor of the Exchequer makes no attempt at all to deal with one of the most flagrant weaknesses in the British system, and that is that whenever we have a balance of payments crisis there is £400 million or £500 million of funk money in the City which immediately takes flight abroad and increases the anxieties and difficulties of the country.

In fact what the Chancellor has done has been to put the moneylender in the heart of the British economic system. He has therefore failed, dismally failed, to live up to the opportunities that he had. He has not pursued realistically and courageously what his predecessors did. I can see in my mind's eye the sombre and reproachful figure of Stafford Cripps sitting by his side, because all of us here agree that all we have got from the Tory Party at present is a resumption of those policies and those values which brought this great nation to the edge of disaster in the years 1935 to 1939.

9.14 p.m.

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

All hon. Members will agree that we have had a most useful debate. I have listened to the greater part of it and I should like to pay my respects to hon. Members who have spoken from all parts of the Committee. While of course I cannot agree with every word said either by the right hon. Gentleman the Member for Ebbw Vale (Mr. Bevan) or other hon. Gentlemen opposite, I can say that hon. Gentlemen have been inspired by a sincere desire that the course taken should be the right one in the national interest. In the intervals of dealing with the right hon. Gentleman and otherwise trying to counter some of his arguments, I shall, I hope, indicate by my own demeanour the intense seriousness with which I regard the national position, and the intense conviction that I hold that the course which I have proposed to the Committee on behalf of Her Majesty's Government is the right one in the national interest.

It would be invidious to single out individual contributions to the debate, but I am sure that, in the course of a long debate none of us would like to forget the maiden speech of the hon. Member for Small Heath (Mr. Wheeldon). I shall not have time to traverse all his arguments, but I should like to assure him that the problems of local government finance are very much in my mind, and, in so far as we have been able to help by the adjustment in the subsidies earlier last year, we did so; but I agree with him that the problems of local government finance remain in the mind of any serious person studying our country's difficulties at the present moment, and that the maximum degree of economy consistent with the progress which we all want to see should be maintained by those authorities.

Then, we have very valuable speeches from two right hon. Gentlemen on the other side of the Committee—the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) who made one of his —I do not wish to be patronising—best reviews of the economic situation to which he has treated us, and the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker), who, although I disagreed with him more than almost anybody else, sustained his arguments in a remarkable manner.

We had two very useful speeches from this side of the Committee— from the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) and the right hon. and gallant Gentleman the Member for Leicester, South-East (Captain Water-house)—and, while I am dealing with textile areas, I should like to mention also the speech of the hon. Member for Ashton-under-Lyne (Mr. Rhodes), who was of considerable help to me in the course of the debate in Committee last year' on the textile depression. I should also like to remember the speech from Yorkshire by my hon. Friend the Member for Shipley (Mr. Hirst).

I shall not be able, in the course of my remarks today, to deal fully with the textile problem, and I should only like to say that, while I agree that this textile question is in the forefront of the minds of many hon. Members, we did attempt, in the last Finance Bill, to give a certain degree of help to the textile industry. When it is said that it has not been included in this year's Budget, I think it should be remembered that it is only now that the general rates of Purchase Tax have come down to the same level as those to which textile rates were reduced last time. That cost some £17 million of public money, and, in addition, some £20 million worth of orders were deliberately placed by the Government, thereby improving employment in the textile areas, despite all the criticisms of right hon. and hon. Gentlemen opposite, by well over 100,000 in the course of last year, so that the situation now is very much better than it was. However, we shall have plenty of time in which to discuss the problems of the textile industry in the course of our debates during the spring and summer.

I thank the right hon. Gentleman the Member for Ebbw Vale for his courteous reference to my giving help to authors. I am not an author, but I think the right hon. Gentleman is, to a limited extent, an author. My right hon. Friend the Prime Minister is an author. At any rate, this action was taken on a very limited scale, because it does not deal with a major problem of many others who wish to space their earnings over a longer period. They must wait for the Royal Commission on Taxation to deal with this problem. I am grateful to the right hon. Gentleman for one of the few kind things he has ever said to me in his life.

