BUDGET PROPOSALS AND ECONOMIC SITUATION

HC Deb 27 October 1955 vol 545 cc390-501

4.15 p.m.

Mr. Hugh Gaitskell (Leeds, South)

The people of this country were generally surprised when they heard the announcement of an autumn Budget. Today, having heard its contents, they are even more surprised. An autumn Budget is, of course, a most unusual event and admittedly, in most cases, an unpleasant event. It signifies the need for emergency action, because in this country Chancellors of the Exchequer are normally expected to budget for a year ahead and not to, chop and change in the middle. If they do chop and change there must be good reason for it.

We would all agree, of course, that there are certain circumstances which may necessitate an autumn Budget. Nobody was surprised when, in 1945—after the end of the war and with a change of Government—there was an autumn Budget, nor, I think, was anyone surprised when, in the turbulent period of 1947—with import prices rising, sharply against us, and a general world inflation taking place—we had to have, in that year also, an autumn Budget.

But I must say that on this occasion nothing of the kind has occurred whatever. There certainly has not been any political or economic international developments which could possibly justify a second Budget. In fact, if one takes the external economic situation the developments, in so far as there have been, any, have been entirely favourable to this country. The level of demand abroad is buoyant and, at the same time, the terms of trade—rather surprisingly—have moved in our favour. Today, it is possible to buy our imports at an annual rate of about £100 million less than was the case six months ago. This being the case, it is not surprising that many people were puzzled and bewildered at the decision to have a Budget and still more at the Budget's content.

I listened yesterday to the Chancellor's attempt to explain why, despite the fact that there was no external difficulty, and in spite of what he continued to regard as his own admirable foresight and policy, he yet has to come forward and propose a policy which is completely the opposite of that outlined in his Budget of April last. It is not entirely surprising that he failed completely in this task. Indeed, after standing on the tight-rope and swaying about for a few minutes he jumped off it without attempting any passage.

What reasons did the right hon. Gentleman give for this autumn Budget? He spoke, first of all—rather surprisingly, I thought—of the rumours about the future parity of sterling, which he claimed to have scotched at Istanbul. In view of our debate last July, I thought it rather peculiar that he did not admit that these rumours instead of coming from a purely impersonal source had, in fact, emanated, as he eventually admitted in that debate, from his own discussions in Paris. In view of what he said in that debate, and the far from frank attitude which he adopted, I will read to him what was said in the "Banker" in the October number—a journal normally very favourable to the Chancellor of the Exchequer. The "Banker" said: Mr. Butler admitted in Istanbul what he had appeared to deny in the House of Commons debate, namely, that most continental countries had visualised convertibility in terms of fixed exchange rates, that Britain had favoured flexibility but had conceded the point on the understanding that the fixed parities would be softened by a right to widen the gold points. … No good was done to sterling by the Chancellor's attempts before the Parliamentary Recess to suggest that Britain had not argued in favour of flexibility—because the foreign observers who were to be impressed by this denial"— made in the House— had their own sources of inside information. Nothing but good can come of the reports of the Press conference in Istanbul, for they have put the record straight. Indeed, since the Chancellor was prepared in the end to say as much, the only pity is that the Press conference was not staged in London many weeks ago. I do not think that there was any need for a Press conference. He could have said it honestly and frankly to us in the House. His behaviour, both here and in the discussions in Paris, was unwise and disingenuous; I would not say, however, that it justified an autumn Budget.

There was something else which he said at Istanbul to which I must draw attention. He referred on that occasion to the fact that Her Majesty's Government were to take imminent action to deal with the situation. I must ask him, why, then, was Parliament not recalled earlier to deal with it? Did he press this on his colleagues? Was he over-ruled in the Cabinet? Or did not he mean what he said at Istanbul?

The second reason put forward by the Chancellor for this Budget was what he called the emergence of a significant degree of internal inflation."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 202.] The "emergence" of a significant degree of internal inflation! Is he hoping to convince us and the country that inflation had not emerged before this week? How would he like to judge it? By the state of the balance of payments? In what position was it last April? Already there was a significant deficit, not including aid, in the second half of 1954, and the early months of 1955 showed a widening of the gap. Already the gold reserve was dropping.

Is he thinking in terms of wage increases, which seem to alarm him so much these days? Let me remind him that they began in a fairly big way in the early months of the year. Is he thinking of the degree of employment? I do not recall that anything was said by the Government during the Election which implied that we had not full employment. Is he thinking in terms of the Stock Exchange? Certainly, share prices were high enough then, in all conscience. Nobody will be convinced by this extremely lame excuse. The truth is that all of this situation existed last April—indeed, in some respects, even more so.

What other excuses has the Chancellor put forward? He said that we must rebuild our reserves. Was it not advisable to say that last April? He said we must build our reserves now, when world trade is expanding. Was it not expanding last April? He said we ought to earn a good surplus. Was he not anxious to earn a good surplus last April? He said we had taken on many and varied overseas burdens. How have those burdens increased since April? He said that we were sustaining a system of social services. We thought we were until this afternoon—and certainly last April the Chancellor was at pains to give that impression to the country. Finally, he said we have not experienced the problems of a free economy for about 17 years. That is a curious excuse, coming from a Conservative Chancellor who has been doing his best to persuade people that Conservative freedom is working.

None of this is in the least convincing as an answer to why he is now doing the opposite to what he did last April. There is no new element. The deterioration was clear enough in the spring. The dangers were pointed out to him again and again, but he remained obstinately complacent. If he had any bad news to give one could be sure that he would counteract it by charming, platitudinous sentences of bland optimism. He is still doing it. We hear it in every other paragraph.

Let us look at what, in fact, the right hon. Gentleman said and at what was happening at the time. It will be recalled that by February, when he took the first step to deal with the situation by raising the Bank Rate, our gold reserves had already fallen by £120 million. We were already, as I have said, facing a balance of payments deficit and a severe increase in the trade gap. Yet, on 11th February, just after the first increase in the Bank Rate, the Chancellor said, in Liverpool: So a hand must be kept on the reins, even a gentle tug given now and again to keep us on the straight path. A little later in the same speech he said: It is also at times like the present—indeed, very much at times like the present—when the signals certainly do not stand at danger, that the wise man does not wait for trouble. He senses the need for caution and intensifies it. Then came the second increase in the Bank Rate, and the next day, speaking to the National Production Advisory Council, he said: The first signs are that sterling has recovered. We have already taken the necessary turn. He went on: Whether we can hold on to that turn I would not dare to prophesy, but I am satisfied that we have taken it. Then, of course, a decision was taken to hold a General Election and a Budget was introduced. As we all recall, in his Budget speech he said: … all I can say is, thank goodness that we took action in time. … I am glad to say that already in the field of the exchanges our action has produced distinct results, which have taken the shape which I had hoped for. … But the situation has been brought under control … Of course, he ended with that classic sentence: By this Budget the Government are leading the Committee and the people of this country further along the road of confident expansion. I am satisfied that the world at large will applaud our continuing climb back to the uplands of prosperity."—[OFFICIAL REPORT, 19th April, 1955; Vol. 540, c. 39–61.] I am inclined to add, "Talk about famous last words!"

In the Election the same story went on. The monetary policy was "beginning to show results." The April figures were "reassuring." The rise was "evidence of improvement in the basic situation." In his broadcast the right hon. Gentleman said, Our trade figures are better. We are once again holding the position of our reserves. What has happened since then? I will remind the Committee. Since then the gold reserves have fallen by another £120 million. The hon. and gallant Member for Poole (Captain Pilkington) asked a Question today on the subject. I will satisfy his curiosity. They are now standing at a little more than £200 million below the level at the end of October, 1951. They are just a fraction above the figure at the end of December, 1951.

We now look forward, as the Chancellor frankly admitted, to a further payment of £28 million in October and, something which he did not mention, a payment of £64 million in capital and interest on the loan in December. It is, therefore, perfectly evident that by the end of the year we must expect our reserves to have fallen to not very much more than £700 million. That is not exactly a recovery; that is not exactly "the reserves being held."

As for the trade gap, it is very much the same story. Clutching at a straw because the figure had fallen to a deficit of £66 million in April, the Chancellor was able to reassure himself and the country; but, in fact, in the second quarter, the average monthly gap was not £66 million but £74 million, and in the third quarter it is exactly the same figure.

All this goes to show that whatever was in the mind of the Chancellor at that time, the country was gravely misled by him as to the prospects. Indeed, not only were the people being misled on the facts and the prospects, but they were also misled on what Government policy implied, even before yesterday's Budget. For example, it must have been known to the Chancellor at the time of the Election, in view of the state of the gilt-edged market and his practice, that mortgage rates were bound to go up. Would the right hon. Gentleman like to tell the Committee whether, at any time during the Election, he gave any warning that there would, in fact, have to be an increase of 4s. or 5s. a week paid by those people who, on Conservative advice, were buying their own houses?

Would he like to say whether, for instance, during that period he forecast the successive increases in the Public Works Loan Board rate—three of them—which have taken place since April, implying again a heavy burden on local authorities, to which we shall return? Would he like to say whether he really feels that he was quite frank with the people about his credit squeeze? He was speaking in those days as if it were a quite natural process—"not painless," he said, "but natural."

The Chancellor is telling a different story now. At the Bournemouth Con- ference of the Conservative Party, he said: I know it hurts. I shall continue it. He then went on with these priceless words, which must have delighted the delegates: Through service and sacrifice we shall win salvation. We may have occasion to use that phrase again.

Does he think that anybody believes that he did not know all this? Of course, I must admit that a contributory cause of public confusion has been the Chancellor's increasing difficulty in speaking plainly. Always an expert in evasion, he has now become an addict of the easy half-truth. I will, if I may, give one or two examples of what I have in mind. He is extremely fond of the phrase that our real trouble is too much prosperity. For instance, in a speech at Bournemouth, the right hon. Gentleman said: These are not the difficulties of a country into trouble through inertia or flabbiness. The Chancellor said yesterday that the problem was not caused by a slack or enfeebled economy. We are, of course, in inflation. We have full employment. Nobody denies that. Why should anybody suppose that we were a slack economy when the Chancellor of the Exchequer, on the other side, is all the time saying that we have brim-full employment?

There is another difficulty here. The implication might well be that we were producing too much, and that is a dangerous implication to give anybody. If one talks about "too much prosperity," that is what many people will think.

As a matter of fact, even there the Chancellor is rather misleading the country, because although our production has kept up about the same average increase recently as that which occurred during the whole of the period of the Labour Government, it is, I am afraid, very much below the increase occurring in most Continental countries. The truth is that inflation is always a problem of this kind. But does it really help to tell people that it all arose out of prosperity? The question is: what we are going to do about it? If we talk too much to people about prosperity, we shall not get them to understand the necessity for doing anything.

I refer to something else, rather closely connected with this, which is beginning to worry me. We all know that the Chancellor of the Exchequer uses metaphors very freely. We used to be travelling in a ship through a storm. We are accustomed to climbing mountains with him. We are sometimes undergoing operations in hospital. Sometimes we are convalescing. But recently we have had an orgy of additional metaphors. One of them was equestrian: the need for the gentle pull on the bridle because the horse is too fond of its oats. Another was a horticultural one: we need to prune the roses a little. I think that the most remarkable is the gastronomic one: we need to give up easy living on port and over-ripe pheasant. I am assuming that this was metaphorical and was not directly addressed to those at the St. George's Day dinner because they were so consuming.

I must confess that we had a certain amount of amusement from these metaphors, but I am beginning to think that they really do harm. When we tell people that "the roses have to be pruned," they do not think of themselves as the rose, but as the persons doing the pruning. When we talk of the need to "hold in the horse," they do not think of themselves as the horse. Incidentally, I think that the Chancellor had better look at his subconscious, because, when he uses this sort of phrase, he may give the impression of confirming, what many people think, that the public have recently been taken for a ride and led up the garden.

Mr. Cyril Osborne (Louth)rose—

Mr. Gaitskell

I am sorry for the hon. Gentleman, but I really must get on; we started very late today.

The public have, of course, been gravely misled. I hasten to add, in case there has been any misunderstanding, that this is not the only mistake of the Government. Their policy, also, has been bad. They have failed to do certain things; they have done what they have done incompetently; and they have done other things which they should not have done at all. I do not propose, because of shortage of time, to go into those in detail.

I should, however, like to draw attention to one or two things. When we analyse the nature of the trade deficit which we are facing, two astonishing facts about it are these. The actual gap between exports and imports during the past two years has just doubled. It is just twice as much as it was two years ago. Starting from the last quarter in 1953, it has gone up quarter by quarter. If the Prime Minister wants to know the figures, here they are. It was £38 million in October, 1953, to March, 1954. It rose to £51 million in the next six months, to £68 million in October-March last, and to £74 million in the last six months.

Mr. Osborne

Not volume, money?

Mr. Gaitskell

This is money certainly, but this is a deficit; it is not just the figure for imports.

The second thing that is striking is that the whole of this deficit arose in our trade with the non-sterling and predominantly non-dollar world. That is a very serious consideration. It means that the proportion of our trade with the Commonwealth is falling, and falling fast. It suggests, to my mind at least, this consideration, that the Chancellor may be making a grave mistake if he puts this down simply to inflation at home. Does it not also suggest that the liberalisation of dollar and O.E.E.C. imports may have had something to do with it? If he will look at the figures published by the Economic Commission for Europe he will see that our increase in dollar imports in the first quarter of this year was no less than 63 per cent. above the corresponding quarter of last year. Of these the increase was 86 per cent. in the case of liberalised articles and only 34 per cent. in the case of the others.

I think that this situation should have made the Chancellor pause, but it made him do nothing of the kind. He proceeded to advance further to convertibility last winter at a time when our dollar reserves were running down and at a time when the world dollar situation was changing unfavourably. He then proceeded, in the summer, to agree in the European Payments Union to pay any debit that occurred, not 50 per cent. in gold as has been the rule, but 75 per cent. in gold. That concession has already cost us a substantial amount in gold and it is going to cost us more.

Then, if one considers credit policy, surely it must have been clear to the Chancellor that the key to any success in this direction—assuming that it is, after all, the main policy, as it is, on which the Government have been relying—must have been a reduction in bank advances. I made this point in the Budget debate and again in the summer, but, of course, advances continued to increase until July, when the Chancellor asked specifically —after a great deal of prodding from this side of the Committee—that they should be cut. They have come down since then, but why did he not take that action earlier and say to the banks straight away, "What we want you to do is to bring down the advances"?

All this rash and reckless implementation of free-for-all Conservative policy, all this indifference to dividend increases, encouragement to wage increases and encouragement of inflation generally pales into insignificance compared with the economic blunder—however politically advantageous it may have been—of the April Budget.

It is now seen to have been totally unjustified. The talk of the Chancellor about incentives is, of course, so much talk and no more. Was there not, for instance, a record output in 1954–55? The Chancellor has often boasted about it, but no change was made in the Budget then. Was it not indeed going up even faster most of the time under the Labour Government, when certainly the Chancellor would not have accused us of giving away too much in taxation? The real point of the Budget, of course, was not the incentive to people to produce more; it was the incentive to vote Conservative, and the real effect was not to increase production but to increase spending.

The evidence is complete and convincing. The Chancellor has made a number of grave errors of policy. He has persistently and wilfully misled the public about the economic situation and he has done it for electoral reasons. This Budget which we are considering is necessary because the April Budget—a masterpiece of deception—actively encouraged instead of damping down additional spending. Now, having bought his votes with a bribe, the Chancellor is forced—as he knew he would be—to dishonour the cheque. Last night, on television, he said he did not believe in making promises.

He is much cleverer than that. He simply gives the money away at the time of the Election and then takes it back afterwards. [An HON. MEMBER: "From different people."] I will come to that later; it is not a point I have overlooked.

We now know why the Chancellor had to have an autumn Budget, but we do not know exactly why he decided to impose cuts and taxes just to this extent. I should like to make plain that, for my part, I do not take an exceptionally gloomy view of the short-term prospect. I always prefer to say exactly what I think about the economic situation. I think that the terms of trade have moved in our favour and may very well move further in our favour. Cotton and wheat prices are very likely to fall, and as the Chancellor claims, stocks are certainly higher than they have been.

Nevertheless, despite the fact that things have improved for the moment, I do accept the need for a Budget at this time in the circumstances in which we find ourselves and for cuts of this order because I am quite certain that the Chancellor would not have torn aside the veil in quite the way he did if he was not absolutely obliged to do so. I say that for a second reason, because it so happens that the total of the additional burdens he is proposing to impose in this Budget is very nearly the same as the concessions which he made in the last Budget; about £150 million in each case.

I will say a word or two on the details of the Budget. There is one measure to which we take no exception, the increase in the tax on distributed profits. That, we are told, will bring in—not at once, but eventually—£40 million a year—eventually, of course, if the Chancellor does not reverse it before it comes into operation. But I would say it is too little in relation to what was given before, far too little in relation to what has been given the companies under the whole period of the Chancellor's stewardship. I think it is also far too little in so far as its effects are concerned. That it will have little effect is the view held in the City. This is the comment in the "Financial Times": The most pervasive and direct of Mr. Butler's measures, so far as the market is concerned, is, of course, the rise in distributed profits tax. Fortunately, in its effect on earnings it is one which can be measured, and it is small, I.C.I.'s earnings to cover its 10 per cent. dividend, for example, are reduced only from 31.7 per cent. to 30.7 per cent., and Courtaulds', to cover its 10 per cent. dividend, from 30.9 per cent. to 30 per cent. Cases where the increase will actually jeopardise the dividend are probably few and far between and are probably restricted to those companies which distribute almost up to the hilt and have a large Preference capital. I accept that and I think that this change is likely to have relatively little effect.

I was glad to see, nevertheless, the Chancellor actually daring to refer to the increase of dividends in his speech—22 per cent. But what a contrast that was with his Budget speech when I tried to point out that the increase at that time was 20 per cent. and the Chancellor was inclined to deny it altogether.

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

The right hon. Member has thrown about various charges of dishonesty. He has absolutely no business to make statements, as he has just made, that I attempted to conceal the truth from the public on any point, or that I attempted to conceal the truth as I saw it at the time of my April Budget and as it was put before me.

Mr. Gaitskell

I must say to the Chancellor that I propose to say to him exactly what I and my hon. Friends think about him. I propose, as I have been doing, not to make these statements without supporting them with evidence, as I have already done.

There is one other small change which we welcome so far as it goes, the attempt to deal with one particular type of evasion. But why the Chancellor should not have taken the opportunity of the Budget to take much firmer measures against evasion of Income Tax I cannot imagine.

Mr. Osborne

What did the right hon. Member do in his Budget?

Mr. Gaitskell

We did a great deal. The hon. Member for Louth (Mr. Osborne) and his friends kept us up for two nights in an effort to stop us doing it.

I must pass on rapidly to the other features of the Budget. I say nothing for the moment about local government. I must leave other right hon. and hon. Friends to deal in detail with the increases in Post Office charges which will be felt as a very heavy burden by all who use the Post Office, virtually the whole community.

I pass, instead, to the other main features. One of these is the proposal for dealing with local government finance. Frankly, I find this an extraordinary proposal. Local authorities, after all, are controlled as regards their capital expenditure by the Government Departments concerned. They have to obtain loan sanction before they can do anything; if, in fact, those Departments are doing their job the local authority capital expenditure should be exactly in line with what the Government require. Why, then, is it necessary to supplement this with the savage and penal increases in the interest charges which they have to pay?

Let us not forget that there have been three changes already in the Public Works Loan Board rate since the last Budget, an increase in the short-term rate, up to five years, from 2⅛ per cent. to 4½ per cent. and an increase in the long-term rate from 3¾ per cent. or 4 per cent. to 5 per cent. All local authorities are already gravely affected by those increases. The Chancellor has only to ask anybody who has anything to do with local councils and their work. They are already paying under his arrangements more than the gilt-edged rate, although the Chancellor had previously promised them that they would only be kept in line with it.

I do not understand what he means by his latest proposal. I ask him particularly to say what exactly will be the position of the smaller authorities. Are they supposed to go to the market and find out whether they can raise credit? What is the position if a local authority goes to the market and does not think that it can get credit? Does it automatically get it from the Public Works Loan Board or not? We must have a clearer statement, and quickly please, to clear up exactly what this proposal is intended to do.

Is it the intention of the Government—though I repeat I see no case for this—to introduce and impose these additional costs because they want to cut down capital expenditure by local authorities now, or is it really to make them pay more later on, so as to create a more deflationary position in the country when the loans come to be serviced? I say that the whole of this policy is exactly wrong. What the local authorities need at the moment is more local financial resources and more not less stable borrowing arrangements. If the Chancellor had provided that for them and had informed them, as he is entitled to do, how far they can go in capital expenditure, that would be a far more satisfactory way of achieving his apparent object.