We should like to welcome back the right hon. Gentleman from the East. It was a source of great satisfaction to us to see the faces of the patient herd of barren back-biting heifers here, waiting for their champion Brahmin bull to come back from the East, to see him going round the Committee, to see him browsing here and browsing there, having a word with the hon. Member for Reading, South (Mr. Mikardo) here and a word with the hon. Member for Jarrow (Mr. Fernyhough) there, and with several words with his right hon. Friend the Member for Leeds, South (Mr. Gaitskell), with a bit of sugar cane here and a little melted butter there, and, finally, producing this magnificent oration on economics for us.

I can assure hon. Members opposite that we study their facial expressions—not only my right hon. Friend the Prime Minister, but all of us—with the greatest pleasure, and the way they make place for the right hon. Gentleman and look to him to inspire their policy, which is not quite clear, is really most touching and gratifying to us all. No doubt the reason why the right hon. Gentleman's periodical, known as "Tribune," has paid so much attention to an election and called this an election Budget is that for the few seconds or perhaps the few weeks that the party opposite may present an appearance of unity they no doubt wish to go to the country themselves.

I assure the right hon. Gentleman that my motives in bringing forward this Budget—and I am sorry to be so dull to the Committee—were based entirely on economic considerations. The position would, I think, have been very much worse had we attempted to look at this Budget from the point of view of an election. I can only say that had right hon. and hon. Members opposite not shirked their duty, but faced up to it last autumn, then they might have been able to undertake, as the right hon. Member for Battersea, North (Mr. Jay) suggested, some of the import cuts which he said in the debate at the end of last week they had themselves got ready to use.

The truth is that we are thankful that we had the opportunity to take the energetic steps we did to put right the political and economic situation. The right hon. Gentleman said that the Labour Government had left industry in a more flourishing condition than it had ever been since 1913, and he went on to say that he and his hon. Friends had rescued Great Britain from the greatest crisis since 1945. Those were his proud claims.

What, in fact, was the position? It may be that there was an artificial booming of the economy internally, leading to the raging inflation with which we were faced. But we were also faced with the worst balance of payments crisis which this country has had for many years, a balance of payments crisis which meant the draining of our life blood and the ultimate collapse and devaluation of sterling. That is the situation with which we were faced and which we overcame.

I think it has been a very remarkable feature of the debate today that so few tributes from a genuinely patriotic angle have been paid by right hon. and hon. Members opposite to the state of sterling —I do not ask for tributes to Her Majesty's Government—because it is upon the state of the £ sterling that our economy and the employment of our people depend. I say to the right hon. Gentleman, in answer to all his proud boasts, that there is no doubt that had this balance of payments situation continued and the drain on our gold and dollar reserves proceeded in the way in which we found it when we came to power, we should have been landed with really severe unemployment and with a disastrous fall in our standard of living.

If the right hon. Gentleman pays tribute to Sir Stafford Cripps I should like to join with him, because he was not only a friend of mine but one of my finest predecessors. I hope the right hon. Gentleman will remember the warnings given by Sir Stafford Cripps and by the right hon. Gentleman my predecessor as to the danger which a balance of payments crisis would present to our employment and our standard of living.

When the right hon. Gentleman tries to make out that our economy was in a state of stagnation during the past year and that we are threatening, as the right hon. Member for Bishop Auckland (Mr. Dalton) suggested, the standard of living and the ideals in the social spheres of our people, I hope he will remember that it was his own Government who brought this country to the verge of ruin and then ran away.

Now I will come to the challenge which was put to me by the right hon. Gentleman. He, and his right hon. Friend the Member for Leeds, South—if I may so address him—both criticised the forecasts I made before the last Budget. The position as I put it in my speech on the Budget statement and do not think I really need repeat, was that there were definite reasons for the fall in Inland Revenue duties due to the deflationary policies I adopted, and which I quite openly stated were due to the terms of trade and their effects on our balance of payments, which actually upset many of the forecasts I made before the last Budget. That is precisely what happened. This is a perfectly straightforward argument which is understood by everybody. The very action we took to cut imports naturally resulted in a fall in the very import duties which make up the Customs and Excise part of our revenue.