On expenditure cuts, we are told that the nationalised industries are to be cut back. I do not object to the Government controlling the investment programmes of the nationalised industries. It is one of the great advantages of nationalisation. But we will not stand for a policy by which cuts are imposed upon these industries just because they are nationalised; and I would remind the Chancellor that they happen to be the basic industries on which our future depends.

We are told private investment has increased. If so, it is certainly high time. I would accept what the Chancellor has said—that we on this side of the Committee have encouraged him to stimulate this. We, of course, want more investment, private and public. I say to the Chancellor that he would be extremely foolish if at this stage, after all these difficulties, when at last it is beginning to increase, he chose to rebuff it. To do so would certainly imperil our future productivity.

But that is not to say that controls are not possible it is absurd that while council building is to be cut right down to the bone private building is to be left absolutely free. It is a reversal of what the priorities should be.

I notice that the promotional activities of the electricity and gas industries are to be cut. That may be a good thing, but how do the Government exactly reconcile that with their policy of actively encouraging promotion through commercial television? Why do they limit this restraint upon promotional activities to the nationalised industries only?

I come to an even more serious matter, the Purchase Tax. There may have been a case for picking out certain selective items of a luxury character which should be cut back at home so that more should be made available for export. That is something which we would have been prepared to consider on its merits, but I say straight away to the Chancellor that this sweeping, indiscriminate increase in Purchase Tax simply will not do.

I would draw attention, in particular, to two changes which strike me as exceptionally mean. The first one is the reimposition of the tax on household goods—the brushes, the brooms, the mops, the dustbins, the buckets, the bowls, and all the things that every housewife has to have. These were taken out of the range of Purchase Tax almost immediately after the war. They were taken off by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton). He took them off in pursuance of our policy of limiting, as far and as fast as possible, the Purchase Tax to luxury goods only. It is a thoroughly retrograde step to bring them back into the range of the tax.

I have suspicions about it. I believe that the Chancellor is doing this because he contemplates later converting the Purchase Tax into a general sales tax. He indeed let slip the word last night on television. He said, "Well, these are like a sales tax." A sales tax is a convenient thing to collect, but it is extremely regressive and I hope that the Chancellor is not contemplating anything of the kind. I must warn him that we shall bitterly oppose this and any other changes of that kind.

The second point to which I take particular exception is the changes in textile Purchase Tax. We have said on several occasions that in the present state of the textile industry there is a strong case for lifting Purchase Tax altogether, but this proposal is frankly reactionary. It abolishes the D scheme, I know, but what does it put in its place? It is a change which quite obviously increases the tax on the cheaper goods and diminishes it on the more expensive articles. I will not read out all the changes. They are in the Press and I can assure hon. and right hon. Members opposite that they will hear a great deal more about them in the course of our debates.

I come next to an even graver and perhaps the gravest decision—that is the statement which we heard this afternoon about housing. As my hon. and learned Friend the Member for Kettering (Mr. Mitchison) pointed out, we shall wish to debate it in detail and my remarks must necessarily be of a preliminary and general character, but I am bound to say that I thought the statement was not so much devastating as outrageous. This move is the most reactionary of the many reactionary things which this Government have done since the Election.

It is all very well to say, "We will make people pay rents according to their needs." Who is to decide what their needs are? It is one thing to say that some Socialist councils, of which Leeds was one, introduced a differential rent scheme. Believe me, that was not in order to save the central Government their subsidies. It was in order, as the council thought at the time, to bring about a fairer sharing of what subsidies were there. We are not going to have this red herring of differential rents drawn across the trail of the main point in this policy, which is the abolition of subsidies altogether.

Finally, I must say that I was not entirely surprised at what the Minister had to say about controlled rents. It has been obvious from the Tory Press for some time that they have been demanding and insisting that the system of rent control should go. To make it go, the Tories first of all force up council house rents and then turn round and say that the other rents are out of line and so they must go up too. That is the policy that will be put forward and which, we are told, is necessary to save the country. This transfer of money from the tenants to the landlords is the salvation of the country, according to the Tory Party.

This Budget would not have been necessary if the April Budget had been an honest Budget. It is no answer to say that it is investment that has increased more than consumption, because that would and could have been taken into account in an honest Budget in April. Who was it, however, who gained in April from the tax concessions? Because we cannot consider this Budget without considering the other Budget; these two things have happened this year; both come from the right hon. Gentleman.

I would remind the Committee, briefly, of the figures. Income Tax reductions were so spread that nearly 8½ million people received from those concessions £19 million, about 1s. a week each. At the other end of the scale 325,000 received £25 million, or a benefit of about 30s. a week each. This was a Budget, the April Budget, which was overwhelmingly in favour of the better-off half of the community. [Interruption.] Yes, the better-off half of the community.

Mr. Godfrey Nicholson (Farnham)

But the Socialists said that it was an electioneering Budget.

Mr. Gaitskell

Oh, yes, it was cleverly designed for that. Yes, indeed. Half the community is quite a lot.

It did nothing at all for the poorest people, who, because they had to pay an extra 1s. in insurance very shortly afterwards, were worse off as a result of it. But it did a good deal for the companies—

Mr. R. A. Butler

May I ask the right hon. Gentleman why, in that case, it was an electioneering Budget?

Mr. Gaitskell

The Chancellor could not have heard my answer to his hon. Friend. Of course it was an electioneering Budget. It gave the general impression of great prosperity and it benefited a very large number of people. I would even concede this, that it is quite likely that not 50 per cent. but 52 per cent. of the population were better off as a result of it. It was very neatly devised—just enough to give the Government the majority they wanted.

We must remember these figures, and we must ask who is paying for the post-Election Budget? Not the Surtax payers, because even the highest personal incomes must not be touched by the Chancellor. Not the landlords, who will do extremely well out of the new policy. It is the ordinary housewives who will pay for this Budget, and the ordinary users of the Post Office, the council house tenants, the other tenants and all the people on the housing waiting lists.

Those of us who sit for industrial cities know that week after week those people come to us. Already now, I must tell the Government, in Leeds the available houses are needed for the time being for slum clearance, and every time I go to my constituency for interviews there is a stream of people, who live in desperately overcrowded conditions, in abominably overcrowded conditions, who come to me to ask why their houses are delayed. Now they are not merely to be delayed. They are to stop altogether. The Government can well be proud of that as their contribution to the Conservative development of social services. A little while ago I quoted something the Chancellor said. He said: Through service and sacrifice we shall win salvation. Well, we now know who has been saved and who is making the sacrifice.

Why, we may well ask, does the Chancellor, who is a skilful politician—nobody would deny that—venture on such a reactionary policy? I think it is because he simply realises that several years will elapse before the next Election; he hopes that the trick will be forgotten; he hopes that people may be accustomed to the change; he hopes that, perhaps, it will be swamped by something else more favourable. This is a Budget of a calculating politician with his eye on the long run. It may well be followed, I must warn my hon. Friends, by similar Budgets in the first period of office of this Government.

Although the Chancellor is a clever politician I do not think he is quite so strong on economic policy, and he makes, I think, in this instance, one grave error. This Budget will not solve his economic problem. The Budget may mop up purchasing power. Certainly, but it will stimulate purchasing power, too. Higher prices, higher rents, resulting from this Budget policy, will certainly be followed by legitimate demands for higher pay. If this happens, and if the higher wages lead, in turn, to higher costs of production, the responsibility will be on that Bench. This Budget gives a further twist to the wage-price spiral, and it does that not only because of the higher prices that it automatically produces but also because it is unfair.

The Chancellor said yesterday in his speech that he realised that people must be induced to agree with the Government's policy, that it was not possible, he said, for the Government to manage to maintain full employment without the agreement and assent and co-operation of everybody else. It is such an important sentence that I propose to quote it. He said: But however firmly and wisely the Government act, it is only if their measures are recognised by public opinion as being taken in the best interests of the country as a whole that the economy will be restored to full health. I entirely agree. That is the point of view we have frequently expressed from these benches, but if he imagines that this will be the consequence of this Budget he must be the only person in the country who does. He went on to say: It is an illusion to suppose that full employment, price stability, and a healthy balance of payments, can be secured by the Government, irrespective of the contributions made, or withheld, by the people."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 210.] Very true, but that is just what this Budget will not achieve.

There is, of course, one other possibility about it, and that is that the Chancellor will listen to all those siren voices now calling upon him to drop all this nonsense about full employment, and to increase unemployment to such an extent that the bargaining power of the unions will disappear. It may well be that that is really what he intends, and that the credit squeeze is to go on on such a scale that employers will be obliged to resist wage demands. I wonder whether he really wants to go down that path, the path of industrial disputes, the path of wage cutting, the path of unemployment. Has he any idea?

I bear the right hon. Gentleman no personal animosity. He knows that. But I must say to him that as a politician and a one-time statesman his record in this past year is, frankly, deplorable. He has behaved in a manner unworthy of his high office. He began in folly, he continued in deceit, and he has ended in reaction. He is a sadly discredited Minister. It is said that he is tired, that he wishes to go, that the strain is too great. Well, let us be charitable and assume that this is so. It is a very heavy burden that he has carried. But then his course is clear. Let him go to the Prime Minister and ask him for release. Let him lay down the burden of his office, which he is so plainly unable to carry with credit any longer.

5.9 p.m.

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

I rise to reply to the speech which we have just heard from the right hon. Member for Leeds, South (Mr. Gaitskell), a speech which was delivered with all his usual vigour and force, and I want to deal straight away with one or two of the points he raised. It seemed to me that at the outset of his speech the right hon. Gentleman was criticising my right hon. Friend for the introduction of the Budget. He asked how the position had changed. He claimed that there had to be some dramatic change in circumstances to justify a Budget and he instanced, rather bravely, the situation that arose in 1947. That is the very error into which the right hon. Gentleman has always fallen. Had he had the courage to introduce a Budget in the autumn of 1951, millions of pounds of foreign exchange would have been saved to this country.

The right hon. Gentleman based a good deal of his argument on the question of what was said or not said at the time of last April's Budget. Indeed, anybody who listened to the right hon. Gentleman today might well have imagined that he had voted against taking 6d. off Income Tax and fought the Election on a policy of austere retrenchment and conservative finance.

The right hon. Gentleman is, as we all know, an honourable man and he would, I am sure, be the last person to wish any such false impression to creep out to the public. For my part, I intend in the course of my remarks to recall what the right hon. Gentleman himself said at that time and the policies which he himself was pursuing. I understand that he has an engagement outside the House which makes it difficult for him to stay and listen to everything I have to say but I hope that he will stay as long as possible.

This debate would not be serving its proper purpose if the right hon. Gentleman and I were to occupy most of our speeches in discussing what was said six months ago. I shall refer to it, but it is not the main tenor of what I wish to say. Let me start, at any rate, with the situation as we see it today, what is good in that situation—for there is much good in it—and what are the dangers in that situation, because we all agree that there are some dangers. Then, I propose to meet some of the criticisms which the right hon. Gentleman made and to conclude by some reference to the more controversial aspects of his speech.

Let me, then, start with the situation of today. I think that the question that the man in the street would ask at this moment is why, when everybody is so well off today, there is a problem at all. That is the question that most members of the public would ask. How could anyone describe the booming prosperity about us as in any sense of the term a crisis in our affairs? Whatever else is said about it, it seems to me that that is the question to start with.

Let me take, first, what is good in the existing situation. I shall start with consumption. As my right hon. Friend the Chancellor of the Exchequer forecast last April, consumption has risen more slowly in 1955 than in 1954 but the gains for the ordinary man and woman are very considerable. Since 1952 there has been a rise of 7½ per cent. in the volume of consumption per head. Household goods are up 26 per cent., food is up 6 per cent., clothing 5½ per cent. and motoring nearly 50 per cent. Those are all gains and they represent a measurable advance in the standard of life of people in this country.

Let me take next employment. Today, there are one quarter of a million more jobs than there are people to fill them. The term "over-full employment" is politically dangerous, but of some areas, areas where the pressure of employment is such that there is a real and difficult shortage of skilled labour which is hampering essential production, one could say today that in those areas over-full employment certainly exists.

When we look at the problems which are created by an employment situation of that kind, we might all do well to remember for a moment the problems that confronted a previous generation. If these post-war years have given us the problem of full employment coupled with a steady tendency to inflation, in the prewar years there was a general absence of inflation accompanied by a continuous large-scale unemployment figure. [An HON. MEMBER: "Whose fault was that?"] I do not think that any of us would wish to exchange the problems of today for the problems of 25 or 30 years ago.

Thirdly, incomes. Since 1938, the real value—that is, in terms of purchasing power—of dividends has sunk by one-third, while—[Interruption.] I am not considering what ought or ought not to have happened; I am giving the facts of the situation. Since 1938, the real value of dividends has sunk by one-third, while the purchasing power of wages and salaries has risen by one-third. Whatever view one takes about that, it does represent a very real transfer, not of wealth, but of purchasing power.

Since 1946, more money has been paid out both in dividends and in wages. Dividends are up by £280 million, wages are up by £2,900 million, and these gains in money incomes represent the measure whereby people, in all walks of life, seek to give themselves a better standard of life. They are pleasant things but, clearly, they lead to increased pressures of demand.

Lastly, as to investment. A very large investment has taken place since the war, over a very wide field and under both Governments. There exist today more than two million more new houses, and those new houses make a deal of difference in the human happiness of a very large number of people. In houses, in hospitals and in schools there has been a great and welcome accretion of social capital. It is plain, as the right hon. Gentleman knows, that at this moment a very substantial upsurge of manufacturing industry is taking place. Indeed, between the first quarter of 1954 and the first quarter of 1955, there has been an increase of over 60 per cent. in the area of industrial building that has been started. The same sort of picture is shown by the orders upon the engineering industry, in the form of plant and machinery.

In my judgment, all those things are good. They are certainly not matters for condemnation. It seems to me that the problem which we have to face today is to examine by what margin they exceed now—and, what is equally important, by what margin they might exceed in future—the national resources which we can make available for them.

The first important thing to recognise is that that margin is, perhaps, narrower than many people appear to realise. The balance between trying to spend too much and tipping over into inflation and balance of payments difficulties, and trying to spend too little and tipping over into deflation and declining investment and unemployment, is a very fine one and it alters very quickly. Much hangs upon judging it aright and, above all, in having the courage to revise one's judgment as time and circumstances change.

The resources which this country has to dispose to meet demands of this nature are, of course, very large. We are a great trading and manufacturing country. We have a gross domestic product of £16,000 million, increasing in real terms by something between 3 and 4 per cent. a year. That is one measure of the wealth that we have and the standard of living we can command. But it is not the only measure. We depend for our existence not simply on what we make here, but on trade overseas to the tune of a turnover of £6,000 million a year, and it is in the nature of that situation that, dependent as we are to so large a measure on external trade, quite small variations in the trading pattern can have a phenomenal effect on our situation.

In recent months we have imported what are really quite marginal amounts of those basic materials which we normally expect to produce for ourselves, in particular, as the right hon. Gentleman the Member for Leeds, South knows, coal and steel. Coal and steel alone have cost us more than £100 million on our balance of payments and, as the "Financial Times" pointed out in a leader on 21st October, while these figures are small indeed relative to our total trade or total production, yet a few figures of this kind can be decisive in determining whether we will build up our reserves, or start running them down at what might become, if left unattended, a dangerous rate. So much for the size of the problem. It is certainly within our compass to achieve those margins.

Mr. Jack Jones (Rotherham)

Is the right hon. Gentleman seeking to indicate to the House and the country that we are short of coal and steel from a lack of effort by the men in the steel industry?

Mr. Thorneycroft

Certainly not. It was due to the expansion of manufacturing industries, a quick expansion, faster than the steel industry could be expected to cater for.

Some reductions in expenditure and consumption, public as well as private, and some postponement of marginal investment can clearly bring the situation into balance. The alterations in our way of life need not be large provided they are prompt and effective. If I might give some kind of measure, every £100 million of expenditure is the equivalent of only three or four minutes' work per worker a day, or its equivalent in increased production or productivity, or the equivalent of 9d. per head per week in savings, or 1s. 9d. a week in each wage and salary earner's pay packet. The size of this problem, if it is viewed that way, is not large, but let there be no doubt whatever that once the indications of inflation are there, many damaging consequences can flow if we do not tackle them. I will not elaborate those which have already been mentioned in great detail, but I should like to say a word about the export trade.

The removal or curtailment of inflation is a prerequisite to a healthy export trade. The value figures of exports are as follows: exports are up 6 per cent. in the first nine months of 1955 over the first nine months of 1954. But we can and must do better. Those figures compare with a 15 per cent. increase in imports over the same period. World trade is expanding and despite setbacks in our traditional markets we must and can have our own share. Inflation at home means that imports are sucked into this country and products for export become progressively less available for sale, and this has been one of our principal difficulties, not least in the Canadian market. Such is the situation which exists today. Export markets are extremely competitive both in price and delivery dates. The presence of inflation handicaps us on both those counts.

Let me turn for a moment to the measures which are proposed. Different countries faced with these problems adopt different measures to deal with them, and the reason is that the situation is different. The situation in Germany with a chronic export surplus is quite clearly different from the situation which occurs here, but the principles which must guide us are surely plain. Action to deal with inflation, if it is to be effective, must be taken right across the board and over the whole field. It must have its effect on stocks, investment and consumption. To concentrate on one sector is merely to shift the pressure into another. Economic sense and social justice alike suggest that action should be taken on a wide front. Inevitably in those circumstances, no one can escape, whether it be the purchases of the housewife, profits distributed by companies, or the programmes of investment of industry which must also be affected.

I should like to say a word about the tax changes. I will say only this about the Profits Tax. When we are dealing with inflation over a wide front and against a background of rising dividends to which I have referred, I do not believe that it would be right or proper to omit a tax on distributed profits. As to Purchase Tax, whatever else may be said about it, it is certainly one method of affecting the level of demand for consumer goods in general. Increased rates and the new taxation should not be regarded simply as attempts to switch individual pots and pans or motor cars from home to export. To some extent these taxes do affect the demand on the metal-using industries. That is useful. And over the whole field less money becomes available to buy other goods and the general effect is a fall in the levels of consumption. But a reduction in the general level of demand is, I would emphasise, really essential to an expansion of our export trade.

May I now mention the D scheme? The D scheme had great advantages over the earlier Utility scheme. The Utility scheme was both a breach of our international arrangements and also contained a blind spot which meant that nobody was really manufacturing to any profitable or proper extent the quality goods lying beyond that spot. The D scheme got rid of the first of those difficulties, but did not wholly cure the second. There is no doubt that, desirable as it was in some other respects—and the right hon. Gentleman referred to some of them—its effect upon the textile industry as a whole and in particular upon the exports of the textile industry, so badly and so much desired, was deleterious. The distortions created by that scheme have now been removed by the imposition instead of a low flat rate tax.

The right hon. Gentleman indicated that he would be opposing all this. I ask him to hesitate before he launches an attack on the removal of the D scheme. Every time I have been to Lancashire it has been more and more emphasised to me by both sides of industry, by individuals, and by everyone on the spot that one step that would help Lancashire in its present circumstances was the removal of the distorting effect of this tax. Now my right hon. Friend has come forward with these proposals and I am bound to say that I think they will be helpful to Lancashire in one of the really important respects where she needs help, namely in her export markets, and I hope that hon. and right hon. Gentlemen opposite will not lightly attack a proposal of that character.

It may be said that despite the rightness of these Purchase Tax proposals, they do not affect and cannot affect, at any rate directly, the place where the real pressure is and that is at the heavier end of the engineering industry. That is quite true, and some men might be tempted to seek to solve that problem—and indeed I have seen it suggested in the Press —by altering, say, the investment allowance. But I think that the House will agree that there are obvious disadvantages in continually altering the investment incentives which are given. I hope that the House will judge that we have acted rightly in continuing to deal with this through the Bank Rate and market operations known as the credit squeeze so far as private industry is concerned, and through the various arrangements relating to public capital expenditure which were detailed by my right hon. Friend yesterday. At any rate, I hope that the House will hesitate before we propose further measures dealing with investment and will allow these present arrangements to work out.

Investment brings me back to the speech which the right hon. Gentleman made. He taunted us with what he called an electioneering Budget. The tax remissions which we gave away in his view precipitated to some extent the inflationary situation which has grown up, and he says that we rejected the wise advice which he offered to us at that period.

I think he imagined that the House would have a very short memory. If we erred, we erred in good company. Six months ago the right hon. Gentleman was taunting private industry with insufficient investment. That was the main theme of his speech. He said: If they really believe that there has been any progress in the private sector in the rate of net investment since they came to power, let them prove it."—[OFFICIAL REPORT, 20th April, 1955; Vol. 540, c. 188.] And indeed he thought that the measures we then adopted would not in fact increase investment. He did not say that we were doing far too much, we were doing far too little. He said: The right hon. Gentleman may claim that all this"— that is the sixpence off the Income Tax and the rest— will help investment. He claimed that in 1953. There never has been any evidence whatever that it did anything of the kind."—[OFFICIAL REPORT, 20th April, 1955, Vol. 540, c. 198.] How wrong was the right hon. Gentleman on all counts on that occasion. Really, in the face of that to claim that my right hon. Friend caused inflation by refusing to listen to the right hon. Member for Leeds, South is a very extraordinary story to put across in the House of Commons.