Mr. Bevan

These were all facts within the control of the right hon. Gentleman. We cannot understand how he can pursue a credit policy which is bound to have the result of slight deflation in industry and at the same time expect industry to be sufficiently buoyant to give him increased revenue. How can he expect those two opposite things to operate together?

Mr. Butler

For one thing—remember that we had not had a credit policy for 12 years—I could not accurately foresee its effect. It is much better to acknowledge it openly. Secondly, I could not— and I do not think any Member of the Committee could—accurately foresee last year the extent to which the terms of trade would turn in our favour from the point of view of the balance of payments, but would have an adverse effect upon our internal economy. Those are frankly the reasons, coupled with the increase in expenditure, which I explained in Column 39 of my Budget statement and which were the reasons for the difference from the forecast.

I should like to tell the Committee about this. When I wound up the debate on the Budget last year I definitely took a line which proved to be absolutely correct, against a great many critics up and down the country. I said: There is evidence that unemployment is rising, and this had roots long before this Government even took office. Some of the consumption industries are undoubtedly facing a very difficult time. They must expect the further difficulties in their export markets to which I have referred … in my judgment we are settling these consumption industries quite a big enough task now, without depressing the home demand for their products still further."—[OFFICIAL REPORT, 17th March, 1952; Vol. 497, cc. 2050–51.] That was precisely why I took the line in my last Budget which was criticised by the economic experts and which has since proved to be absolutely correct.

If I had not taken that line, which I confess was my own personal responsibility—heaven knows anyone in my position bears a heavy enough responsibi- lity—I do not mind telling hon. Gentlemen that we should have had a far greater degree of unemployment, rising even to the extent that hon. Gentlemen opposite have prophesied, namely, a million. As it is, we are far below that figure, and not above a figure which we all think is reasonable in the circumstances of the time through which we have passed.

Mr. Bevan

We are very grateful to the right hon. Gentleman for his frankness. He has said that he did not expect the measure of success which he actually received from the raising of the Bank rate and the restriction of credit. If that is the case, if he has found instruments so efficacious in the year just behind us, why does he not use the reduction of the Bank rate and the easement of credit to bring about greater buoyancy in industry?

Mr. Butler

I did not say that I did not expect such severity. I said that we had not been able to prejudge what the effect would be. Now that we have had a year's experience, I can dispose of the monetary question straight away. My view about the monetary weapon is that it is a flexible weapon. Without it—and I think that its cost has been well worthwhile for our economy—we should not have countered inflation or been able to release taxation this year. Being a flexible instrument, I undertake to the Committee that it shall be used with the utmost responsibility as a flexible instrument in the light of the experience we have had of it last year.

This was my judgment during the past year, and I am thankful for the sake of the British economy that that judgment was taken. Now it is a question of this year's judgment. I should like to make it clear to the Committee that this year's judgment is based on the national income calculations, the publications of the Economic Survey, the White Paper on the national income and the White Paper on the balance of payments. The deductions from that basis to the mind of any fair-minded economist are quite clear, namely that it is possible to release a certain amount in the course of this year. Many of the outside forecasts that have been given have corresponded almost exactly with the amount of taxation that I have decided to remit.

I am glad to feel that the hon. Member for Gloucestershire, South (Mr. Crosland), in the course of his speech on Wednesday, said this when referring to myself: 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."—[OFFICIAL REPORT, 15th April, 1953; Vol. 154, c. 324.] I accept that as being sense. The right hon. Gentleman the Member for Leeds, South, in his broadcast, also said: I am sure it is right to give a stimulus this year. Therefore, I think that there is general agreement in the Committee as a whole that it was right this year to give a stimulus and to make the reliefs.

I propose, therefore, except for an interlude into the international scene, to devote the remaining parts of my remarks to the method of distribution, which I think is the sole subject of controversy in the Committee this evening. It is at least satisfactory to feel that there is general agreement that the general judgment is right.

I want to deal for a moment with the international scene. I listened with the greatest interest to the anxieties expressed by the right hon. Gentleman the Member for Huyton and other hon. Members. I think that the Committee would like to know whether Her Majesty's Government, and myself in particular, in making this decision, have had in mind the possible and likely trends in the international scene. It is not for me to make comments about the internal economy of the United States of America, but I can tell the Committee that during my visit with the Foreign Secretary I had a first-hand opportunity of studying the tendencies in that economy at the present time.

I am sure that we were all impressed by the speech of the President of the United States when he described—and I am not referring to international policy but to the economic policy— the hunger of our peoples for peace and fellowship and justice; and when he described the claims of the defence programme as … a theft from those who hunger and are not fed, those who are cold and are not clothed. He went further and spoke of the dedication that was necessary of the energies, the resources, and the imagination of all peaceful nations to a new kind of war. This would be declared, total war, not upon any human enemy, but upon the brute forces of poverty and need. He went further and said: the purpose of this war would be to help other peoples to develop the undeveloped areas of the world, to stimulate profitable and fair world trade and to assist all the peoples who need the blessings of productive freedom. I should like, in the economic sphere, on behalf of Her Majesty's Government, to endorse these objectives of the American President. In our Commonwealth Conference we had exactly the same objectives of developing the resources and helping the peoples of underdeveloped countries. No one can foresee what any possible rapid change from defence expenditure, here or in America, to social expenditure would, in itself, bring about. No doubt, if it were rapid, it would bring about an economic revolution of considerable size. It is unlikely that things will work out just like that. We must be firm; we must continue to be strong and we must not relax.

Nevertheless, this Budget has been framed against the background of any development, whether in the field of defence expenditure or whether there be signs of recession, great or small. I believe that the decision on demand which we have taken in this Budget will be adaptable to circumstances as they may arise in the world scene. President Eisenhower went on to say: The monuments to this new kind of war should be roads and schools, hospitals and homes, food and health. This is precisely the aim of Her Majesty's Government. The hon. Member for Jarrow asked me whether I could state, in the course of this debate, that these were the aims of what he referred to rather, sniffily, as "even the Tory Government." I can tell him that the statement made by the right hon. Gentleman the Member for Bishop Auckland that the Tories were not interested in investment in human capacity, health and education is as false as many of the things that fall from the lips of the right hon. Gentleman.

Let us test some of these statements Let us look at the Estimates this year. The education Estimates themselves are up by £26.8 million. Homes, to which reference was made in this speech, are up by £8.9 million, quite apart from the increased bill for the local authorities borrowing for our housing programme of 300,000 houses, which the right hon. Gentleman must realise we are going to attain.

Assistance, under the Assistance Board, is up by £24.4 million, and family allowances, if hon. Members opposite will look at the tables, are up by £38.8 million. That is the answer to the right hon. Gentleman when he says that in their first Budget the Tories should have considered precisely these needs. That is precisely what we have done. As the result of our last Budget, taken in conjunction with this Budget, we have considered the needs of the people, and we propose to continue with our Tory policy of helping the people.

The case of old-age pensioners has been raised. What I want to ask hon. and right hon. Gentlemen opposite, who have raised frequently the case of the old-age pensioners, which is very near the heart of us all, is why, if they feel so strongly about this matter, did they leave it to this Government in the last Budget and afterwards to raise the pensions for old-age pensioners? From 1946 to 1951, under the Labour Government, the standard rates of old-age pensions were 26s. for a single person and 42s. for a married couple. These rates are now, thanks to our Government, a matter which has not been mentioned by any speaker on that side of the Committee, 32s. 6d. for a single person and 54s. for a married couple.

In answer to the taunts and jeers which have been made in the Committee and will be made in the country, and to which we shall have the answers I am giving, there is no need whatever for old folks to depend entirely on these pensions if they are in difficulty.