The right hon. Gentleman himself of course did not vote against the sixpence off the Income Tax. He was going much further. What he was then saying was that we ought to be taking sixpence instead of threepence off the lower income ranges. That was the real case he was making at that time. He was not content to stop with Income Tax. He wanted tax off tobacco—"Why not tobacco" he said, "Why not off beer? Why not reduce Purchase Tax and have less on diesel oil?" As one of his right hon. Friends observed, more people drink than pay Income Tax; more people smoke than pay Income Tax. The right hon. Member for Bishop Auckland (Mr. Dalton) will remember his intervention at that point. It is true, but who was doing the electioneering budgeting in those days? The right hon. Gentleman is a much smoother operator than he gives himself credit for being—much smoother.

The right hon. Gentleman's pleas last April for tax relief on a wide front were combined with an attack on dearer money. The increase in the Bank Rate was described, I think perhaps in Parliamentary language, but in ungraceful terms as a "mangy cat." These various pleas for lower taxation and cheaper money, all wildly inflationary in character, were followed by an Election manifesto which advocated a number of measures all of which would greatly increase Government expenditure, including tying insurance benefits to the cost of living—a proposal which has been described as writing inflation into the constitution.

The Socialist promises would certainly have cost us a great deal of money, and it does not lie with the right hon. Gentleman to accuse this Government either of electioneering or of adopting inflationary policies. The question we have to answer today, as I think, is which policy should we pursue? What is the alternative of the right hon. Gentleman? If I may say so, of course the right hon. Gentleman makes a good and vigorous speech, but most of us have engaged in opposition in one time or another and, if one is going to do that, it is never wholly effective unless one has some alternative to offer. If I criticise the right hon. Gentleman's speech, if there is a criticism, it is that it contained no alternative proposal as to what he would do in this situation.

Does he still believe in lowering Purchase Tax? Does he want cheaper money, as he did in April? Does he still maintain a desire to spend money on all those great hopes he was holding out in the months that followed? So far as we have been able to follow the development of Socialist thought on this matter, they believe in a reversal to a policy of control. A rigid control of all foreign transactions is the solution which they have consistently offered to all these difficulties relating to the balance of payments.

It seems to me that the choice we have to make today is, should we revert to a policy of import restrictions, accompanied, as they would need to be, by some system of allocation depending on something like the ration book; or shall we continue with the policy, so far successfully pursued, of influencing the general levels of demand through monetary and fiscal measures and restraint in Government expenditure?

If right hon. and hon. Gentlemen opposite believe in a return to control, I hope that at some stage in this debate they will tell us which controls. If they wish to restrict imports, what imports do they intend to restrict? It is no use talking about films in this connection. Let them say what they will cut. Will it be coal and steel; and how will they allocate the limited amount of those commodities which will be left? Above all, will they explain how, by reducing the supplies from overseas, they will reduce the inflation, unless at the same time they reduce the levels of demand at home?

All these questions remain open. None of them have been propounded by the right hon. Gentleman. For our part—and I must say this plainly—we reject their restrictionist solutions and we retain the essentially Conservative policy of full employment in a free society.

5.36 p.m.

Mr. Austen Albu (Edmonton)

Some of us on this side of the Committee who remember the right hon. Gentleman the President of the Board of Trade when he was a member of the Opposition, should perhaps give a welcome to him back in his old form. This was again a tub-thumping, irresponsible and unconstructive speech, but, of course, that is what we were used to when he was in opposition.

The right hon. Gentleman invited us to say what we would have done in this situation. I cannot answer that, because I would hope that had my right hon. Friend been Chancellor of the Exchequer we should not have been in this situation. But I will tell the Committee the sort of things which I think we should have done to avoid getting into it. I must say that for three-quarters of the right hon. Gentleman's speech I wondered why it was necessary at all to introduce a Budget which amounts to a grave attack on the standard of living of very large numbers of people. From what I could understand of what the right hon. Gentleman was saying, there is really nothing wrong with the country's economy at all; everything is really going on very nicely.

The real object of the Budget, as my right hon. Friend has pointed out, is to start us on the path to a real Tory economic policy which will involve us in a free market in housing and in the abolition of the progressive features of taxation, particularly the progressive features of the Purchase Tax and substitute that very regressive tax—a sales tax. I should like the President of the Board of Trade to tell us in what way the imposition of Purchase Tax on previously tax-free textiles will help Lancashire meet—

Mr. F. A. Burden (Gillingham)

May I remind the hon. Gentleman that cotton and textiles other than wool which were tax-free are still tax-free?

Mr. Albu

That is not the way I read the changes, but we shall see. No doubt some of my hon. Friends can deal with these matters even better than I can, because it is not one of my particular subjects. But it is only a tiny fraction of the whole thing and I do not think it will make the slightest difference to Lancashire's home trade, which is where their present difficulties lie.

The third aspect of Tory policy, and the one I intend mainly to deal with, is a completely unplanned and irrational investment policy which can only bring economic chaos. In a speech on the Budget in April, before the Election, my friend Mr. Crosland made what I then described as one of the most damaging attacks ever made on the political character of a Chancellor of the Exchequer. I did not then realise that the Chancellor was going so much further as to destroy his own political reputation, and I entirely agree with the speech of my right hon. Friend. What is proposed to be done by this Budget can, in fact, have little effect on restraining inflation and can only lead to an increasing demand for a degree of real deflation of the economy involving large-scale unemployment.

Let us look at what is being done in the field of investment. The President of the Board of Trade twitted my right hon. Friend with the fact that he has always demanded a high level of investment and now appears to be criticising the Government for not going far enough at the present time. We on this side of the Committee have never said that investment of every kind was necessarily desirable. We have always said that the building of large office blocks, cinemas, dog-racing tracks, and things of that sort, might be highly inflationary and might make no contribution whatever towards the solving of our balance of payments problem and the raising of productivity.

It seems that in what is now being done—the irrational, unplanned cuts in investment—the Government have not taken into account the effects which it will have on other industries. There has been no attempt to apply restraint to investment in cases where it can do the least harm. We have only to look at the cuts being made in the investment plans of the gas and electricity industries, which, of course, are extremely popular with hon. Gentlemen opposite because they happen to be nationalised industries.

Anybody considering the matter must realise that a cut or an extension of the period of the development plans, which is the same as a cut, may, in two or three years' time, have very serious effects on the economy of the country and on other industries. If private industries continue their investment programmes, then that can only lead to a shortage of gas and electricity, and to consequent inefficiency in industry as a whole. These cuts are also likely to have a deleterious effect on productivity, because they will mean that the improvements being made in lowering production costs in both the gas and electricity industries, due to their investment programmes, will be stopped. What these industries have been doing to keep down their cost of production will not be continued.

To make cuts of this kind in investment in basic industries, while allowing manufacturing industries to go uncontrolled except for the general credit squeeze, seems to me to be a policy of anarchy, because, of course, the main investment of the country is carried out irrespective of the availability of credit. Anybody can see that it is carried out very largely from the reserves of companies which, in recent years, have always managed to raise any extra capital they needed for expansion.

One industry about which I should like the Government to tell us something is the steel industry. That industry has been referred to because its demands are one of the causes of our balance of payments difficulties. This year, imports of steel will amount to about £70 million, of which the motor industry alone will be responsible for over £20 million. What is to be the effect of the Government's credit policy, or, if they still have any control of the industry through the Iron and Steel Board, of their control over that industry's expansion plans? Is there to be a reduction in the growth of capacity of this basic industry as in the case of gas, electricity, roads and railways? If a reduction is to take place in the steel industry, while manufacturing industries are allowed to expand, we shall eventually land ourselves in a position of serious shortage with which ordinary financial controls will be utterly unable to cope.

Let us take, for example, one of our major and growing industries, the motor industry. That industry is now responsible for about one-fifth of the output of the whole engineering industry and has, since the war, been responsible for a very high proportion of our exports. Together with its ancillary industries, it plans to spend about £250 million on new capital investment over the next four or five years.

The output of the industry this year is likely to be up by about 200,000 units, whereas exports are up by only a negligible amount. There are good reasons for thinking that it will be difficult for the industry to raise its exports in the next few years. Nevertheless, it is responsible for importing £20 million worth of steel, mostly paid for in dollars, and that figure is bound to increase. The industry is also absorbing a very large part of the resources of the engineering industry as a whole, with a consequent effect on the export efforts of other British industries.

I was told recently by a director of a large shipbuilding firm that the shipbuilding industry is bitter about the resources which are going into the motor car industry from other sections of the engineering industry at a time when the demand for other engineering products is growing. I do not entirely blame the motor car industry for the loss of its export markets, because we must face the fact that not only is there growing competition from manufacturing industries in other countries but that motor cars are now being made in countries which formerly we regarded as our own market, particularly Australia, where, recently, we have had severe cuts in our exports.

The other day I visited a large motor manufacturing concern which has a plant in Australia, and I was surprised to see a complete set of transfer machines—a form of what is known as automation—being sent to their Australian plant. I cannot help thinking that when that plant gets going, together with the plant of the American firm already in Australia, the chances of our regaining our lost markets in that country will be very slim indeed; and it has been responsible for a large part of our motor car exports.

Have the Government taken any account of this enormous expansion programme when thinking out their investment cuts? If they have not taken it into account, and have not related it to their other proposals, then it seems to me that we are bound to get a worsening of the situation. It is not possible to have a system whereby cuts can be made in one or two public industries and in a certain amount of public building, and, at the same time, the balance of private investment is left completely uncontrolled except by a blanket credit control.

One must remember that these investment programmes are not those of 100,000 little entrepreneurs. The decisions are taken by three or four firms in a single industry, and it is my opinion that the chiefs of many of these industries need to have their heads knocked together. So far, they have not coordinated their efforts, but the effect of the growth of these industries on the consumption of steel imports and of raw materials and on the consumption of gas and electricity is going to be very serious indeed, and much more serious if they are allowed to expand while the basic industries are cut.

The President of the Board of Trade asked us on this side of the Committee what we would have done in these circumstances. I hope that we should have foreseen the circumstances before the need for this Budget arose. Foresight was needed before the inflationary effect of this expansion took place. We on this side of the Committee are not against expansion by increased investment in our industries, but we say that industries of this size, and which affect other industries, should have their expansion plans taken into account. One must judge whether or not their expansion will contribute to our balance of payments and to our exports.

I suggest to the President of the Board of Trade that he had better look at the motor car industry to see whether he will not shortly have another cotton industry on his hands. The same factors are beginning to appear in that industry as have appeared in the cotton industry. If the right hon. Gentleman will examine what is happening in the motor manufacturing industries in many other countries in Europe, and even behind the Iron Curtain, he will see what I mean.

Finally, to attempt to control the economy by turning on and off the tap of investment is not only completely unsuitable, but inefficient and costly. Investment cannot be started up and then cut down from day to day if we are to get the most efficient use of our resources. Anyone who has seen what happens when a great scheme is started, stopped and then restarted knows how impossible that is. Of course, it may become necessary—as the hon. Member for Cheadle (Mr. Shepherd) is no doubt anxious to point out. The time may come when it simply has to be done, if the matter has not been thought out in advance.

Mr. William Shepherd (Cheadle)

It seems odd for the hon. Member to say that we should not interfere with investment, and then suggest that my right hon. Friend ought to stop investment in the motor vehicle industry.

Mr. Albu

Not by turning the tap on and off from day to day.

We ought to look at investment plans well in advance, by getting together those who are making plans and discussing the matter, seeing whether the country can afford them, and seeing what effect they will have on other parts of the economy. If the matter is left until a violent inflationary situation has been created and we they try to turn off the tap, great difficulty is experienced. An increase in Purchase Tax could have the effect of producing mass unemployment and complete anarchy in the Midlands. I do not think that it will have this effect, because an extra £40 or £50 tax upon a motor car does not mean much, so long as the initial allowance for business purposes is maintained.

This thing cannot be done at the last moment. It requires foresight, considering investment plans in advance, especially in industries whose capital equipment is very expensive. If the Chancellor and the Government are unwilling to control private investment—and I do not mean just damping it down but helping to decide in what sections of the economy investment is desirable and in what sections it is not—if they are unwilling to do anything except by exhortation, the economy will become more and more unbalanced, with disastrous results. They will then be forced to create a really deflationary situation, because they will have no other alternative.

5.52 p.m.

Mr. William Whitelaw (Penrith and The Border)

As I rise to address the Committee for the first time, I feel greatly in need of the indulgence which is normally extended to an hon. Member upon such occasions. I can only hope that it will be extended to me. Naturally, I shall not attempt to enter into the controversial arguments upon economic policy which we have heard this afternoon. I want only to stress the unfortunate effects which sudden economic restrictions, especially upon capital expenditure, have upon isolated and lonely rural communities, of which there are many in my constituency in Cumberland. These areas form a vital part of our agricultural industry. The food which they produce can make a substantial saving in imports, but they will never be fully productive until the farmers and their workers can live and work in modern conditions.

It is certainly true that considerable progress has been made since the war in meeting such basic needs as decent housing, electricity, water supply and reasonable communications, but I know that everyone will agree that it is equally true that much still remains to be done. In the Report of the North-West Electricity Board for the year ending March, 1955, I read that there are still 3,480 farms to be connected with the electricity supply in the Lakeland sub-area alone. All these farms are situated in the remote areas of Cumberland and Westmorland. In addition, there are long waiting lists for telephones on the farms and telephone kiosks in the villages, which are of great importance. Much expenditure is still required in housing, sewerage schemes and water supplies.

There can be no doubt that sudden economic restrictions upon this vital work can prove very short-sighted in the long run. Surprisingly enough to those who visit the Lake District, many parts of Cumberland are very short of water. Some years ago a comprehensive scheme, sponsored by several local authorities, was put forward. It would have been expensive in initial capital outlay but, on the other hand, it would have ensured abundant supplies of water at all times for the whole area. When it was introduced, however, an economy drive was in progress, and the Government of the day refused a grant.

I do not blame them; that is merely the inevitable result of all economy drives. But what has happened? That major project fell through and the individual local authorities were forced to proceed with smaller and less effective patchwork schemes. Now, despite much expenditure upon this work, many villages and farms have been gravely short of water during the recent drought, not only for days but for weeks on end. It is the definite opinion of the local authorities concerned that this trouble could have been avoided if only the Government had seen fit to make a grant in the first instance—and in the long run it would not have cost very much more.

Such shortage causes grave inconvenience to human beings, but we should not forget that it also strikes a direct blow at agricultural production, especially upon dairy farms. In the same way, electricity is of great value in the home, but it also increases efficiency in the farmsteadings. Telephones near at hand—whether actually on the farms or in kiosks in the villages—are of the utmost value in urgent cases both of human and animal illness.

It is clear to everyone that the lack of modern amenities has a direct effect upon agricultural production, but the indirect effect of good living conditions is of even more vital importance. I am sure that everyone would agree that we need highly skilled workers in our remote areas, where many valuable herds of cattle and sheep are kept. Agricultural labour is very short today, and the remote areas are the most seriously affected. Their labour position will go from bad to worse in the future if they cannot offer good living conditions and reasonable communications with the nearest shopping centres.

In this latter connection, I hope that we shall not become so obsessed with the obvious and serious needs of our trunk roads that we forget the lonely country roads that have to be maintained and improved, often at great cost. I am not happy about the rural bus services. Their operating costs are very high and their potential passengers few, and today they are declaring that many services cannot be continued upon financial grounds. I can only hope that as the value of their service to the lonely communities is especially great, the Chancellor of the Exchequer, knowing the facts, may feel able to reduce the level of petrol tax.

In all this, I have been particularly anxious to stress the needs of the local people, but I do not for one moment want to suggest that the hardy people who live in these isolated districts should not play their part in supporting the measures which the Chancellor of the Exchequer has introduced in his determination to put the nation's economy on a sure footing. They would certainly wish to do so, for no class of people could be more loyal to their country and to the land on which they work. I am convinced that if we as a nation, with our predominantly urban population, forget them and fail to provide modern amenities as fast as we can, then, in the long run, through the obvious drift to the more populated areas, we shall lose a priceless asset, and, indeed, a very valuable source of home food production.

I hope, therefore, that the Government Departments concerned, when they administer these new measures, will give sympathetic consideration to projects in the remote rural areas. I can only end by saying that my firm belief in the real worth and value of these country people has encouraged me to undertake this ordeal.

6.2 p.m.

Mr. Cyril Bence (Dunbartonshire, East)

I am particularly pleased and indeed honoured to follow the hon. Member for Penrith and The Border (Mr. Whitelaw) after what must have been to him—as mine was to me—the most terrifying ordeal of making a maiden speech. The hon. Gentleman is a resident in my constituency, and we were opponents in the General Election of 1951. It was a very interesting contest, carried out with every courtesy on the part of the hon. Gentleman, and I hope by myself as well.

I was struck by the supreme confidence with which the hon. Gentleman addressed the Committee, and I do not think I have listened to a more eloquent or ably delivered maiden speech since I have been a Member of the House. I was very pleased to observe that the hon. Gentleman obviously intends to concern himself with doing what he can for the rural areas because, as one of the residents in my constituency, he will know that a small borough situated in the middle of a rural area has for a long time been deprived of Government assistance in trying to provide a new sewerage scheme, and I hope that I shall be able to call the hon. Gentleman to my aid at some time in the future.

It is not, however, solely for that reason that I pay him a compliment today. I sincerely compliment him on his speech, and I hope that we shall hear him many times again, especially in supporting me in my plea in regard to the Kirkintilloch sewerage scheme.

This has been a most amazing debate on our economic problem. The President of the Board of Trade assured us today that we must cure inflation in this country if we are to be competitive and to be able to export in world markets, as well as to build up those services which we ought to have in this country. I think I am right in interpreting the right hon. Gentleman's argument in that way. We must cure inflation in our own country, we must export a tremendous number of products, but not import too much, and we must stop the pressure of home demand so that we can achieve those objects.

What puzzles me in the modern world is this. Every statesman, every Chancellor of the Exchequer or Treasurer of every country in the world is saying exactly the same thing. They all want to do it. Everybody wants to export more than they do now. I cannot express it in any other way, and to me it seems silly.

If we export a tremendous volume of the goods we make, if he pay decent wages and remuneration to those engaged in the production of those exports, and if we do not import commodities of an equal value, surely we are bound to have more money chasing fewer goods? That seems obvious to me, unless we tax the excess purchasing power or unless it is saved. If we tax it, we find the 20 million workers working hard in modern industry producing value for export, and one Chancellor after another saying that some of it must be saved, or that wages must be cut—that we cannot allow the workers to consume all the value which they produce, but that the Chancellor must take something from them in order to be careful about inflation.

To me, inflation is simply the lowering of the value of money in terms of goods and services, because by imposing taxes we raise prices, and that is just what the Purchase Tax proposals will do. All these taxes raise prices, which is lowering the value of the currency, which means inflation. If that results in directing more goods into the export market and less into home channels, and if we pay the same wages, salaries and dividends, we get more monetary pressure but fewer goods circulating in our own country. Well, where are we getting to, and what is the solution?

The Government have not got a solution. We were told yesterday by the Chancellor that the cost of living will be raised one point by his proposals in this Budget.

We have heard a statement today by the Minister of Housing and Local Government about housing subsidies and housing policy. I do not know by how many more points that will raise the cost of living figure, but it is bound to raise it, so that we shall have yet another rise in the cost of living and another little spot of inflation, due to the deliberate action of the Government.

Last year, we had a period of inflation, and the Minister of Pensions and National Insurance brought in a Bill to give benefits to retirement pensioners and recipients of sickness benefits in order to make up the loss of purchasing power which they had suffered. Are we to have another Bill, following the cuts in the housing subsidies, to restore the purchasing power of old-age pensioners and people on sickness benefits to the level at which it stood before the Tories went to the country? Are the benefits to be increased to compensate the people for the value of their benefits having been reduced by these means?

The Minister of Housing and Local Government talks about differential rents. I can imagine that, if I were living in a council house and if I had such an income that I was paying £6 5s. a week or £300 a year in tax, differentiated and regulated according to my income, I should pay that tax ungrudgingly, while the fellow next door on a low income might be paying the same rent though not paying any tax at all because of his lower income. This differential rent system seems to say to me that not only have I, as a citizen, to pay for the defence services and all the social services through my differentiated Income Tax, but that now I shall have to pay on the rent of my house.