Three out of four old-age pensioners either have other resources or are doing part-time work. Those who are too old to work any more or whose resources are insufficient can, and do, come to the Assistance Board for extra help. Under our Government, for these old-age pensioners the Assistance scales were increased in June, 1952, to 35s. plus rent for a single person and 59s. plus rent for a married couple. Those were increases of 5s. a week for a single person and 9s. a week for a married couple, the largest increases the Assistance Board has ever made or recommended. Besides this, in thousands of cases the Board makes additional grants for special needs over and above these rates.

Mr. Herbert Morrison (Lewisham, South)

Surely it was the case, was it not, that before these increases were made the right hon. Gentleman himself said that the reason for their being made was as a consequence of his cutting the food subsidies and thereby increasing the cost of living?

Mr. Butler

Strange to relate, I am about to deal with that matter. I think it wiser and better in life to tell the whole of the facts to the Committee, and so I shall proceed. The "Daily Herald" on 16th April referred to an elderly couple in Battersea as getting only an extra 4s. a week out of my last Budget. This matter has been investigated, and the couple referred to in the article should receive an increase of 9s. a week from the Budget.

Since October, 1951, Assistance scales have been increased by 16½ per cent. in the case of a single person and 18 per cent. in the case of a married couple. Since the same date the Index of Retail Prices has risen by only 7½ per cent., and for the last nine months since the Assistance scales were raised in June, 1952, the index has remained stable. I revert to a publication by the right hon. Gentleman "One way only," which states: We should have an economic policy so as to ensure that the cost of living index stays stable for at least six months. We have done better than "One way only" by several months.

Of course it is true—this is in answer to the right hon. Gentleman—that the cost of food has risen rather more than the cost of living as a whole as a result of Government policy, which had its good effects in other ways, although it had difficult effects here. In fact, since October, 1951, it has risen by 15 per cent. However, this is not as great as the rise in Assistance scales, and it is still clear that those who depend on National Assistance are better off today than at the time when the Socialist Government were in power.

I leave aside the Health Service with this one reference. The right hon. Gentleman in April, 1951, in his resignation speech, referred to the Health Service in these terms: … if it is pleaded against me that I agreed to the the modification of the Health Service, then what will be pleaded against my right hon. Friends … Those are right hon. Gentlemen opposite. …what answer will they have if the vandals opposite"— that was us— come in? … The Health Service will be like Lavinia—all the limbs cut off and eventually her tongue cut out, too."—[OFFICIAL REPORT, 23rd April, 1951; Vol. 487, c. 42.] Hon. Members will remember that Lavinia is the heroine of "Titus Andronicus," the least authentic and the most bloody of Shakespeare's reputed plays.

Mr. Bevan

Taking out of the House of Commons discussion on the National Health Service and handing it over to a committee is the modern form of taking out the tongue.

Mr. Butler

I was only going to say that I think it likely that the end of the right hon. Gentleman—I do not know about the end of the Health Service—will be much the same as the end of Titus Andronicus. Not only is Lavinia killed, but Titus is killed and everybody else too, this representing the right hon. Gentleman and his hon. Friends.

I should like to say a few words about the Health Service. The right hon. Gentleman is really barking up the wrong tree on this matter. This is a committee appointed to get value for money in the Health Service. I can tell hon. Members quite openly that the Committee appointed have been given no total of expenditure to which they have to work. They have been given quite an open remit to report on the Health Service. Members have been chosen with a particular regard to avoid politics. If that is removing a child which the right hon. Gentleman regards as his own from himself, then I can only say that the public in general will be delighted that this child is to be boarded out with a respectable Committee instead of being under his own care.

Mr. H. A. Marquand (Middlesbrough, East)

The right hon. Gentleman says that the Committee have been given no total of expenditure to which to work. If that is so, why do the terms of reference of the Committee say that they must avoid a rising charge?

Mr. Butler

I have the terms of reference here. We wish to obtain from the Committee the most independent advice we can get for getting value for the money spent. The reason why I stated that no total had been imposed upon the Committee is that my right hon. Friend the Minister of Health and I have had queries on this subject, and that is the answer we have given recently to those who have asked, and that is the situation as it stands today.

Mr. Marquand rose—

Mr. Butler

I want now to turn to the question of United States aid, which was raised by the right hon. Member for Ebbw Vale in his speech. In a speech over the week-end, the right hon. Gentleman said that John Bull was a gigolo. He went even further today and said that the Prime Minister was a "sugar daddy," and he used other expressions.

Mr. Bevan

I did not say either of those things. I did not say John Bull was a "sugar daddy." I said the Prime Minister has tended to transform John Bull into a "sugar daddy."

Mr. Butler

I should like to ask the right hon. Gentleman what was the extent of American aid when he and his right hon. Friends were in charge of the government of the country. I can tell him that it was practically three times as much per annum as we are now getting and it was general aid in support of our economic system and not defence aid, which it has been recently.

I should further like to ask him this: why does he say that we have no right and that it is morally wrong—he used the words—to reduce the standard rate of Income Tax at a time when we are receiving American aid? If it is, why is it that the right hon. Member for Leeds, South, who sits beside him, took credit in his Budget speech of 10th April, 1951, for the fact that there were reductions in the Income Tax by the Labour Government of some £650 million during a period when they, too, had been receiving American aid?

Why is it moral for the right hon. Gentleman and his friends to make remissions in taxation when they are getting American aid far larger than that which we have had—and we are getting a much smaller sum in aid of defence, arranged initially by the right hon. Member for Leeds, South and the Leader of the Opposition in support of our defence—if it is immoral for us to make a remission when the economic circumstances justify it?

Mr. Bevan

The right hon. Gentleman, I believe, asked a question. Does he want the answer? The answer is that in those years we were making payments overseas far in excess of what we received.

Mr. Butler

If the right hon. Gentleman talks about making payments overseas, I know of no period in British history when the overseas liabilities of the British people, especially in defence, were greater than they are today. I know of no period when any nation of our size was undertaking such large international liabilities and such a large defence programme as our country is at the present moment. I think hon. Members on all sides of the Committee should be proud of the effort we are making as a country at the present time.

Now I come to the more controversial topic of how the money was distributed. Here I must remind the Committee that the sole object of the remissions in taxation was to help productive industry and agriculture, upon which the future competitive power of this country depends. If hon. and right hon. Gentlemen are in doubt about that objective, perhaps they would listen to the speech of the Chairman of the T.U.C., the hon. Member for Nottingham, North-West (Mr. O'Brien), who has himself said that it is vital to achieve success in the capitalist task of competing with our competitors at the present time in the international field, and that any help that can be given to that is of vital importance to our own people in this country. It was to help that, that the remissions were given in Purchase Tax and in Income Tax.

The remissions in Purchase Tax have been played with a good deal in comment because I decided, in the interests of the tax and the revenue, that the 100 per cent. duty was untenable at the present time, and any hon. Member who has studied it knows that this is the case. I further thought that a man who works as a craftsman in the jewellery industry or in the fur trade is just as good a citizen as the man who works in any other trade. I further reflected on the effect that a reduction would have in stopping these trades collapsing and in helping us with our export trade. The right hon. Gentleman has made great fun of this outside the House of Commons, but I would like to ask him what his action was when Sir Stafford Cripps lowered the tax on Rolls-Royce cars. Did he resign from the Government? In writing in "Plan for Britain" in 1943, the right hon. Gentleman opposite wrote this: We can no longer allow a state of affairs in which bread and milk can go up in price and Rolls-Royce cars fall in price. What actually happened under the Socialist Government while the right hon. Gentleman was a member of it? The price of the loaf rose from 8d. to 11d. and milk went up by a 1d. a quart, whilst the Purchase Tax was reduced by his then right hon. Friend, Sir Stafford Cripps, by a considerable degree and the whole of his philosophy was shown to be wrong. What did the right hon. Gentleman do? Did he resign? No, he did not resign in that year. He waited till the next year when his right hon. Friend the Member for Leeds, South raised the price of Rolls-Royces by putting back the Purchase Tax. This indicates the absolute hollowness and political buffoonery of the attitude which hon. and right hon. Gentlemen opposite are adopting today. This indicates why more than one popular newspaper, and one of the most popular of the lot with a 4 million circulation, asks the Labour Party to find a policy which will make sense in the eyes of the electorate.