How many years shall we continue having differentiation of house rents? The matter does not stop there. We have had a sort of means test already in connection with spectacles. If one has no income, one pays nothing, but if one has a little income one has to pay something towards the cost. That system might spread right through the whole economy, and it could be extended so that people with the highest incomes would be paying the highest prices for everything they had to buy.

It has been done with the medical services, though I am certainly opposed to it. I could never see how this differential rent system will work, unless where it is applied we make some allowance for differential tax for a man who is paying a differentiated rent, and I cannot see how that can be done.

I am afraid that the Chancellor and the Government have never really got down to finding out what are the root causes of these periodical disturbances in our economy. It is no use saying again that we have an island economy and have to import so much; of course, we all know that.

We should never have had to face these problems since 1947—or 1945—if those who governed Britain and the British Colonial Empire during the last 100 or 150 years had had the interests of the Commonwealth at heart. If they had used the resources and the wealth built up in this island during those years to expand the consumer market and to raise the standards of living in the British Commonwealth and Empire, that Commonwealth and Empire would today be such a prosperous economic unit that our huge capacity to produce vast quantities of goods within that economy would have enabled us to deal much more easily with our problems.

We have been told that the Chancellor's proposals will increase the cost of living. Do the Government realise that the wages of more than 2 million workers are based upon the cost-of-living index and that immediately the Purchase Tax increases take effect and rents are increased those increases will be reflected in the index? More than 2 million workers will then get rises in their wages and salaries; that is bound to start off another spiral of wage demands and we shall be back where we were before.

I would remind the President of the Board of Trade, when he talks about damping down over-consumption, that it is not many years since he and the former Prime Minister made speeches—when Sir Stafford Cripps was Chancellor of the Exchequer—telling us that a prosperous export trade was dependent upon a prosperous home trade. Anyone with experience of the engineering industry knows that a successful export business can be built UD only if one can be sure of continuity of production on the basis of a large and stable home market.

I wish my hon. Friend the Member for Edmonton (Mr. Albu) had gone into a little more detail during his speech and tried to convince some of the businessmen on the Government benches of the soundness of his arguments. In a modern engineering factory we lay down machines for continuous processes, or "automation" as we now call it. That sort of thing has been going on for a hundred years—it is not new. Such plants are absolutely dependent upon continuity of operation and on full operation of the whole plant. That is a major factor in their competitive power, and is absolutely vital.

To slow down or stop such a plant even for three days per week reduces its competitive power to a terrific extent. That is the most dangerous thing that can happen in this country, particularly in the motor trade. It tends to frustrate continuity of investment and greater technological development. That would be one of the worst calamities to overtake our competitive power in world markets. While production is going on in the motor industry, investment is going on all the time. It is a continuing process. It is just as necessary to maintain investment in the engineering industry as a continuing process as it is to keep production continuous.

In 1951, we saw cripples, people with bad sight and bad teeth, the sick and infirm, the aged and the old, called upon to save the economy of Britain from so-called calamity. Now we see the same sort of thing again. We are in a serious situation. The trade gap has widened, although the terms of trade are getting a little better. It would appear that the people who can make the biggest contribution to save the British economy are the housewives, the wage earners and the people with small incomes. To think that the vast range of goods which working men and women buy should carry the same percentage of tax as the ranges of goods which only people with the highest income can afford! I just cannot understand it when I hear Tory Members in the country and in this Chamber talking about how they help the family, the little man and people at the lowest level and with the smallest incomes.

We have now heard how Purchase Tax will extend throughout the whole range of commodities. Babies' clothes and headgear are excepted, if I remember rightly, but everything else is to be charged another 5 per cent. over the whole range. The poorer people got no tax concession. They were given no reduction of Income Tax because they never pay Income Tax. People who pay the standard rate of tax have had a concession of 6d. It may be that the 5 per cent. addition on some articles is as nothing compared to what the Purchase Tax was under the D scheme, but in the lower ranges there was no tax at all. Perhaps 20 million or 30 million people purchased goods under that scheme. Now they have to pay more.

On the subject of local authorities, I would record that the Burgh of Clydebank has sent a communication to the Secretary of State for Scotland—and a copy of it to me—protesting against the recent increases in the rates of interest. It will have a shock when it knows that those rates are going up again. The Burgh of Clydebank was almost completely destroyed by the Germans; about three-fifths of the habitable property was destroyed in the blitz of 1941. Much of it has been replaced, but the whole centre of Clydebank, although clear of rubble, is empty. There is nothing there.

There are about 6,000 people on the housing waiting list. The number includes people who are not in slum houses—I am not giving actual figures—but share good houses with other people. If they are rehoused they will not come from slums. There may be 2,000 people living in slum houses. Are they to move into council houses and be subsidised, while people who do not live in slum houses are to move into houses not carrying subsidy? The local authority will be put into an impossible position if that is to happen.

When we debate these matters more fully I shall want assurances that the whole area of Clydebank will be classified as an area in which very special circumstances prevail. If that is not done there will be an awful row in Clydebank. I have always held the view that the rebuilding of blitzed areas should be a charge on the national Exchequer. It should come out of the taxation of the people of Bournemouth, Leamington, Bath and elsewhere, and not merely from the rates and taxes of the people living in such areas as I have mentioned.

The industrial burghs in Scotland—and the problem is much greater in Scotland than England and Wales—which were neglected in the nineteenth century and are relics of an age that is passing, in addition to the terrific problems which they already face, are having cast upon them from the Treasury—the general body of taxpayers—this further burden. The present Government have been doing that ever since they have been in office. The burden has been gradually removed from the general taxpayer on to the people who have to live in such areas. That is the tendency.

As has been said previously, I only wish that we had known for certain in May that the Government intended to do this. Even if we had known for certain, however, there are so many people who listen to hon. Members opposite before they listen to us. That has been a mystery to me ever since 1935 when, following the then Prime Minister's slogan "Trust me," those who did so found their trust misplaced a few months later. My own constituents were convinced that we would have a further Budget, but when I mentioned at my meetings at Kirkintilloch and elsewhere that the Chancellor had given away £150 million and there was still some left, supporters of the party opposite used to heckle me by saying there was more to come in October. I said "Don't believe that—you will have some taken off then,"—but I did not know that the right hon. Gentleman would take it, not from them, but from the lower stratum.

Like my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) I think the Chancellor has been completely dishonest. I confess to a certain sympathy with him, because much of our difficulty is the result of money being treated as a commodity—something to be bartered, bought and sold by moneylenders. Such difficulties will always be present until we can devise a mechanism by which money will be a standard, measurable unit and be to commerce, industry and society in general what the foot-rule is to all of us—or the micrometer is to the engineer. Everyone knows that tomorrow a foot-rule will measure one foot just as it does today. The ever-changing value of money, which this Government have done nothing to stop—and I admit that the previous Government were in the position of watching the value of money decrease—is something which has been going on for hundreds of years. Samuel Pepys got £3 a week and yet was able to flirt with Nell Gwynne. The value of money has for long been falling as a continuing process.

Someone, either in the Treasury or perhaps in our own party—that, I believe would be the party to do it—must get down to curbing, by controls, the manœuvring and gambling with the means of distribution and exchange. We work for money and we save it—and after fifty years we find that it is only worth about a quarter of its original value. That has been going on for centuries. Those who were born in 1800 and died in 1890 found the same thing happening. My father started farming in 1896, and moaned that what he had saved in 1904 was not worth a quarter of its value in 1917. That process was started by the Tories or the Liberals years ago. They destroyed the stable value of money.

It is much easier to live by gambling with money values than by working in the coal mines or the steel works. If one has the knowledge, one of the easiest ways of earning a living is to deal in money. I have never seen dealers in money completely on the rocks; even when they go "bust" they seem to be all right—but I have seen thousands of miners and steel workers left derelict at 50 years of age. I hope that I am young enough to live to see the day when this instrument of money, on which we all depend in the production and distribution of wealth, will be handled in such a way—under very strict control—that people can be confident that their reward in terms of a piece of paper which we call money will be honoured to its full value when it is needed to purchase consumable goods, and will not be progressively reduced in value, as it has been over the last three hundred years. At present, the value of one month's wages has decreased by the end of the next.

The people are getting fed up with the whole system that this Government are trying to run, and that we tried to run. If this country—and Western civilisation—is to be saved, the time must come when there is definite control of the type I have indicated; control not merely of coal, oil and other commodities but control of money, and a sense of responsibility here at the very centre around which our economy revolves. Only in that way can we get the stability, the exertion, and the production necessary for the happiness of our people.

6.28 p.m.

Captain Charles Waterhouse (Leicester, South-East)

The hon. Member for Dunbartonshire, East (Mr. Bence) started and ended his speech on the subject of inflation, and he was absolutely right so to do. We are living in a period of extremely rapid inflation. He has referred to the days of Mr. Pepys, when it is true that there was inflation, but in those days I believe that the value of money halved itself about every hundred years. Nowadays it almost halved itself in the six years when hon. Members opposite were in power.

In his opening speech yesterday my right hon. Friend the Chancellor again referred to this matter of inflation as being the cardinal issue. In that connection, he raised the point of increased consumption, increased wage demands, and strikes—and especially the dock strike. I do not think that it would be right for this debate to run its course without further reference being made to this particular aspect of the subject.

I am sure that everyone here believes that a man has a right to strike if he cannot get proper justice in a wage demand, but I believe that hon. Members on all sides of the Committee condemn the growing tendency for irresponsible strikes, those which are against the advice of the wisest men in the union, those which hurt the strikers and their friends as much as they hurt the community. The Chancellor said that the effect of the dock strike had gone deeper than perhaps we knew, and it may well be that we should not be discussing an autumn Budget today had it not been for that regrettable incident.

Mr. Bence

No.

Captain Waterhouse

One does not know. The hon. Member says, "No," but we cannot be sure. The effect of the dock strike—which went on week after week—on our exports was very great.

Mr. Bence

Let me assure the right hon. and gallant Gentleman—and I put this in no vicious way—as one who has been involved in unofficial strikes as a shop steward, that, generally speaking, unofficial strikes are caused as much by the stupidity of a foreman, or a charge-hand, or a manager, as by the stupidity of the workers. I have seen both types of people cause unofficial strikes and I ask hon. Members opposite, when discussing unofficial strikes, to mention the men on the other side as well as those on our side.

Captain Waterhouse

I am quite prepared to accept that as a general contention. There are faults on both sides in practically every quarrel. On the other hand, I think that there are occasions—and the dock strike was one—when more could fairly be attributed to one side than another. I do not want to press the point, but merely to make it so that it is not forgotten when we discuss this subject.

I believe that my right hon. Friend was wise to produce a Budget now. He has focused the attention of the whole nation, and possibly of the world, on our present problems in a way which nothing else would have done, and I believe that to be entirely to the good. It seems to me that as our present economic trend develops, this sort of interference by Governments will become increasingly necessary. In the old days the economy trundled along fairly well—100 to 150 years ago—with many setbacks and misfortunes; and, without any manipulation, the currency seemed to expand itself roughly as the economy needed.

Those days are past. We have now to accept a different system, and we accept a system under which the Government of the day make certain arrangements for the nation as a whole. If we are to have a period of full employment—and I hope that we shall have it for the rest of our lives—we must accept and welcome guidance and even accept and welcome unpleasant legislation when it becomes necessary.

I welcome my right hon. Friend's proposals. His arrangement for the financing of local authority loans is a thoroughly good one and overdue. I am sure it is wise to allow local authorities to go to the market so that the provident local authority can get the advantage of a rather better rate than an authority which is known to be improvident. In addition, the authorities have the Public Works Loan Board behind them ready to produce the necessary loan for a small authority and in special circumstances.

I never welcome any increase in taxes of any sort, kind or restriction, but I think my right hon. Friend was right in doing what he did about Purchase Tax. I think there was a little misunderstanding by the Leader of the Opposition yesterday when he implied that Purchase Tax was being used for a purpose for which it was never intended.

On looking up the report of the original debate, when the first Purchase Tax proposals were made, in April, 1940, I found that Purchase Tax was evolved to meet very much the position which exists today, except that the fiscal needs were then real—we needed the money—whereas we do not need the money now. Apart from that, emphasis was laid on the need to promote exports, to curtail consumption and to increase home production, and I believe that the modifications which have now been made will have that tendency.

The hon. Member for Dunbartonshire, East painted a sad picture of the effect of those increases. It is easy to exaggerate these things. I remember that when the Budget was introduced in the spring the right hon. Member for Leeds, South (Mr. Gaitskell), almost with tears running down his face, told us how difficult it would be in future for the poor newly-married couple to buy their vacuum cleaners and refrigerators and their television sets because of the increase in the initial hire-purchase charge. The right hon. Member today made a similar plea about the increase in the tax on kitchen utensils—5 per cent. of the wholesale price or about ½d. in the 1s.

Mr. Frederick Mulley (Sheffield, Park)

The right hon. and gallant Gentleman forgets that a whole range of kitchen equipment suffers the complete increase, because, formerly, it was not in the Purchase Tax ranges at all.

Captain Waterhouse

The hon. Member is right. I took the wrong example in referring to kitchen goods.

Textiles and other goods, which were free under the D scheme, will now be taxed by 5 per cent. and 10 per cent.—possibly ½d. in the 1s. on the retail price.

What difference will that make to anybody who needs these articles? But it will make a difference to someone who does not really need them but might buy them, and that is the strength of this proposal. Anybody who needs can perfectly well afford any of these things.

Mr. M. Turner-Samuels (Gloucester)

That part of the Budget does not stand by itself.

Captain Waterhouse

I am not suggesting that it does; I am meeting arguments put up by hon. Members opposite. If they advance these arguments they must expect me to answer them as well as I can.

I do not like the increased tax on distributed profits. In fact, as I have said, I do not like increased taxes at all. But hon. Members cannot now laugh this off as trivial and ask, "What is 5 per cent.?" After all, 5 per cent. is. 1s. in the £, which, in this connection, is quite a lot. If Income Tax were raised by 1s. in the £ hon. Members would say it was a very material increase indeed.

Nor do I believe that industry can bear much more tax and still continue to prosper. I take the view, which I know my right hon. Friend shares, that incentives are far better than controls, and I hope that this increase in taxation will be temporary. I hope that before long it will be possible for my right hon. Friend to remove them and to bring about material reductions in taxation down the whole range, for I believe that as a nation we are overtaxed. Hon. Members opposite laugh when anyone speaks of the taxation of what is called the rich, but I do not think that anyone can defend, in theory or practice, personal taxes which run up to 17s. 6d. or 18s. 6d. in the £.

I know that it was once said, "Do not look at what is taken; look at what is left." That is all very well. When one is living in a country where incentives are necessary and desirable, I think it is extremely dangerous to take away 18s. 6d. in the £ of what any man earns, if one believes his earnings are worthwhile at all for the nation, as well as for himself.

My right hon. Friend spoke—and this is the last point I want to make—about the possibility of economies. He said that was a field which had been gone through most carefully. In fact, he said, the truth is that we have been wielding the knife continuously for four years, that four years ago Government current expenditure was eating up 29 per cent. gross of the national production, and that this year we have got it down to 26 per cent. I do not in any way disparage what my right hon. Friend has done in that direction. He has done quite a bit, but I think that he is wrong in saying that no more can be done.

I feel that my right hon. Friend, in this matter, is in an extremely difficult position. He is surrounded by charming colleagues on the Front Bench. But they are all spenders. They are all heads of spending Departments. They do their best to help him, but they have at least a double allegiance, one allegiance to their Department and to the activities which they are controlling in the nation, and another allegiance to the Chancellor of the Exchequer. What do we here do to help any Chancellor of the Exchequer who wants to make economies?

There are twenty-six Supply Days every year—twenty-six days on which we ought to be going through our expenditure and the way in which it is controlled, but, in fact, we do not. Hon. Members opposite rather glory in expenditure. They believe that expenditure is good in itself, provided it is national and not personal expenditure.

Mr. Harold Wilson (Huyton)

We did not notice any very great enthusiasm from the right hon. and gallant Gentleman this afternoon in supporting us when we were querying the expenditure of over £11 of the taxpayers' money on the sending of a public relations officer of a Government Department to the recent Conservative Party Conference. Will he be as active in pursuing that as he was in other things?

Captain Waterhouse

I was not in the House to hear that argument, but I am certain that if it was made by a right hon. Gentleman on these benches it was made in a good cause. I give the right hon. Gentleman opposite this, that perfection does not always lie even on these benches, but I will not allow him to think that he and his friends are as anxious to curtail expenditure as are we on this side of the Committee.

I return, therefore, to my main argument. There are twenty-six Supply Days. How are they used? In fact, they are not used for going through expenditure. They are used, quite properly, for the redress of grievances, but the redress of grievances nearly always means the spending of money, and if one looks through the Supply days we find that much more often then are recommending the spending of money than the curtailment of expenditure.

There are two Committees upstairs—the Public Accounts Committee, which deals with money which has been spent, and the Estimates Committee, which deals with the estimates of money which is to be spent. There is no control at all of policy. We are completely bound in the Estimates Committee by the policy of the Government of the day. The terms of reference are: Economies consistent with the policies implied in these estimates. If we are to rest on a literal interpretation of these instructions, it means that our power of review of estimates is very slight indeed, and even there a whole field of expenditure outside this country is removed from our power of direct scrutiny because the Estimates Committee, it has been decided, may not go to a foreign country.

The Chancellor said that he was satisfied that no major reduction could now be made without major changes of policy. That rather depends on the definition of the word "major." I believe that there are still considerable economies which can be made, but I am not going to weary the Committee by giving a whole string of them. I have, however, three or four which I had put down, and that is in no way an exhaustive list, as suggestions of the sort of direction in which economies might be made in our present conditions without making any major change of policy.

I put, first, the expenditure of the Ministry of Labour. The vast ramifications of employment exchanges throughout the whole of the country were built up for the days when we had large unemployment, and today we have two jobs chasing each unemployed man. I cannot help feeling that some of the £10 million spent in the provinces out of £20 million spent altogether by the Ministry of Labour might well be saved.

The hon. Member for Dunbartonshire, East has referred to the Health Service and what we have done there. I disagree with him completely in his condemnation of our action. I believe that the charges which we put on were reasonable charges and no hardship to anybody or to any section. In my view, those who can pay for their health services should pay at least a portion of them, and the free service should be confined to those who are genuinely unable to pay for it themselves.

There is a great expenditure on research. Scores of millions have been spent on research by the Ministry of Supply and the Ministry of Agriculture has research station upon research station. Of course, we have to have research—we should be fools to cut it unwisely, but we should be fools to continue a too lavish expenditure. There is a danger of overlapping services. Take, for example, agriculture. There are the agricultural executives, the agricultural advisory services, the Agricultural Land Commission and the Agricultural Research Council, one piled on top of the other. Are we quite certain that there is not a considerable expenditure that might be saved without doing any harm to agriculture at all?

Mr. Thomas Williams (Don Valley)

The right hon. and gallant Gentleman would not deny that, thanks to this research and these advisory services, with fewer employees than in 1939, the production of food is now up by 50 per cent.

Captain Waterhouse

I would not deny the result, but I am not sure that I agree with the means. Most of these things have been evolved by farmers themselves, working on their own land, and not by people thinking out schemes, people whom the right hon. Gentleman has put in very elaborate buildings.

Finally, of this list I refer once more to the old hardy annual, school buildings, which every one of us knows to be sometimes on a scale which is quite unjustified by our present economy.

May I say, again, that I congratulate the Chancellor of the Exchequer on his courage in having produced a Budget at this time. I think that he was right in his timing. Apart from the fact that I do not like any increase of taxation, I think that the increases which he has made are salutary and as good as he could have chosen, but I look forward to the time, as I have said, when we shall be able to undo these increases and proceed to further diminutions of our tax burden. I ask the Committee when the time comes, to support the Motion, because I believe that it is for the benefit of the nation as a whole.

6.50 p.m.

Captain M. Hewitson (Hull, West)

We have just listened to what I would term a Tory means test mentality. Two years ago, I described the Chancellor's Budget as being brought forward by a backwoodsman with a mustard plaster mentality living in a penicillin age. After listening to that terrific statement of his yesterday afternoon—that is the only expression I can use—I cannot see any reason to alter my opinion.

I am thinking not so much of the highflying financial policies that we are hearing propounded, probably from both sides of the Committee, but am thinking in terms of the trade union branch meetings that will begin tomorrow night. What is to be the answer of the trade union official to the demands that will start tomorrow night, based upon the Chancellor's speech yesterday? The Chancellor of the Exchequer meets committees of the Trades Union Congress and impresses upon them and upon the trade union leaders in general the need for restraint in wage claims. This has been happening over the years, even with a Chancellor from my side of the Committee.

What argument is to be used this time? Until now, we have had some sort of argument about why wage claims should not be pressed to the full, but this time we know that the mentality of employers' organisations has been changing over the past two years. The organisations of employers have been getting back to the pre-war mentality of discounting the union official and turning him down stone cold. If they want to carry that mentality forward now, on top of the claims that will go in after the Chancellor's speech yesterday, I warn the Government that they will see industrial dispute such as we have not seen since before the war. That is the atmosphere we are facing and it has been building up for some time.

If it were not for the right hon. and learned Gentleman who is Minister of Labour, there would have been very much of that before now. The Tory Party should go down on its knees and thank God that it has a Minister of that description, for he is about the only one on the Government Front Bench who has any trust from the workpeople.

If the Chancellor had come forward with proposals for lowering costs and reducing, instead of increasing, the household budget, he could have been assured of a lot of co-operation from industrial labour leaders throughout the country. While we may argue the issue of the Budget in the House of Commons and be defeated in the Lobby, as we will be by the majority of the other side, the fight does not stop there. It will commence in the workshop, in the trade union branch, and in the board room when employers are faced with our claims. The Tory party are the guilty men. It is they who are responsible for all this.

The right hon. and gallant Member for Leicester, South-East (Captain Waterhouse) spoke of the "irresponsibles," who, he said, were guilty of causing the dock strike and had brought about the crisis. I suggest quite kindly to the right hon. and gallant Member that he does not know what he is talking about. He has no conception of a docker's life; his very speech made that clear. He spoke very freely of stopping school milk from youngsters who should not have it, and he suggested disparagingly that television sets are not for workers. That is the mentality he conveyed in his speech. I suggest to him that he was speaking about a side of life of which he has no conception whatever.

The other side of the story which terrifies me is the effect of the Budget on the city that I have the honour to represent—Hull. What will happen to Hull as a result of these proposals? That city was the most devastated city outside London during the war. When we asked the Minister of Housing and Local Government, on 11th October, to give a definition of policy and to state what would happen, he sent back a two-paragraph letter and said he would make an announcement in the House after the Recess. Well, he made his announcement this afternoon.

Hull has a housing list of 15,000 people, living, as my hon. Friend the Member for Dunbartonshire, East (Mr. Spence) said, not in slums or properties which would come under slum clearance orders. These people live in ordinary houses, two, three or four families in a house. Under the new proposals, which are backed by the Treasury, what will happen to these people?

The Government say, "Look at the wages they are earning. Look at the Ministry of Labour returns. Look at the fishing industry of Hull and see some of the high wages that men are getting." But we have to be factual about this and look at the wages as they are earned and as they go into the ordinary home. Instead of talking about wages of £10, £12 or £14 a week, we must think of the general level of wages in the lower class job in the lower grades—£7 and £7 10s. a week. These are the people who will suffer and it is they for whom we will ask redress.

We in Hull were looking forward to the development of some of the great schemes which we have been building up and many of which have been commenced. The new financial proposals, however, mean that we must stop, for example, our project to abolish level crossings one cannot leave the city without going over several crossings. Redevelopment of the city centre is half finished, the remainder being open space and rubble. These financial proposals mean that we shall not be able to go on with that development and that our housing programme will come practically to a stop.

I appeal to the Chancellor of the Exchequer to see that when he introduces his Finance Bill he removes some of his harsh restrictions for areas like Hull, which were badly bombed and damaged during the war. If the right hon. Gentleman would make some concessions for the bomb-damaged areas at any rate, I assure him that he would receive support for such concessions from this side of the Committee. It is a serious matter and we ask the right hon. Gentleman to look at it just as seriously as we from those areas see the position.

In Hull, we have had a hard core of unemployment over the last six, seven or eight years of 5,000 men and women. We have never been able to break that hard core, but with the projects that we now have in hand for rebuilding sections of industry in the area and for developing the city, we had hopes of seeing that number diminish and returning to something like a normal labour situation. I humbly ask the right hon. Gentleman to make some concession to areas of that description.

On the other side of the picture are our old people. We must all become old some day. Men and women give a whole life of service to the country in production, but when they come to the eventide of life there is nothing from national funds but their little pension, although we have heard that they can get the amount lifted a little by going to the National Assistance Board for the Tory means test. These people are entitled to some consideration. Are they to be turned down again by the benevolent autocrats who are running the Government? Are they to be left down the road, as they always have been? [Laughter.] The President of the Board of Trade can laugh, but these proposals will mean that the weekly costs of the old people will increase, and an increase of 1s. a week is a lot to them. It can mean the difference between sitting without a fire two days in the week and not having any fire at all.

Viscount Hinchingbrooke (Dorset, South)

Nonsense.

Captain Hewitson

It may mean going without meals a whole day.

Viscount Hinchingbrooke

No. That was fifty years ago.

Captain Hewitson

It is now. Viscount Hinchingbrooke: No.

Captain Hewitson

It is now. The hon. Gentleman should come to Hull. I could take him not to one but to a hundred houses where that is happening today. He should not stick his neck up and say "No." It is happening. It is part of our life. We can see it and feel it. I suggest that some hon. Gentlemen opposite should go to see these things. [HON. MEMBERS: "We do."] They may see them at a distance, or over a garden wall, but they take no notice. Their attitude is to say, "Poor people. Let them go on National Assistance."

I am afraid that I have rather lost my temper in the last few minutes. I will speak of Hull again. There, we need help. Ministers have visited us there, and we have shown them our city and what we have in project and told them what we should like to do. Each Minister who has been down there has expressed sympathy and a desire to help, but when Ministers have gone away we have got what the farmer gave the lad for holding his horse—"nowt."

In conclusion, I ask again humbly for some concessions to be given to such areas as Hull. They are needed, and unless we get them we shall be in an impossible position. Developments that we have in mind will be impossible to carry out. We blame the Chancellor personally for this Budget, but what the Chancellor is demonstrating is the ideology of the Tory Party. The Tory Party is a party of backwoodsmen, and their ideology is "Backwards." As I have already said, they are backwoodsmen with mustard plaster mentalities living in the penicillin age.

7.4 p.m.

Mr. Paul Bryan (Howden)

I ask the Committee to allow me the indulgence which by tradition it accords to a maiden speech. May I use this special occasion to say how proud I am to represent the new Howden division. This division stretches over the Yorkshire Wolds to the Humber in the south, to the Derwent in the west. It is almost entirely agricultural and as it has some of the best farmed land in England its contribution to the national economy is very great.

We often hear in this Chamber of the new industrial revolution, but I believe that the new agricultural revolution is very nearly as impressive. Farming techniques improve day by day and at great speed. The search for improvement in farming is often more intense than it is in industry. In my own division one can see this in the real and active interest of the farmers in such things as the experimental farm at High Mowthorpe, the new East Riding Agricultural Institute at Bishop Burton and the experimental farms that the B.O.C.M. runs at Barlby, and above all in the yields of the farms which are constantly increasing.

The national overdraft is the centre of discussion today, but I do not want to discuss the Chancellor's remedies, not only because, as I am making a maiden speech, I do not want to enter into controversy, but because I believe they are sound. So I offer no criticism at all of the total resources which the Chancellor sees fit to devote to the home front. However, I do believe that there is one feature of our economy about which no hon. Member who has travelled abroad can be happy, and that is the proportion of our resources which we are devoting to new modern roads.

By new modern roads I mean roads devoted to motor traffic like the autobahnen in Germany and the motorways in America. Judging by the record of new motor roads built in the last twenty-five years nobody can doubt that we as a country have put a lower value on a modern road system as an economic asset than have America, Germany, Holland, Belgium, or most of the other modern countries. I shall not speak of the Americans' performance and programme because, obviously, the American circumstances are so entirely different from our own, but let us look at Germany, our chief competitor.

In what we now call Western Germany there were 1,300 miles of autobahnen built before the war. The significant thing is that despite this vast, ready made layout of modern roads, and despite the fact that the Germans have had to use up much of their resources to rebuild their war shattered industries—despite all that, still they think it worth while and sound economics to be building more motorways today.

During the Recess I met Dr. Goerner, the director of the German equivalent of our British Road Federation. He gave me a map which showed the new autobahnen actually financed and planned, to the extent of 250 miles. Of that mileage they expect to have 56 miles built within the next two years, and I personally do not doubt they will build them, because if one goes to Germany today one can see new autobahnen being built around Frankfurt and other places. An interesting thing is that they are using English machinery to do it. They think it is worth while, despite the pressure on the rest of their resources, to build these roads. Of course, one sees the same thing in Holland and Belgium, each with a modern road system but extending it today.

We in this country have so far built no modern motorways, and we do not expect to start on any for another two years. Since the war, as hon. Members who are in industry know, there has been a great vogue for time and motion study, often with great effect. One knows of firms which appeared to be efficient on the surface, but which have discovered, through this scientific study, that they could increase production by 30 per cent. or 40 per cent. by rearranging the flow of work through a factory and cutting out obstruction and keeping up a steady speed.

I believe that if it were physically possible to have a super-industrial consultant to make a works study of England looked upon as one vast factory his figures would show that production now goes fairly efficiently and smoothly through the factories and within the factory walls, but that as soon as the goods reach the conveyor belt outside the factory walls, in other words the roads, the bottlenecks and hold-ups are so great that there is a real opportunity for a major increase in production. Our industries are so highly sectionalised that there is scarcely an article whose component parts do not have to go to a factory over our antique roads. I believe that by unduly rationing capital to that part of the process of manufacture, far from saving our resources we are almost certainly wasting them.

In Europe and America, where they have great experience of motorways, there are plenty of research figures which show the actual net economic value of these roads. All these figures point to the same conclusion, that the savings in petrol, tyres, wear and tear, time, number of vehicles, reduction of distances, and so on, add up to such a saving that they represent a return on capital which no live businessman could possibly resist. Mr. Gerritson, Director of the Budget of the Dutch Ministry of Finance, has said: The yearly benefits to traffic, and therefore, to the community, of our new roads prove to be several times their yearly costs, including interest and depreciation of the initial construction capital together with maintenance charges. It is difficult to point to other possibilities of investment with such great returns. The modern motorway is not just an additional modernised road. The difference between, say, the Great North Road and the Cologne-Munich autobahn is that on one it is possible to average safely just about double the speed on the other at less cost. A difference of that order is not simply a road improvement. It constitutes an entirely new form of transport which we in this country can no more ignore than our great grandfathers could ignore the railways in their day.

I am stressing the motorway section of road transport because I believe that there we should get a bigger return rather than by patching up the old roads. Experience abroad seems to show that only the building of motorways provides the transport that industry needs, and one gets at the same time a syphoning off of heavy and fast traffic from the existing roads. Even a road like the A.1 might seem a good road and need less spending on it when, in years ahead, the heavier traffic has been syphoned off to the proposed London-Yorkshire motorway.

We have to think of the alternative. As hon. Members know too well, the number of vehicles on our roads is going up by about 500,000 a year but the thing to be borne in mind is that all this torrent of new vehicles does not represent the full expansion of motoring. The full expansion is artificially kept in check by high taxation. There are some interesting figures in "Lloyds Bank Review" this month which suggest that a weekend motorist, travelling 4,000 miles a year, can now keep a car at a cost, including depreciation, of £110 a year, and of that figure £45 represents taxation. When one bears that in mind and the enormous increase in production which has been planned by all the motor companies, one realises that we have only to have a slight easement in taxation and rise in incomes for the torrent to become an entirely uncontrollable flood.

We are grateful to the Chancellor that at this time of general pruning he has allowed the road programme to stand, but we must remember that the present programme is in itself only a postponement of what we really need and that in this matter the longer the postponement the greater the cost and the problem. I am sure that every hon. Member will agree that we want our people to have motor cars. Not only do motor cars give them a fuller life but I believe that when every family in the country is in sight of owning a car there will be a bigger incentive to hard work than even television and washing machines provide today. I conclude by thanking the Committee for the very courteous hearing that it has given to me today.

7.14 p.m.

Mr. Frederick Mulley (Sheffield, Park)

This is the first time that I have had the privilege of following a maiden speaker and I am very glad that I do so after the very agreeable speech of the hon. Member for Howden (Mr. Bryan). I understand that the hon. Member comes to the House of Commons with a very distinguished war record and also a very consistent electoral record in so far as he has several times opposed my hon. Friend the Member for Sowerby (Mr. Houghton). Whilst one notes his wisdom in seeking pastures new, I hope that he will be able to renew his political and economic battles with my hon. Friend in the course of our economic debates. I am sure that, after the agreeably phrased and well-informed speech to which we have listened, I shall be expressing the sincere views of both sides of the Committee in saying that we hope we shall hear more from the hon. Member.

I am sure that the hon. Member will forgive me if I do not follow his points about road policy and I turn to an analysis of the Budget and of the Chancellor's speech. As we listened yesterday I began to wonder when we were going to have any reasons at all for the unusual circumstances of an Autumn Budget. After a great number of platitudes and a lecture which I think was designed for the benefit of the 1922 Committee and by which I gather the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse) was not convinced, we came to what were in my view a string of quite inadequate measures.

If it were not quite so serious, I could not have helped being rather amused by the platitudes themselves. I have not counted the number of times that the phrase "the free economy" entered into the Chancellor's speech, at a time when we know the Government are committed to bring in some kind of legislation to induce at least a little competition into the economy. The President of the Board of Trade might have been much better employed in giving his attention to restric- tive practices rather than today adding his platitudes to those of the Chancellor.

One phrase which took my attention was that in which the Chancellor spoke of our troubles being due to "an over-ebullient prosperity." I wonder whether the right hon. Gentleman meant us to take that phrase in a very literal sense. I believe that in its original sense the word "ebullient" meant "boiling over." When things boil over people are likely to be scalded. We found yesterday and this afternoon who are the people who will get scalded as a result of the Budget—the tenants of the rent-controlled and council houses and the housewives. I do not agree with the Chancellor that it is the abundance of our economy that creates the problem. A good deal of our problem today is due to our having a hard-boiled Chancellor.

In the same passage, yesterday, the Chancellor slandered the reputation of the late Lord Keynes when he said, I do not doubt that, had he been with us, Keynes would have noted and prescribed for the symptoms of over-ebullient prosperity, just as he diagnosed and treated the indications of under-employment in his day."—[OFFICIAL, REPORT, 26th October, 1955; Vol. 545, c. 204.] The whole emphasis of the Chancellor's speech was that this was a new problem. No one had ever before been faced with the problems of full employment and inflation.

It is perfectly true that Lord Keynes in his works, and particularly in his "General Theory of Employment," emphasised the steps which should be taken to bring an economy from a position of under-employment to one of full employment. But it is perfectly clear that an exposition of the remedy for a situation such as that of the present is to be found in those works, and it will not do for the Chancellor merely to say, "Would it not be nice if Keynes and the economists had found some way out of our problems?" But, of course, they have and the trouble with the Chancellor is that he will not listen. He will not pay attention to what has been written on these subjects, or he has not bothered to find out.

Quite the reverse from Keynes being out of date, I discovered by a chance opening of one of his books a phrase which the late Lord Keynes would have used had he been in the Committee today. After discussing the stupidity of high interest rates at a time of boom, he says: We reach a condition where this is a shortage of houses, but where nevertheless no one can afford to live in the houses that there are. In the course of the next few months we will see the validity of that prediction. It is quite clear in Sheffield, in my constituency, where there is a waiting period of eight years for council houses, and all those who are or have been tenants of houses, even slum condemned houses, are not allowed to be on the list, that the financial measures indicated by the Minister of Housing and Local Government this afternoon will be a great hardship.

It is clear that in his analysis Keynes put the whole emphasis for the maintenance of full employment without undue inflationary pressure on budgetary policy and what the Chancellor has failed to do is to face up to the need of using the Budget as the controlling power in the economy. I do not necessarily accept all the prescriptions of Keynes, but I do say that we cannot maintain full employment in an economy such as ours unless measures are taken centrally through the Budget to control the volume of investment and to level that with the volume of saving, if necessary by having a very large Budget surplus. Clearly the Chancellor's old-fashioned policies will result in the old-fashioned result of underemployment.

I want to illustrate this point with further references to Keynes after a brief examination of the principal measures which the Chancellor has now introduced. I am bound to say that I agree with the provision he has made for the reduction of Purchase Tax on silverware and for the craft products of the cutlery industry. I am sure that I carry the Economic Secretary to the Treasury with me on this point. For year after year in Finance Bill debates I have put down Amendments in the form which the Chancellor has now accepted and I do nothing but commend the Chancellor on the wisdom of that provision.

The Economic Secretary to the Treasury (Sir Edward Boyle)

I hope that on that point the hon. Member for Sheffield, Park (Mr. Mulley) will carry with him the Leader of the Opposition.

Mr. Mulley

It has taken me three years to convince the Chancellor of the Exchequer, but I am sure that I can convince the Leader of the Opposition in a much shorter time.

In general, it must be agreed that at its best the Purchase Tax weapon is a very clumsy device for regulating the economy and the way in which the Chancellor chooses to use it, virtually on a block, non-discriminatory basis, is quite pointless. We come back to the problem which used to face Chancellors—that of import duties. If an import duty or Purchase Tax is successful in that it stops people buying those articles to which they are applied, there is no revenue; alternatively, it becomes merely an easy way of raising additional revenue. I appreciate that the revenue extracted in this way reduces the spending power of the public. However, if all the Chancellor wanted to do was to raise another £75 million, he should not have put the main burden of that additional revenue on the housewife and should not have included in the range of Purchase Tax all the kitchen and other utensils until now exempt.

In the same way I criticise the increase in tax on the motor industry. I hold no brief for the motor industry, because I feel that it has missed some very large opportunities in the last few years. With the very large increase in the market in 1955 the industry is still exporting only at the same rate as in 1951 and a good deal of initiative and opportunity has been lost, especially when one recollects that production in the industry has almost doubled. The rate of cars exported in 1950–51 and the present rate are almost the same, but output today is nearly 800,000 as opposed to 400,000 at that time.

Mr. Osborne

The motor car industry is having to meet much greater competition, especially with the Germans, and unfortunately German prices are much lower than ours.

Mr. Malley

I agree that the industry will meet competition, but surely nobody, least of all the hon. Member for Louth (Mr. Osborne), thought that we would continue to sell exports without competition. My complaint is that the motor industry does not face up to the competition. We do not give our cars a long enough run. Volkswagen has already produced almost half the annual output of all of our cars put together and I do not think that our manufacturers have given enough thought to the nature of the German competition and of market research. While I do not worry if the motor industry loses profits as a result, I am concerned about losing exports and I am worried about the employment position of engineers and other workers in the industry.

Instead of the imposition of another 10 per cent. Purchase Tax, the industry should have been told to reach a certain export production. The increase in Purchase Tax will not do very much except add to the inflationary position and make our competitive price position even worse. In 1951 the industry was exporting more than 70 per cent. of its production. Today it is exporting less than 45 per cent. There will not be a channelling of extra production into the export market unless more than a 10 per cent. increase in the Purchase Tax rate is done. Those directions must be given and backed by physical controls as they were in 1950–51.

I want now to refer to the increase in Profits Tax. While naturally welcoming this recognition at last of the problem of profits and the difficulty of trying to get workers to accept their present level of wages with the high payment of dividends, I am bound to tell the Committee that an increase of 5 per cent. is not adequate. It does not go to the root of the problem of higher profits and dividends, because the Committee must realise that in the inflationary situation in which we find ourselves, with a steady increase in price levels, a great deal of windfall profits are made by people who are simply holding stocks.

They buy one week and sell two or three weeks later at an enhanced price. A good deal of the profits are inevitable in an inflationary situation and a 5 per cent. increase in the distributed rate is not enough to take care of that aspect.

Mr. Douglas Glover (Ormskirk)

That argument is entirely opposite to that put by the right hon. Member for Leeds, South (Mr. Gaitskell) who said that during the last six months the terms of trade had turned in our favour, which means that there are losses on stocks and not profits. The hon. Member cannot have it both ways. If it is right one way, it is wrong the other.

Mr. Mulley

I have not heard of very substantial losses on stocks. There may be losses on raw materials, but they form a very small percentage of the total production of the country. Every time there is a wage increase there will be thousands and millions of pounds worth of work in progress. The prices will be calculated on the wages when the job is finished and not when it was begun. Industries jump in very quickly to put up prices, which gives a profit to all the entrepreneurs. I dare say commodity dealers may be suffering a little nowadays, but in the days of the Korean War they made enough to last for a long time.

To turn to the question of undistributed profits, it is argued that the rate of 2½ per cent. should be kept, because it gives firms an incentive to plough back profits into the business rather than to pay them out by way of dividends. But it is asking a lot if, because of that—if firms do plough back their profits instead of paying dividends—there should be some kind of wage restraint. It must be recognised that if a worker postpones a wage increase, the wages he gives up are gone for ever. But the dividends that are given up, because of a conservative policy of ploughing profits back to reserve, create an increase in the capital value of the shares which, if they wish to do so, shareholders can take out in the way of capital gains. We have seen some firms which have tried to follow this policy and have been subjected to take-over bids and trouble of that sort.