If I turn to Income Tax, the right hon. Gentleman will not find that his case, or the case of his friends, is any stronger. There has been a great deal of talk about the distribution of largesse by the right hon. Gentleman the Member for Leeds, South. Is it largesse being distributed when we restore to the British taxpayer a small part of what has been taken away from him by the State? I do not like that word, and I do not think it is appropriate to the action we have taken. It is hardly a question of distributing largesse when we decide to take a little less and to allow the taxpayer, contrary to the advice of the right hon. Member for Battersea, North, to spend a little of his money in his own way.

A good deal of play has been made with the effect of the Income Tax reductions. In the last few minutes at my disposal, I should like to get straight down to the most difficult case of all. There has been a great deal of play about the married men with two children earning £500 a year. I find that at the time of Sir Stafford Cripps, the man with two children in 1948–49 was paying tax of £27 10s. a year. This was reduced a certain amount by Sir Stafford Cripps and he got off £5. Since then, among other influences, he has come under my own benign influence, and I find that in the last Budget this family man's tax was reduced to £1 6s. 8d. a year—that is, 6d. a week. In this Budget, thanks to the reduced rates being reduced, his tax has come down to £1 2s. 2d. or almost exactly 5d. a week.

Therefore, what is the sense of right hon. and hon. Members opposite trying to argue the case of this man, who has 'been brought down practically to the level where he pays no tax at all, largely due to the efforts of this Government, and then saying that we have done nothing for a man earning £500 a year who has two children? It shows how hollow is the claim of hon. Members opposite.

It also shows, when they try to tell us these stories aibout those who have unearned income and those who have no children, that when they in fact get off more, it is for the very good reason that they have got off less by previous concessions. The position is not. as stated by right hon. and hon. Members opposite, that this remission of taxation has been designed to help a certain type or another type. The truth is that I decided to reduce 6d. on the Income Tax, first because I knew that this would give to industry some £45 million of relief for undistributed profits in the course of this year. I knew that the initial allowances could not operate to help them this year and that what I had done about the E.P.L. would take a year and more to be of any benefit to them.

I therefore decided, in the interests of industry and agriculture, to make this remission. I also decided that as it covers 30 million people, it is not a bad thing to give a little encouragement to a very large section of our population. But when hon. Members opposite say that it does not affect everybody, I refer them to the words of Sir Stafford Cripps when in his 1948 Budget he said: As the Committee knows, in the course of the last two years we have, in fact, exempted very large classes of persons from payment of Income Tax, and they must now expect to see others get the benefits while they remain where they are—fully exempt from the tax."— [OFFICIAL REPORT, 13th April, 1948; Vol. 449. c. 917.] It is, as Sir Stafford Cripps said, impossible to take the tax off people who do not bear it. That is one of the difficulties that people have in understanding a Budget of this sort in the country and in this Committee.

I conclude with these words. There has been a good deal of talk about morality and ideals. The worst thing that the party opposite can do for the country is to introduce a spirit of class war and division. The spirit of envy and malice which has inspired their efforts—

Mrs. E. M. Braddock (Liverpool, Exchange)

Brazen insolence.

Mr. Butler

—is not the one which we need. I should like to conclude by referring to the very deep feeling that I have heard from hon. Members on both sides of the Committee who support our drive for production and who will give us an opportunity of going ahead into an extremely difficult future in the spirit which we all share.

Mrs. Braddock

Come on, the hard-faced men on the other side. Shout your heads off.

Question put, and agreed to.

Resolved, That it is expedient to amend the law with respect to the National Debt and the public revenue, and to make further provision in connection with finance, so, however, that this resolution shall not extend to the making of amendments of the law relating to purchase tax except amendments, if any,—

1. (a) making the same provision for or in respect of chargeable goods of whatever description; or
2. (b) relating to the administration or enforcement of the enactments relating to the tax; or
3. (c) reducing any of the rates of the tax generally for all goods to which that rate applies.