Mr. Angus Maude (Ealing, South)

I am sorry to interrupt the hon. Member, but I think that argument is quite unsound. It is of course quite true that there is some capital appreciation sometimes, if enough is ploughed back, but investigation of balance sheets and Stock Exchange values shows that it is proportionally very small. It is nonsense to say that the shareholder gets something and the wage earner does not. If the money is ploughed back into the right sort of productive investment, it normally results in greatly increased earnings for the workers at a later stage, as well as increased dividends.

Mr. Mulley

Of course, but the greatly increased earnings which the workers get are obtained, so far as my experience goes, as a result of trade union negotiations which are usually opposed. I do not know of any instance where an employer ploughed money back in order to pay higher wages. While everyone cannot understand exactly how Stock Exchange prices go, I think that the hon. Gentleman will agree that if it is possible for a firm to pay a capital bonus, that has a very favourable influence on the market price of its shares.

Sir E. Boyle

Is the hon. Member really saying that if there is an increase in the capital employed in industry it does not, in the long run, result in higher earnings, as well as the possibility of higher dividends?

Mr. Mulley

Of course it means higher earnings, but take, for example, the case of the Standard Motor Company, which paid a 30 per cent. dividend in 1950 and now pays 12 per cent. which represents an equivalent of 42 per cent. because of bonus issues. That has the double advantage of bringing in more earnings, and, at the same time, it is there in the form of capital which can be drawn out by the shareholder who wishes to sell his holding. I do not think that there can be any dispute that the shareholder is benefiting. He is the legal owner of the reserves of his company and if the money is put to reserve it is as much his as if it were paid out in dividends. If a worker postpones a wage claim, he never gets the money he would otherwise have had. I am bound to tell the Committee that this 5 per cent. will not be enough, and no trade union leader can pretend it is enough to postpone the wage increases which the cost of living and the general productivity of the country demand.

On this point about shares, I wish to read again from "The General Theory of Employment Interest and Money," by J. M. Keynes, because he had several very appropriate remarks to make about the state of our economy which are applicable today. After discussing it as it was in the 1920s, with speculation in America, and explaining that many people there—as indeed many people here today—were not concerned about income from their investments, but were seeking only capital gains, he says: Speculators may do no harm as bubbles on the steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done. Those words of Keynes, written in 1937, apply today, and we have seen in the evening papers the attitude of the Stock Exchange to the Chancellor's Budget. There has been a general rise of shares, and I condemn the Chancellor for not dealing with the inflationary influence and the speculative influence that a Conservative policy has meant in the money market, and particularly on the Stock Exchange.

Mr. Osborne

May I ask the hon. Member a question?

Mr. Mulley

I wish to get on, but I will give way in a moment.

I wish to speak for a moment about the rates of interest and to contrast the attitude of the Chancellor towards the public sector and his attitude to the larger sector, namely, that in private hands. I wonder what effect his credit policy would have had if we had not enlarged the public sector during the period of the Labour Government. I wonder if it would have been better for the general control of investment policy if the steel industry had still been in public ownership? What has happened is that while the Chancellor is quite prepared to give directives to local authorities and gas boards and electricity undertakings, he has abrogated the control of the private sector and given it to the local bank managers.

The direction of the economy today is in the hands of local bank managers and I am prepared to concede that quite a number of them may be more competent to do the job than the Chancellor. But I say that it is running away from responsibility to pass to banks largely at a local level the burden of judgment as to whether this scheme or that is in the national interest and whether one should get an overdraft for this or that. I believe that the only way we can get any kind of stability in the economy is if the Chancellor, through the Budget, is prepared to exercise his influence.

It is not a new problem, the problem of full employment and inflation, and it has been said by people more eminent and more academically qualified than I that money measures alone will not suffice to deal with the situation. Since the Chancellor does not appear to have paid any attention to any of the works on this subject, I will give him another extract from J. M. Keynes. Perhaps the Economic Secretary—I happen to know he has read the book—will pass it on to his right hon. Friend. I think this passage is very relevant to the problem which now faces us.

Lord Keynes is talking about the problem of the rate of interest and the balance of payments position: Under the influence of this faulty theory"— the classical theory which the Chancellor is now pursuing— the City of London gradually devised the most dangerous technique for the maintenance of equilibrium which can possibly be imagined, namely, the technique of the bank rate coupled with a rigid parity of the foreign exchanges. For this meant that the objective of maintaining a domestic rate of interest consistent with full employment was wholly ruled out. Since, in practice, it is impossible to neglect the balance of payments, a means of controlling it was evolved which, instead of protecting the domestic rate of interest, sacrificed it to the operation of blind forces.

Mr. Frederic Harris (Croydon, North-West)

Why not give us a copy of the book?

Mr. Mulley

It is in the Library. The hon. Gentleman may not wish to pursue what is a very serious and basic problem in our economy in a reasonable way. If he wishes to swap slogans across the Floor of the Chamber, I am prepared to do so, but as the slogans of the party opposite during the last Election cause irreparable harm, I think that from the benches opposite we might have a more sober approach to the real problems with which we are concerned.

The essence of the theory, and, indeed, the practice, of controlling the economy is that the rate of interest itself is not a very effective means. The thing that governs the behaviour of businessmen is their expectation of profits in the future. Indeed, the academic theory was subjected by a group of Oxford economists to an examination in discussion with a large number of businessmen. Of course, they told the economists—I expect the businessmen on the benches opposite know this already—that what they worry about when borrowing money is not the rate of interest which they are going to pay, but the rate of profit which they expect to make with the money.

If the level of expectation is high, then the businessman does not mind what rate of interest he pays. Therefore, it is rather foolish for the Chancellor of the Exchequer to stick up the Bank Rate, because it does not have the effect of dealing with ordinary business investment. It merely cripples the operations of local authorities and slows down their housing programmes.

Mr. Osborne

The hon. Gentleman is really quite wrong in what he says. Of course high money rates deter the efficient businessman from borrowing, and it is only the efficient businessman who can afford to borrow. He is the best employer and produces the best goods. On the point about profits, of course the private businessman has to look at the matter from that viewpoint, because, otherwise, he could not continue in business. He is not a nationalised industry which can carry on at a loss.

Mr. Mulley

I am sorry that the hon. Gentleman got so wound up about it, but perhaps he will explain to me afterwards why it is that there are people in the City today prepared to pay an interest rate of 18 per cent. for a three-months' loan in order to finance hire-purchase transactions. Why do business people have these expectations of high profits? They have them because in the last Budget the Chancellor deliberately distributed an amount in excess of what he is now taking back in order to oil the Tory Party election machine.

The Committee should examine this point, because the Chancellor's reputation is at stake. Did the right hon. Gentleman know in April of the forthcoming crisis? There is extensive evidence to show that about that time Treasury experts were submitting material to O.E.E.C. about this country's internal position. One can be charitable and ask whether the right hon. Gentleman genuinely miscalculated, or, on the other hand, one can ask whether he deliberately withheld information and delayed action because there was going to be a snap Election.

I leave the Members of the Committee to form their own opinion on that point, but it is my opinion that, in either case, the Chancellor is not fit to carry on in office. If he did not know the state of the economy and about the dangers towards which we were moving then he was incompetent, and if he did know the position and deliberately withheld the information in order to snatch an electoral victory for the party opposite, then that was despicable. Clearly, a man of that character cannot command the confidence of the country.

Even at the time of the Election, as most of us on this side of the Committee tried to tell people, though they did not listen to us, all the talk about prosperity was "phoney." Had hon. Members opposite really believed their own Election addresses they would have been opposed to an Election then because the country would have continued to become more prosperous under the Conservative Government, and a year later they would have got even more votes. They knew, as did the Chancellor, that the only opportunity of the Tory Party being returned to power was to have the Election in May.

Mr. Osborne

Do not be such a bad loser.

Mr. Mulley

Naturally, like everyone else, I should have liked my party to win the Election, but I am more concerned about the hardship which this electoral device is inflicting on the people whom I represent. I wish very forcibly to make the point that the expectations which are the determining factor in the outlook of the businessman were raised by the campaign of prosperity run by the Tory Party in every newspaper, on every hoarding and in every speech delivered for a whole month during the Election.

One cannot blame employers or workers for saying, "This is a time of prosperity. Why do not we get something out of it as well?" These expectations of prosperity were based on the speeches of the Chancellor, who, in my view, has been the architect of our present difficulties. Had he not done anything in April except give a clear picture of the problems which were approaching, and had he not made any tax increases, or anything of that sort, I am sure that the businessman and the ordinary man in the street would have recognised the precariousness of the external position of the country, and we should have been saved an autumn Budget, the proposals of which press hardly on both the housewives and the tenants of houses. I have no doubt that in order to win the Election the Chancellor was prepared to put second the interest of the nation.

7.47 p.m.

Mr. Arthur Holt (Bolton, West)

I am very glad to follow the hon. Member for Sheffield, Park (Mr. Mulley). He is very fond of quotations. I, also, have had sent to me a very nice quotation. However, I shall resist the temptation to read it to the Committee, though, perhaps, I can pass it along privately to the hon. Member. This quotation, too, is by an eminent economist, perhaps even a little more eminent than Mr. Keynes. He went by the name of Smith, and his Christian name was Adam. No doubt the hon. Member for Sheffield, Park, will have great pleasure in reading the quotation later.

The most serious thing we heard from the Chancellor yesterday was undoubtedly the Budget. I do not think that anyone who has watched the Chancellor in recent years and who has made his own efforts to direct this country along the road of a freer economy can be anything but greatly distressed by the Budget. I cannot think of a single thing to be said in its favour. It is a complete condemnation of the Chancellor's approach to the present situation. It is a policy of higher prices, of mopping up surplus purchasing power by higher prices through the application of a tax which, in itself, is inflationary, and which will only make the situation worse.

We shall not get away from the kind of recurrent crises which we have experienced in recent years by policies such as those produced by this and previous Governments. We must have a completely radical approach to the matter. I do not mind by what name it is called, but it must be a fresh approach, and one which will result, first, in the stabilisation, and then the reduction, of prices. To those who ask how surplus purchasing power is to be mopped up unless higher charges are made for goods, I would point out that there is the simple way of encouraging more savings. As we found in 1953, when the cost of living remained stable for some time, nothing encourages saving more than stable prices. No one can pretend that high interest rates are desirable in themselves. At the moment they are a necessity, but it will be a good thing when we can reduce them.

There is a story about a gentleman who lived in a mountainous country and wanted a new coachman. Several applicants came to him, and he asked them, "If you are driving me along a mountain road, with a cliff on one side and a hill on the other, whereabouts in the road will you drive?" One man, who thought he would probably like an exciting ride said, "I will drive you as near to the cliff as possible," Another man said, "I will drive in the middle of the road," and a third said, "I will drive you very cautiously and as far away from the cliff as possible." He was the person who got the job.

I do not think that it is unfair to say that when the Chancellor took over he was rather like that cautious coachman. He intended to run the economics of the country in a cautious way; to move steadily towards a freer economy—about which he constantly talked—but to take no risks in so doing. At first he had a certain amount of success. He did not move as quickly as some people would have liked, but he made progress. During the last twelve months, however, he seems to have lost some control over his vehicle. Having heard his Budget speech yesterday I can only say that he has now ditched the vehicle, or, if he has not completely ditched it, it has certainly got one wheel in the ditch. He has certainly left the road along which he has been travelling hitherto. He has repeatedly expressed his dislike of Purchase Tax and his intention of steadily reducing it but he has completely gone back upon that policy. I do not see in what way that serves any useful purpose in our present position.

As for the second item in the Budget, the tax on distributed profits is a thoroughly bad tax in any case, and I do not see how it helps us to increase a bad tax. What does the Chancellor expect to be the net result of his policy? Does he expect companies to go on distributing the same amount of money? If they do, they will merely pay more money to him. Is that what he wants? If it is, I would remind him that that will not help him with the trade unions, if he is thinking of using it as a weapon with which to induce them not to make any wage claims. If, on the other hand, he intends this tax to have the effect of making companies keep more money, what are they to do with it? Apparently he does not want them to invest it, because he considers that the amount of capital investment is already too great.

I do not want to go into the details of the last nine months, which have already been mentioned by several speakers. It can be said, however, that the Chancellor has bungled the whole situation. From the end of last year, when he saw that the reserves were already going down rapidly, he has acted without a firm hand; as the "Manchester Guardian" described it this morning, in its leader, in a "dithering" manner. When he has acted he has not done sufficient. When he has used the Bank Rate he has left out the nationalised industries, local government and central Government, and his attempt to bring about a credit squeeze has been defeated because he has not tightened up the squeeze in relation to the spending of nationalised industries, local government and central Government.

He has said that he is going to tighten still further the credit squeeze upon local government. What does he expect to be the result of that action? Apparently he is not expecting a reduction in the amount of money spent upon education or roads, and the most amazing thing is that in spite of what we have heard about housing today—which I was very glad to hear—he quite clearly stated in his Budget speech that he was expecting 300,000 houses to be built in 1956. Before the Government came into power in 1951 the Labour Administration had felt that the national resources at the time could not stand a figure much above 200,000. That was also the view of the Liberal Party at the time, but the Conservative Party decided to build 300,000 houses. Ever since then economists have said that, however desirable this might be socially, it would have serious consequences upon our economy. We have had our 300,000 houses—and no doubt we are all very glad that people are living in them—but we must now deal with the consequences.

Does the Chancellor suggest that by making council houses dearer to rent he will have as many built? Of course, fewer will be built at first. In the end, when competition has got to work, it may be that the cost of building houses will come down and that greater building by private enterprise will result, but if the Government really do expect 300,000 houses to be built next year, in spite of their intentions with regard to the reduction of subsidies upon houses, I do not see how the rest of their economic plan can be successful, because they just will not get the extra resources, which would result if fewer houses were built, freeing more resources for exports to create the surplus which the Chancellor requires.

The surplus required is considerable. It is about £300 million, and it will not come from minor cuts, such as the stopping of Government building at basement level. There must be a substantial transference of our production effort from products which are being used in this country to those which can be exported. The Chancellor says that there will be some delay in Government building—but what about Government spending? I entirely agree that it is unrealistic to talk about major cuts in Government spending without alterations in Government policy, but that does not mean to say that some savings cannot be made here and there by a really careful examination of what goes on.

If we think of the kind of Ministries which we expect Ministers of the Crown to look after, we see that it really is time that we stopped having the ridiculous idea that those Ministers can possibly know what goes on in their Departments. The Ministry of Agriculture, Fisheries and Food, which is under one Minister, had 17,600 employees in July of this year. What does the Minister know about the activities of those people? Even the Board of Trade, whose employees have been reduced by just over 2,000 in the last four years, still employ 7,300 people. Before the war the number was 4,800. What does the President of the Board of Trade know about the 7,300 people for whom he is supposed to be responsible.

Mr. Douglas Houghton (Sowerby)

What does the Chairman of Imperial Chemicals know about the activities of his thousands of staff? He has other people to look after what they are doing. Control from the top does not necessarily mean that the person in charge knows what the thousands of people on his staff are doing.

Mr. Holt

I quite agree—and it is a criticism of the way in which our industrial structure has developed that the chairmen and the managing directors of these big businesses do not know what their employees are doing. This is resulting in all kinds of frustration and industrial unrest. It is a problem into which I do not wish to be sidetracked this afternoon, but I should be very glad to debate it with the hon. Member upon some other occasion.

The Chancellor apparently has no intention of making any cuts whatever in Government spending or administration. The biggest cut that he really might make—in the £400 million of subsidies—is apparently to be left to next February's Price Review. Surely, even on his theory, if he wishes to mop up spending power, it would be far more sensible to remove some subsidies than to increase the Purchase Tax, but that is not what he has done. He has increased the Purchase Tax and has left the agricultural and food subsidies as they are.

I really cannot understand why, when the average industrial wage of a man over 21 years of age has reached £11 per week, we should just go on subsidising—of all things—bread. It is an absolute disgrace, and we seem to have got things completely out of perspective. That that should have been left untouched by this Chancellor when he has brought us here for an autumn Budget on this unprecedented occasion is the worst condemnation of all—worse than the Budget itself.

Mr. Arthur Moyle (Oldbury and Halesowen)

I thank the hon. Gentleman for giving way. May I ask him how he squares his views about getting rid of the subsidy on bread with the fact that the Liberal Party went to the country to seek the support of the electorate on the basis of reducing the cost of living?

Mr. Holt

If the hon. Gentleman will wait until I come to the end of my speech, he will find out. I hope to put it in such a way that our policy as a whole can be stated, and will be seen to have regard to a reduction in the cost of living.

I think it is quite ridiculous to ignore the subsidies which at present continue. My attitude and the attitude of the Liberal Party to these matters is that an economic or market price should be paid for each commodity, and that we should have neither Purchase Tax on the one hand nor subsidies on the other. The welfare subsidies are in an entirely different category, because they are connected with the support of people existing on the smallest incomes in the State, for whom we are all agreed we ought to do something, but for people who receive a proper wage still to have their bread subsidised seems to me to be the end.

Reference has been made to the spending of the nationalised industries, but the Chancellor has made no attempt to bring them under a similar monetary discipline as that applied to ordinary industries. There have been many discussions in the House in the last twelve months on this admittedly difficult problem, but it has still not been tackled by the Government. The Chancellor's Budget makes little, if any, contribution to a solution of the short-term problem, and is entirely retrograde so far as the long-term problem is concerned.

The facts of the matter are these. I do not believe that there are any technical moves that have not already been made which can possibly have a sufficiently early effect in the next few months to assist us with our balance of payments. There just are not any such moves to be made. The crux of the whole problem is, what is the long-term economic policy of the Government? If that policy is right it will bring that necessary restoration of confidence which will do far more to deal with the short-term problem than any technical manoeuvres.

Have the Government got a long-term policy, and, if so, will it work? Are they serious about this? Is it crystal clear that they are determined to carry it out? Personally, I am afraid that the answer seems to be "No," or, at any rate, a question mark. Nothing that I heard yesterday has convinced me that inflation will be held in check, and I should like to know whether any hon. Member can stand up and say that what he heard yesterday has thoroughly convinced him that inflation will be held in check by this Government.

It is all very well to criticise, but there is a very difficult situation to be dealt with, and I am prepared to try to make some contribution as to what I think ought to be done. As the Chancellor said yesterday, the Government take about 26 per cent. of the national income for themselves. That means that, roughly, one-third of the remaining wealth must go abroad to pay for our imports, to create a surplus, to build up the strength of sterling, for investment in the Colonies and so on.

People sell their goods where it is easiest to do so, and let it never be forgotten that no exhortations, either of this Government or any other, will ever make a single manufacturer sell anything abroad if he can sell it at a slightly higher price next door. The sooner we get rid of all exhortations not backed by something which will make people do these things in their own interests the better.

It is always easier to sell in the home market. It is bound to be easier to sell to the man next door than to sell to someone a thousand miles away, but there is no reason why the Government should make it even easier still. The Government must make selling in the home market as tough, or nearly as tough, if possible, as exporting. They cannot do much by monetary policy, either through credit restriction or high interest rates. High interest rates put up costs, and the sooner we get them down the better. We must have a policy which will, in fact, reduce prices at home.

These are the five points which I should like to suggest. The Government must cut their subsidies and make all the economies they can in administration. Secondly, they must stop the wasteful misuse of housing space. I do not know what line hon. and right hon. Gentlemen of the official Opposition are to take with regard to the removal of rent restrictions, but they really must realise that one of the worst injustices which is hitting the poorer people at the moment is their inability to obtain a comparatively cheap rented house.

It is not everybody who wants to buy a house. If a young married couple are not already living in a rent-restricted house, their only solution is to live in overcrowded conditions with some members of their family or as a lodger, or to pay an extremely high rent, which will become higher still, for a municipal house.

If we remove the Rent Restrictions Acts, one of the great benefits which will occur, if the landlords are allowed to raise the rents to an economic figure, will be that young couples who do not wish to incur the cost of renting a house at 30s. or 35s. a week will be able to get a very good house to rent at a figure which may be anything from 15s. to 17s. a week. It would be in good condition, perhaps twenty years old, and they would be far better off. [HON. MEMBERS: "Where?"] These are the ones which are at the moment rent-restricted, and they cannot get at them.

Mr. William Ross (Kilmarnock)

There is someone living in them.

Mr. Holt

Of course, the tenants are still there, but the hon. Gentleman knows as well as I do that if ever a rent-restricted house at a rent of about 10s. 6d. a week and in good condition comes on the market because the tenant vacates it, that house is not relet, because the owner tries to sell it. That is being done all over the country, and some of the houses, I must confess, sell at very high prices, even when in deplorable condition.

What we want to get back is good landlordism, and the only way to do that is by a real free market in houses. [HON. MEMBERS: "No."] Anyhow, I hope hon. and right hon. Gentlemen on this side of the House—Members of the official Opposition—will realise that there are some great benefits to come from the removal of rent restrictions.

Mr. Mulley

To the landlords.

Mr. Holt

No, to the would-be tenants, many of them constituents of hon. Members of the Opposition, and some of them possibly their voters.

I would call the attention of the Minister of Housing and Local Government to a problem affecting slum property that will arise out of removal of rent restrictions. I wonder whether the wisest thing to do would not be to remove the restrictions on all property except that which the local authority had decided to clear as slums within the next ten years. No landlord will spend money on such property, and it would be quite inequitable if the rents of that property were allowed to rise.

One of the questions arising from the Budget Resolution relating to Profits Tax is how it will help the Tory policy of creating a property-owning democracy.

Recently the Prime Minister started to advocate strenuously a wider ownership in industry, which my party has been advocating for a long time. If we wish to encourage workers to own shares in companies, these must come out of profits. To increase the Profits Tax is a disincentive to companies, who are handicapped because there will be less profit.

Mr. Gerald Nabarro (Kidderminster)

The hon. Gentleman's argument would be correct if there had been an increase in the rate of Profits Tax on retained profits. In fact, his argument is decidedly wrong if he applies it to distributed profits, which are lost forever to the assets of the businesses concerned. Ploughing back the profits is the only real precursor to the ownership of shares in industry by the employees.

Mr. Holt

There are various ways of giving shares to workers. One is by transferring profits to a trust which buys shares. Money paid to a trust will have to bear the profit-distribution tax, which is now being raised. It would be far better for the Chancellor to take positive action definitely to encourage the giving of shares to employees.

As soon as the immediate position with regard to the reserves has been righted, the Government must make a serious and far-reaching decision on their tariff policy. The Chancellor has talked a lot about liberalisation. We have had a tough President of the Board of Trade who has constantly gone up to Lancashire and made fine Free Trade speeches about how it was most undesirable to raise tariffs and how the Lancashire cotton trade must learn to compete against its most serious competitors without any protection whatever.

When he talks like that I am ready to support him, but the Lancashire cotton trade is placed in a very unfair position. Most other major industries have a great deal of protection, much higher than the Lancashire cotton trade has, even against its European competitors, which is 17½ per cent. The motor trade has 33⅓ per cent. protection, and other trades have even higher protection. The only way I can see, apart from using monetary policy, of bringing realism into the home market and making, for example, as an hon. Member has already said, motor car manufacturers have just as great difficulty in selling in the home market as they have abroad, is to reduce their protection. It is the only way out.

We have to realise that it is no good talking about the benefits of protection in North America and about how marvellously that country has developed, when the fact remains that we have to export a far larger proportion of our goods than almost any other country in the world. We must make our two markets similar; otherwise there will always he a tendency for our manufacturers to seek the easy way and to leave their goods in the home market.

I suggest that the Government must examine this question at an early date and make an announcement to the effect that they will have no tariff higher than 15 per cent. They should then announce that, one period at a time, say every two or three years, they will reduce these tariffs by 5 per cent. That would bring an element of realism into the home market for the first time for a very long period. Let nobody talk about what happened in the 1930s or even bring out an argument about how protection helped to build up the steel industry. Many false arguments are used about a lot of things that happened in the 'thirties. I ask hon. Members to re-examine this matter now, and to see if they have any other solution.

It is a solution which the Liberal Party has pressed for some time, and which I offer now. If that course is taken, convertibility of sterling must go with it. Unless the Chancellor of the Exchequer produces a policy which will give confidence to the people that inflation will cease, what we did yesterday and may do in the next few days will be of no avail.

8.18 p.m.

Major H. Legge-Bourke (Isle of Ely)

I am particularly keen to speak following the speech to which we have just listened from the hon. Member for Bolton, West (Mr. Holt). The Liberal Party is very hard to please. I sometimes think that I am hard to please, but the Liberal Party has very little to complain of in the present Government's main policy. The Government has been consistently Liberal ever since they have been in power. I am very surprised to find the hon. Gentleman making criticisms of the overseas trade policy, if he really believes that Free Trade is right for this country.

Of all the important statements which my right hon. Friend the Chancellor made, none is more important than this: Now, when world trade is expanding, is the time for the level of our reserves to rise rather than to fall."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 209.] I do not know what hon. Members collectively will say is the main criterion of Government policy, but I cannot think of a better one than whether the country is building up its economic and national strength or, on the other hand, is steadily getting weaker. I honestly believe that one of the truest measures of whether the country is getting stronger economically and financially is whether its reserves are increasing. One of the most disturbing things is that we are pretty nearly back to where we were in the worst post-war period, so far as our reserves are concerned. I would agree absolutely with all the claims made by the President of the Board of Trade today. Prosperity as it shows itself in this country is very considerable, but is it not perhaps the sort of prosperity one gets when, to put it in a slang way, one is simply, steadily "blueing" one's capital? It seems to me that that is roughly what the country is doing.

During the debate several hon. Members have mentioned the word "inflation." I wonder if we all mean the same thing by it? I think a great many people talk about inflation meaning, in fact, the results of inflation. Not everybody talks about inflation as meaning the nature of inflation. Although, having been a Regular soldier, I am supposed to know nothing whatever about economics, I should like to say that of all the subjects that have interested me since I started learning anything, economics have always interested me most—perhaps because they are the most inexact science of all.

One particular definition of inflation which I came across some time ago is as good as any I have heard. It is "A disposition on the part of the community as a whole to spend more than its income on internally produced goods and services." That definition was originally put forward by Professor A. J. Browne in his book, recently published by the Oxford University Press, "The Great Inflation 1939–1951." If that form of inflation is what the Chancellor is trying to arrest, he really must consider what it is that has caused it. When he takes action, he must take action which is designed to cure the cause as well as to heal the effects.

I suggest to the Chancellor that what has really happened is that this disposition to spend too much on home-produced goods is very largely caused by the unreality in our economy whereby some goods can be bought too cheaply—due to subsidies and so forth—and others cost too much, due to taxation. Both features are the result of the encouragement which, I suppose, war, to some extent—and certainly Socialism—has given to the general tendency which Professor Lionel Robbins summed up in a brilliant article in the "Lloyds Bank Review" as the "collectivist tendency."

If the Conservative Party stands for nothing else, and if the Liberal Party stands for nothing else, they should both stand for individual responsibility, and the encouragement of people to take individual responsibility. It is axiom in wartime that some of that responsibility has to be surrendered, but surely we have been without major war for long enough now for a great more encouragement to have been given to individuals to accept responsibility again.

I believe that the major duty of Government must be, and always will be, first to ensure the security of the country militarily; and secondly, to maintain the value of the nation's currency. From that it surely follows that Government, if possible, should not necessarily take over from the individual the things he can perfectly well do for himself. One of the few points on which I really agree with the hon. Gentleman the Member for Bolton, West is the matter of bread subsidy. What possible justification is there for that?

If we can get back to those two main duties of Government—to ensure the security of the nation, and to maintain the value of its currency—one is led to assume two things. One is that even if we can modernise our Armed Forces we really cannot cut defence below its present level—even though we divert to nuclear developments sums now being spent on conventional armaments. I know that next week we are to have a debate of National Service, but I think that we may well have now reached the point where it would be far better to increase the pay of the ordinary soldier by £3 a week to encourage him to sign on for seven years and stay in the Army—but that is a diversion.

If we accept the two duties which I have mentioned, it follows that some major changes are, as the Chancellor says, definitely necessary. My complaint is not so much of what he has done—although I shall have something to say about his increased taxation in a moment—but of what he has not done. I accept absolutely his argument that major changes in policy are necesssary, but why, in heaven's name, have they not been done sooner? What quite defeats me is why, having prepared the country and built up a climate in which the people would, I believe, have taken almost anything from the Chancellor because they trust him—and may I say now how deeply I deplore—however much I may criticise my right hon. Friend's policy—the cynical remarks of hon. Gentlemen opposite. Those who know the Chancellor know that at least he is a deeply-honest man, and one who would not deliberately mislead anyone.

Mr. C. R. Hobson (Keighley)

Munich.

Major Legge-Bourke

If the Chancellor must change the policy why has he not changed it before? What are the changes of policy involved? I would say that, of all the changes which must be made, the first and most important is trade policy. We are a big debtor nation, and no debtor nation in this world has yet been able to stave off inflation in its own economy unless it has used either direct, physical controls, or has protected its own producers at home by tariffs.

Ever since the war we have been trying to pursue a policy of free trade. We have been cutting down the tariffs, and we have denied ourselves the right to put on new tariffs. The only way of solving this problem is for Britain to remember that she is a debtor, and no longer a creditor nation. The greatest creditor nation today is the United States, but there is this great difference between the conditions in which she is the greatest creditor nation and the conditions in which we were once in that position. When we were the greatest creditor nation there were no other really great manufacturing countries for us to compete with. We were the workshop of the world.

The United States is now the greatest creditor nation, but look what happens if she pursues a policy of free trade and denies to others the right of discrimination. Whatever she does in that way must endanger the economies of the manufacturing nations, and especially of debtor nations such as ours. If, by enforcing a policy of non-discrimination on the debtor nations of the world the Americans destroy those countries as a market for their produce, their own economy will suffer in the end. If they have not seen that as a result of the inter-war years, then they are rather slower learners than I have normally found them to be.

It is grossly unfair to criticise the Government by saying that they are solely responsible for what is wrong, nor is it right to blame solely the Socialist Government. The conditions of the world have so changed as to make it suicidal for this country to continue to pursue a policy of free trade unless we are prepared to adopt physical controls to keep our own inflation in check. We had a demonstration of what a disastrous policy that could be when the Socialist Government tried it, with internal controls incompetently managed. My view is that the Tory Party should remember its traditional rôle and get back to protection, start tariffs and reopen negotiations now to revise the Ottawa Agreement as well as G.A.T.T., because to do one we must do both. Until we do that our economy will be imperilled, as our reserve figures show. We may he having a spending spree at home, but steadily our assets will be eaten away, and as competition increases so that will get worse.

I should have thought that there is no cause whatsoever in the present situation, if we want to restore reality to our people, to increase a tax of any kind, but least of all a tax which tends to disguise what is the real price of anything. That is why I voted yesterday against the Purchase Tax Resolution. Had it gone to a Division I should also have voted against the Resolution increasing the Profits Tax. The third Resolution, which clears up an abuse, should certainly be supported.

There is a very strong case for reducing direct taxation by £200 million, and I believe it could be done. I agree with the hon. Member for Bolton, West that we could make far greater economies in subsidies. I welcome most heartily what the Minister of Housing and Local Government said this afternoon. That is getting back to a sense of reality of what costs are, and in getting back to that state of affairs, where people pay more nearly the price of the cost of production for what they are consuming, the Government must reduce taxation very considerably. I maintain that £200 million could quite easily be saved.

It is perfectly true that the major economies in Government Departments, as they are today, have probably been made and that what remains are parings, but I believe there is a great deal of amalgamation still to be done. I cannot for the life of me understand why the House, in dealing with the Post Office, has so far forgotten what it did in dealing with fuel and power, to have a Ministry which seems monstrously ineffective in getting anything done to solve the fuel and power problem and then set up under it a National Coal Board, a Central Electricity Authority, a Gas Board and now, I suppose an authority dealing with nuclear energy. I would far rather see a Minister of Fuel and Power sitting at the headquarters of the fuel and power producing unit of this country, instead of having a Ministry with three separate organisations, each with its own clerical staff, all wasting public money. I hope that sort of thing will be investigated more closely. Do not let us assume that the Ministries in their present set up have to stay. Let us make certain that all are doing a good job.

I can give a recent example of a monstrous waste of money by the Ministry of Agriculture, whose representatives came to my constituency to find out something I have been telling Minister after Minister for the last eight years. All they do is to report back to people who already know about it because they live in the place where it is happening. That sort of redundant work is abominable and is wasting public money. In my opinion the Chancellor has a greater field for saving than perhaps he thinks. He has to fight not critics in this House but the hierarchy in the Civil Service, who will dig in their toes as hard as they can to keep their little empires.

The Committee seems to think that history has suddenly stood still. First we had the King, then the Church, then the Privy Council, then the House of Lords, and then the House of Commons came along as an expression of supreme power in the country. I wonder what really happened. Have we still got the power? Of course, we have not. It is a mixture of the hierarchy of the Civil Service, just as the Roman Empire went that way, plus the trade unions, the Press, broadcasting and now television. In other words, what really is the power in this country is what forms public opinion.

I doubt whether we form it quite as often as we should like to think we do in the House of Commons. At least those of us who are sent here are sent here to vote according to our consciences and to do what we think is right. I am absolutely convinced that of all the wrong things that could possibly be done at this moment, an increase of £112 million a year in taxation is just about the worst.

I thank the Committee for listening so attentively and for giving me so much time. Yesterday, I regretfully had to vote against this one Budget Resolution. That does not mean to say I am not very much in support of anything that the Government may do to get back to a sense of reality in our economy; but I beg them not to imagine for one moment that they will solve this problem simply by tinkering about with the internal economy of the country. This can only be solved by having a proper trade policy.

It is that which is wrong, and it has been wrong since the war. As long as it continues, the inevitable consequence is a reimposition of State controls which will form a totalitarianism against which anything the Socialists did when in power in 1945–50 will pale by comparison.

It is unpleasant to have to say these things, and I hope that hon. Members, and those in my constituency, will realise that what I am saying is something which, I believe, is far more important than any party considerations that exist. I say that this country's future is at stake. I think that the Chancellor is right to have this Autumn Budget. I only wish that he had taken bigger advantage of it.

8.38 p.m.

Mr. William Ross (Kilmarnock)

I do not think that anyone in the Committee would deny the sincerity of the remarks of the hon. and gallant Member for the Isle of Ely (Major Legge-Bourke), but, as I listened to him, my admiration for his sincerity was rather destroyed by my fear of his principles. How often did we hear echoing through that speech the words "Go back, go back"?

When he gave us that homily on what he felt was necessary—a return to individualism—I wondered if he had thought just exactly what had been the reasons for the acceptance, even by the Conservative Party, of a measure of collective responsibility for the nation and individual sections of the nation. There has been the lesson of what individualism wrought to the social fabric of this nation in the Victorian and Edwardian eras; something from which we have not yet recovered in many industrial aspects.

Are we to throw overboard that lesson and go back once again? My main fear of the present Budget is that we see signs of that trend. I do not know whether the Chancellor is leading this return, or whether he has succumbed to pressure to go back, but, whether it is the one or the other, I have not the slightest doubt that he has thrown overboard the confidence of the electors of this country that may once have rested in him. Certainly in this Committee his Parliamentary reputation is absolutely in tatters.

We cannot return in that way: we cannot go back to that individualism. Indeed, I am perfectly sure that the hon. and gallant Member does not want us to go back to individualism—that free-for-all. After all, if it is good for one section of the community, it is good for the others.

One section of the community who are much more maligned than any other section of workers are the miners. If they had accepted that individualistic approach, what could they not have got out of the country? They could have held the country to ransom over the past ten years. But they did not do so, and sometimes, when I think of their reactions and the things that were said about them, I am amazed at their patience, especially when we hear Conservative Members of Parliament tell them, as one did the other day, that they were the most selfish section of the community. He talked about getting back to the reality of the cost of things. Suppose we got back to the reality of the cost of coal, what wages should we be paying to the miners? Let us get back to the actual realities of the situation.

I am not surprised at the way in which the country has so far taken the Budget. How could the Chancellor of the Exchequer or hon. Members opposite expect other than that people would be shocked by what has happened? We have to consider the Budget in its relevance to the problems which, the Chancellor says, face us today. We have to consider those problems as compared with the problem which he supposedly dealt with in April, and to consider whether there is justification for the charge of political deception and duplicity.

The Chancellor either was wrong in April or he is wrong today, and yet we have had sufficient figures, particularly from the hon. and gallant Member for the Isle of Ely, about the continued worsening of the position of our reserves to prove that the Chancellor is right in trying to make the nation face up to the gravity of the situation. But it is not a new situation; it has been continuous. The right hon. Gentleman tried to tell the country something about it in February, but within two months he was telling us that everything was all right and he was giving away millions in Income Tax relief that was guaranteed to cause the situation to be even worse from the point of view of inflation.

We can compare what happened in April and May with what is to happen now. During the next few days we are to have a procession of Ministers telling us what we shall not be able to have. But I remember the queue of Ministers who came along here practically every day. The Minister of Transport told us all about roads, even about the Forth road bridge, etc., and made a statement on behalf of the Secretary of State for Scotland. Then came the Minister of Education, with a great new investment programme for schools and rural schools, together with a statement on behalf of the Secretary of State for Scotland. About the only Minister who did not appear was the Secretary of State for Scotland himself.

Mr. Hobson

He was too busy.

Mr. Ross

What is happening now? We are told by the Chancellor of the Exchequer that all this investment must be delayed, for success lies in restraining the rate of development and moderating the capital outlay on the expansion of services. Are we or the country to understand that the Chancellor was not aware of that in April? I am satisfied that a piece of deliberate deception was practised on the electorate.

The Chancellor of the Exchequer drags into the Budget something to do with the Post Office. Perhaps somebody from the Government Front Bench will correct me if I am wrong, but what is happening with the Post Office is a purely commercial transaction. The fact that charges in the Post Office are going up to the extent of about £26 or £29 million is not something to deal with inflation; it is the consequences of inflation. But was that not known before the General Election?

I wonder whether the Postmaster-General will tell us if this matter and this solution now offered came before the Post Office Advisory Committee, of which I happen to be a member. I wonder if he will tell us when it came before that Committee, whether it was before the Election or after the Election. The Postmaster-General consults us, and he makes the decisions.

If this situation in the Post Office was known before the General Election, then does not that prove my point that there is nothing in this hotchpotch collection of solutions which the Chancellor brings forward as a Budget? The Government can do unpopular things in the first year of their term of office that they dare not do in their last year. The last Government had another year to run, but they preferred to claim prosperity, and have an Election, and to come along now with the unpopular, traditional Tory die-hard policies.

I thought the solution to the problem of inflation was to try to keep down prices and to try to keep wages from rising in pursuit of those prices. What will be the result of this Budget? What will be the effect of £75 million more of Purchase Tax? Is the balance of payments running riot simply because the housewives have been buying too many brushes, too many brooms, too many cups and saucers? Yet on most kitchen utensils there is slapped on a 30 per cent. tax for the first time since the war.

The Tories were parading at the Election saying, "We believe in reducing taxation and in leaving your money in your pockets so that you can spend it." Now, in five months, they make a return to wartime taxation, the taxation of 1945. In every single shop in every single town the prices to the housewives will go up. They will hurt Mrs. Smith more than they will hurt Lady Docker. I do not think that the increase on her platinum-plated motor car—it will be platinum-plated next year, surely?—will hurt her as much as the week by week drain on the purse of the ordinary housewife hurts the housewife. Even her shopping basket will cost more. There used to be a photograph showing the mending of holes in purses. Now the shopping basket and everything that goes in it is going to cost more. That is the Tory record.

The Chancellor said one true thing: It is an illusion to suppose that full employment, price stability, and a healthy balance of payments, can be secured by the Government, irrespective of the contibutions made, or withheld, by the people. Our plans are, therefore, framed to create the economic climate in which all elements of the community can play their full parts, and so balanced as to command the support of the whole country."—[OFFICAL REPORT, 26th October, 1955; Vol. 545, c. 210.] Are they balanced when the cheaper articles of clothing which are bought by the mass of the people are to go up in price and the dearer clothing is to decrease in price? Will that command the support of the people?

I do not know how many people have read this evening's "Evening Standard." It says that suits made in the Savile Row quarter … which yesterday cost £47 5s. will sell now at £44 2s.

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

That will please the old-age pensioners.

Mr. Ross

The old-age pensioners will be delighted. The "Evening Standard" goes on to say, Most suits above £20 will come down in price. But the corollary is also true that suits under that price will go up. Will this command the support of the nation and commend itself as something fair and just to men and women?

I am sure the ladies will be delighted to know that on a cocktail dress costing £57 15s.—I know that in Kilmarnock our people are buying these every day—the customer who used to pay more than £9 in tax will now pay about £2 less. The price of a lavishly embroidered ball gown, which has been £260, is likely to drop by £30. The woman with a family of four in Kilmarnock, who probably shops for that family in the local Co-op or Marks and Spencer and is forced to buy as cheaply and as well as she can within her limits, will find herself paying more. Yet the Chancellor expects this kind of policy to commend itself to those people as something fair and just.

The people who will pay the greater part of this £75 million in extra Purchase Tax, which comes into force this week, are not the people who were relieved of Income Tax in April. The people who were relieved then are the people who are going to buy the £47 5s. suits, and they will be still further financially relieved when they buy them. Yet the children in the family of four in Kilmarnock have to go back and forth to the other end of the town every day, a journey costing 25s. weekly in bus fares. because this Tory Government have failed to build a school in a new housing area. What about the chance of getting a school now?

What about rehousing? We had our usual clear, lucid statement from the Secretary of State for Scotland today. As he knows, the housing position in Scotland is worse than it is in England. He has been long enough in the House of Commons to know that the position which we have reached today is that local authorities are finding that people are unable to accept the tenancies of council houses because they cannot afford to pay the rents—and that is with the present subsidies. If the subsidies come off, the houses will not be built, and if the houses are not built, what will happen?

We had this position in 1935, when Sir Godfrey Collins, the then Secretary of State for Scotland, introduced a housing Bill which concentrated entirely on slum clearance in Scotland, and from 1935 to the end of the war a newly-married couple could not secure a house, or a house could not be built for them. The result was that when we started rehousing after the war, people who had spent seventeen years in furnished lodgings were getting a house for the first time. Yet when Sir Godfrey Collins introduced his Bill the hon. Member for Ayr (Sir T. Moore) almost went down on his knees to thank the Government for the fact that in five years, as he believed, all the slums in Scotland would be cleared up. By 1939 there were more slums in Scotland than there were in 1935. Exactly the same will happen under this Government. By failing to provide for the housing needs of the people in Scotland, they will create more slums.

That is why I was afraid as I listened to the Secretary of State, because I could see that the Government have already adopted these policies, and that we are going back and that we are experiencing a class attack by the Conservatives. We are getting it in the Purchase Tax increases, we shall get it in our housing programme and in the effects that the cut in the housing programme will have on the people in the building industry. The Chancellor was talking in April about the liberalisation of the human spirit. There will be no liberalisation of the human spirit in the housing programme and the financial policies being produced, but rather its caging. The consequences of that may be more dangerous than the consequences of the inflation that the party opposite caused in the first year of their last term.

8.56 p.m.

Mrs. Patricia McLaughlin (Belfast, West)

As this is the first time on which I have had the honour of addressing the Committee, I ask for the indulgence which is accorded to those making a maiden speech. I have listened with great interest to the debate and I will not detain the Committee very long with the few remarks I wish to add. Last night I had a very bad dream and it is as a result of that dream that I have decided I must add my contribution tonight. When I awoke I realised that I had been imagining numbers of my women constituents wearing new hats which cost less and brandishing mops and rolling pins which cost more. I realised that perhaps in some cases we had been making mountains out of molehills.

It would be very presumptuous of me on an occasion like this to attempt to add my opinions on any of the major issues, but as a housewife and mother I can speak with tremendous sincerity about Purchase Tax. At first sight yesterday it seemed that things were very bad indeed, but this morning, on looking into it further, I began to see that whereas yesterday I might have paid less for one item, tomorrow I might pay less for a different item and more for the other one. It was not exactly a case of what we lose on the swings we gain on the roundabouts, but we will not be taxed on everything.

I represent a large industrial constituency and in Belfast, West we have a considerable amount of unemployment. We also very fully understand that it is necessary to take action and disciplinary measures before things become too serious rather than afterwards. I know that the unemployed will be very badly hit by many of these increases in the Purchase Tax on cheaper items and household goods, but I also realise that the people in Belfast, West and in the rest of Ulster who are looking for employment would definitely say to those in more fortunate positions across the water, "At least you have the jobs to produce the pay packets to buy the goods. We should be glad to be in the same position." People like that and our old-age pensioners will certainly be hit hard, but none of us likes Purchase Tax and all of us hope that when the Chancellor sees fit he will remove it as quickly as possible.

When I first came to this House and listened to the Gracious Speech and what was to come forth in legislation, I realised that we should be extremely busy, but not that we should come to a Budget so soon. It is an experience, as a new Member, to realise that what may be so tremendously important and so very much talked about comes down so often to terms of the pence in our pockets.

In Northern Ireland we shall be helped tremendously by the removal of the D scheme. Our handkerchief trade, particularly the fine end of the linen industry, will be very much helped, and I know that right hon. and hon. Members on both sides of the Committee will be glad to know that, whatever else the Chancellor has not done, he has been able to help us to solve our unemployment problem in this way. We are also grateful to the Chancellor for seeing fit to allow us this opportunity of showing what we can do when we get the opportunity to enter a competitive market, which we shall now be in as a result of the removal of the D scheme.

It would seem that nowadays housewives invariably have to bear the brunt of all these smaller additions to the Purchase Tax. I am not talking about Purchase Tax in the luxury goods class, nor indeed am I referring to Purchase Tax on major items. I am talking about the small amount of tax put on a pot scrubber, or a broom, or on an ordinary household utensil. I do not believe that any thrifty housewife will go out and buy a scrubber unnecessarily. I think that perhaps she will make the old scrubber do for a little longer, if it means that it will cost a little more to buy a new one. We must remember that we are determined that we shall go forward and do our best for each person in the country and that, therefore, some sacrifice is entailed on the part of all of us.

I should not like to think that the women of this country would be swept away by a desire for pedal-operated sanitary bins rather than a desire to attain security for the future of our children. We shall be prepared to see that anything we can do to help is done so far as possible, but we are not prepared to make unnecessary sacrifices. The days of that sort of altruism have gone.

In the past, and I suppose it will always be so, when the wage packet came home at the end of the week it was the woman who spread it out and made it go round. Women are wonderful conjurers, whether the packet be good or bad, but we hope that this tax which is to be imposed will last for as short a time as possible. If it is to be a means of stabilising our economy then, in our own small way, in each household, we shall help the country, and that will be very well worth while.

In a property-owning democracy, indeed in any democracy, responsibility must fall on everyone, and at a time like this, whatever sacrifices have to be made, it is no doubt necessary that they should be made. There are many anomalies in this tax and many people feel there are defects in it. But at a time like the present, while it is not a period of crisis, it is necessary for us, as one hon. Member said, to drive as far away from the cliff as possible. If this be a way of doing it, we should accept the truth of the old axiom that freedom consists in the willing acceptance of discipline. If there is 4d. more on the price of a lipstick I do not know whether that is more important than the fact that we are still to have woollen blankets, and there will be no tax on these. Perhaps people will be glad to see lipstick used a little more carefully, and a little less freely, especially in view of the amount of lipstick left on cups in restaurants.

I have the honour to represent a very large industrial constituency which has a great historical tradition. I know that my constituents and many other people in Northern Ireland and throughout this country will be chewing over the various Budget proposals which affect them most deeply, but I think that tonight it would do no harm if we tried to take a more balanced and longer view on the subject.

It is very hard for any woman to assess exactly what it is going to cost her next week because some prices are down and others are up. I do not think that it is possible to say that there will be a tremendous increase in cost to the average family. Let us take a balanced view on this and hope that when next the Chancellor comes to us he will be in a more cheerful frame of mind because of the very co-operative effort made by everyone. I thank the Committee for listening to me and for giving me its indulgence for so long.

9.6 p.m.

Dr. Horace King (Southampton, Itchen)

Every hon. Member of this Committee would, I know, wish to have my good fortune to congratulate the hon. Member for Belfast, West (Mrs. McLaughlin) on her maiden speech. I am certain that every hon. Member will agree that her speech was delivered with charm, humour and clarity, and with supreme confidence. If it was not exactly non-controversial, at any rate its controversiality was expressed in such a delightful way as almost to incline some of us for a moment to cease from our attacks on the Government whom the hon. Lady has so skilfully defended.

May I assure the hon. Lady that the compliments which we in the House of Commons express on these occasions are very genuine and that they mark a feeling on both sides that, however bitterly we battle here, the free Parliament to which we all belong is infinitely more important than any of us, and that in that spirit we welcome the hon. Lady into a goodly company. I wish to assure her, in the traditional way, that we shall look forward to her contributions on many subsequent occasions, particularly on the well-being of old people and of children, in which subjects, I understand, she is interested. However, I would enter the caveat that she will find it even more difficult on subsequent occasions to catch the eye of Mr. Speaker or of the Chairman than she has done today—and today she has had to wait patiently for a long time.

Mr. Hugh Delargy (Thurrock)

Hear, hear.

Dr. King

It has been said that this is an unpopular Budget. I think it an understatement to call it "unpopular." Naturally, when the Chancellor introduced it yesterday, it received a hot and hostile reception from this side of the Committee. But what was more surprising was the cold reception it received from the Government benches, and the fact that it has been so lukewarmly supported in the speeches delivered during the two days of debate.

I heard every speech that was made yesterday, and the comments made on the Budget proposals ranged from those of the hon. and gallant Member for Ilford, South (Squadron Leader Cooper), who thought that, like the curate's egg, it was good in parts, to those of the hon. and gallant Member for Poole (Captain Pilkington) who was willing to concede that every item in it was indefensible, but that, as a whole, it might be profitable for the country. Indeed, in yesterday's debate the only hon. Member on the Government benches who really supported the Budget was the hon. Member for Kidderminster (Mr. Nabarro), though one was not quite sure when listening to his speech whether he was declaring his allegiance to the Chancellor or congratulating the right hon. Gentleman on his allegiance to the hon. Member for Kidderminster. It even appeared to me as if he were giving the Royal Assent to the Budget proposals.

Many speakers from the benches opposite, yesterday and today, turning away from the proposals in the Chancellor's Budget, have sighed for the cuts in Government expenditure that they preached in 1951—to the cheers of the electors—and which many of them still believe can be accomplished. The coldness of the reception of the Chancellor's speech yesterday, in contrast to the warmth with which the Government benches greeted the attack upon the rents of the workers today, can be explained partly by the fact that the Chancellor is months, if not years, ahead of his own political party.

Yesterday he voiced the unpleasant and unpalatable truth, that cuts in the social services and in Government expenditure—assuming that the Government consists of men who are administratively competent and that the leaders of Government Departments are doing their work of administration soundly—can come only out of a change of policy; that a cut in the education services can be achieved only by depriving children of some of the things to which they are entitled under the 1944 Act, and that a cut in the welfare side of the social services can be done only by bringing misery to old people.

Mr. Jack Jones

Additional misery.

Dr. King

Additional misery. Cuts in social expenditure can be achieved only if the Tory Party is prepared to make a major change of policy and not merely minor changes of administrative convenience.

I would remind some of my hon. Friends that if, as we know, more than half the Government expenditure consists in expenditure upon armaments and interest, no mere administrative tidying up of the Army will provide the necessary cuts in Government expenditure. It must be a policy decision, and we believe that the right decision is to cut down the length of time which men have to spend in National Service.

One of the alarming features about the Budget and the policy of the Government is that they add to the burden of interest which forms such a heavy part of Government expenditure. The hon. Member for Blackley (Mr. E. Johnson) said that he liked the Budget, but he also wanted a price reduction. He did not realise that the whole purpose of the Budget was to impose price increases and that, as a result of the proposals of yesterday and today, rents will go up for millions of people—rates are already going up as a steady result of the interest policy of the Government—quite a number of ordinary goods will rise in price because of Purchase Tax, and the Government's contribution towards warding off inflation is to introduce a number of measures which are themselves at once inflationary.

As we have seen in the first twenty-four hours since the Budget was announced, the immediate reaction of the workers is the reaction which they had to make again and again against the policy of the last Tory Government, namely, to insure themselves against the price increases thrust upon them by demanding wage increases. Those wage increases themselves will add to the rise in the cost of living.

Yesterday the Chancellor asked us for sacrifice, for discipline and for restraint. What angers most hon. Members on this side of the Committee—and there is no doubt about their anger and bitterness—is that at a time when someone speaking for Britain might be asking, with justification, for discipline and restraint, all this Government's measures have the effect of handing more wealth to the money-lenders and finance corporations of Britain.

The Government might well say, "We believe in a programme of full employment and increased wages for finance corporations." They are abandoning, it is true, any control of local authorities by Whitehall, but they are deliberately handing over the local authorities into the control of bankers and finance corporations of the country.

The hon. Member for Bolton, West (Mr. Holt) quoted tonight's "Evening Standard." The remarkable thing about tonight's "Evening Standard" is that it contains not only the information which he quoted, which I will repeat in a moment, but, in parallel columns, first this statement: Tough knock as it is, the increase in purchase tax, must be regarded as part of the general sacrifice. and, in the second column, as my hon. Friend showed, the statement that Savile Row tailors are knocking down the prices of £47 suits to £44, while tonight the multiple tailors, who supply most of the workers of the country with their suits, are discussing how much increase they will have to make in the ordinary suits of ordinary people. While the cocktail dress and ballroom dress—the £250 dress—is being reduced in price by £30, hundreds of thousands of women will have to face increased prices for their ordinary dresses and hats as a result of this Budget. This makes a mockery of the notion of general sacrifice.

One would not mind at all the sacrifice if the new burdens imposed on the workers were not associated with an improvement in the position of some of the people who are already best off, and so, at a time when the Chancellor is calling for discipline and restraint, the men of energy and enterprise who matter so much to this Government—the men on the Stock—Exchange—gathered together. Again I quote—this time from tonight's "Star" newspaper: At the opening of the House"— and I gather that "House" means the Stock Exchange— big crowds surrounded jobbers in Industrial shares. Jobbers themselves were busy marking up prices steeply to make new buyers pay handsomely for coming in. Unfortunate Bears—or those who had taken a view by going short—had to pay a stiff price to cover. The market rightly reckoned that the increase in tax on dividends was a small thing to set against the removal of the fear that investment allowances would be cancelled.

Mr. Jack Jones

That is Tory sacrifice.

Dr. King

Before I make the main point I want to make tonight, I wish to say one word about Washington. I was in Washington early this year, and I am rather distressed that the Washington proposal for building an Embassy there has been halted. It is false economy, in which we have indulged for the last 50 years, to indulge in a policy of cheap rented buildings for our Embassies up and down the world. Sooner or later, we shall have to have an Embassy in Washington, whether we decide to have it in 5, 10, 15 or 20 years, and we shall have to pay as much more for building it—just as we shall have to pay today much more for the schools we might have built 30 years ago.

It is a platitude to say that the fundamental problem of this country is that we have to increase production and productivity and sell in world markets things we should like to keep at home but which we have to exchange abroad for raw materials and food. The battle between the two sides of this Committee, now as always, has been how best to use the nation's manpower and energy for that end, and, secondly, how to share the proceeds of the steadily rising success of Britain in this forward struggle.

I am quite certain that we on this side of the Committee are as delighted about the rise in production and productivity as any other hon. Member, and the workers deserve congratulation, as do the leaders of industry, as distinct from those who buy and gamble in shares on the Stock Exchange, for the part they both play in aiding Britain's economic solvency. We on this side of the Committee believe that one of the great motive forces in that economic struggle is a fairer share-out of the wealth of this country. We think we proved it in the first six post-war years.

We believe that in redistributing the national income for the better-off people of the country the Government have hurt the country in its struggle for economic survival. The greatest moral disservice the Government did, apart from yesterday's Budget, was their campaign last May during the Election. I am generally not keen on raking up speeches made by my opponents, but we were asked yesterday by the hon. Member for Kidderminster to quote evidence of the charge that we were making against the Conservative Party. As half of my charge against the Chancellor is one of political duplicity because of the difference between his pre-Election Budget with the February speech, and the Budget yesterday, I want to give quotations. I am delighted that the Chancellor is in his place.

It is all very well to say, as the hon. Member for Kidderminster did yesterday, that the Government mentioned the economic crisis during the Election. Certainly, they did, pianissimo and in footnotes. The whole Election campaign was based on the prosperity of Britain under the Tories and on the denigrating of all that had been achieved under the Labour Party in the six years after the war. [HON. MEMBERS: "No."] Wait for it. I am proving this in a moment. The appeal said, roughly, "Look how workers' wages have gone up under the Tories." Indeed, in yesterday's debate and since the General Election, the Labour Party were twitted because of the restraint the workers showed in not pressing wage claims under the Labour Government. It went on, "Look how we have preserved the social services and increased old-age pensions. Forward, under the Tories, for an increased standard of living in the next 20 years."

Let me quote from a speech made by the Chancellor of the Exchequer as reported in "The Times" on 23rd May: Our party is the most competent to maintain the financial and economic conditions which have brought us prosperity. I ask you to look at our record and to reflect on what we may be about to achieve"— now we know what they were about to achieve— if we pursue our present expansionist policy. We must go ahead and invest in success. We have restored national solvency. I have seen our policies bearing fruit at home and abroad. We can look forward to a steady increase in our real wealth, a rising standard of living which will benefit all classes, and a free and vigorous country enjoying the respect and affection of our friends and allies overseas. … That is the prospect before us … if we choose. The Prime Minister, with boyish exuberance, said on 25th May: You know what is at stake … the future of this country and maybe of the world for a generation. His predecessor, the immortal right hon. Member for Woodford (Sir Winston Churchill), a master of understatement, put it a little more restrainedly and more sensibly when he said: The future of Great Britain may well be affected by the decision which will be taken tomorrow. The Leader of the House painted a rosy picture of England under the Tories as compared with the rationing and misery of Socialist government.

All that political double talk did the country more harm than anything else which has happened this year. Now we face the reckoning. Now the Conservative chickens are coming home to roost. Now, in their first instalment—as in six months' time when the second instalment, the housing subsidy plan, produces rent increases—the Tory workers who have loyally voted Tory all their lives and who listened to the tempters in the last Election again, are beginning to pay for their support of Tory policy by seeing a real attack, the most potent attack that has been conducted since 1931, on their standard of living.

I do not want to speak about Purchase Tax. That has been so riddled from the Government Benches, now and throughout the last six years, that one need not waste time on it. The general economic case of the Government is that we are spending too much at home. The political case of the Government is that the workers are spending too much at home. In the last Budget they made it possible for the better-off people to spend another £100 million to £130 million a year. The whole pattern of Tory Budgets has been to release spending power for the better-off people. Against that I want to examine what the Government are proposing to do for housing.

Everybody who has seen the magnificent housing estates up and down the country must wonder from time to time why there is a housing problem at all—and I am one of those who have paid tribute to the Government for their programme of 300,000 houses a year. Why, when England is dotted about with magnificent housing estates—of smaller houses, under this Government, it is true—have we a housing problem?

I believe that the answer was given years ago by my right hon. Friend the Member for Ebbw Vale (Mr. A. Bevan), who pointed out that if we raised the standard of living of the British people, if we built the Welfare State, those who were content in the years before the war to go without houses because they could not afford them, would be added to the list of those who wanted houses. What is happening today is that young married couples are no longer content, as they were in 1936 or 1926 to live, as a Minister once told them, in one room. Old folks still want to live in their own home; everyone wants a house of his own to live in.

And so the housing shortage still remains. I think that every hon. Member in the House must have my own experience, which is that three out of every four cases which come to me at the weekend for help are housing cases. My fear is that the Government seek to solve the housing problem as poverty solved it in the years between the wars. By increasing the rents of council houses they are going to remove from the council house queue numbers of people who cannot afford to pay the extra rent which will have to be charged. They will even compel to leave council houses people who will not be able to pay the rent which will have to be charged, even though the new rent which has to be charged—because of the cutting of the subsidies—will be less than it would have been but for the social wealth of the 1¼ million council houses we built before the war, and whose tenants are to be used to cushion the grim effect of the Government's policy.

Indeed, many local authorities, faced with the financial implications of the Government's policy will do what one has already announced that it will do—cease to build houses for rent at all. I believe—and I had confirmation of it in the speech of the Minister this afternoon—that the attack on council house subsidies merely creates a climate of opinion for a similar attack on the rents of the tenants of privately-owned houses.

I undertook to sit down at 9.30 so that the Minister might follow, but I want to say a kind word to the Chancellor. I want sincerely to congratulate him on the fact that this time education has escaped the cuts; that this time the Minister of Education has not been thrown out of the Cabinet and then a cut in school building imposed. In view of his own connection with the 1944 Act, in view of his words yesterday when resisting his wild back benchers and defending the social services from cuts, I would urge him to remember the existence of the Report of a Select Committee of this House on school building, to study the week-old report of the King George Trust on the subject of our educational services throughout the country and to remember that, so important is educational expenditure, so vital is it to the economic struggle which the Chancellor wants the country to survive, that he must not be content with not cutting educational expenditure but must expand it.

9.31 p.m.

The Financial Secretary to the Treasury (Mr. Henry Brooke)

I greatly appreciate the tribute which the hon. Member for Southampton, Itchen (Dr. King) has paid to my right hon. Friend the Minister of Education.

Today's debate has been distinguished by three maiden speeches which I think by common consent will be called first-class, and I should like to congratulate my hon. Friends the Members for Penrith and The Border (Mr. Whitelaw), Howden (Mr. Bryan) and Belfast, West (Mrs. McLaughlin) on their contributions to the debate.

My hon. Friend the Member for Penrith and The Border asked that no unreasonably drastic action should be taken in connection with the remote counties. I remind him that in the circular issued to local authorities it is specifically stated that Questions of the priority to be given to different projects should normally be decided in the light of local circumstances in your area. and as an old local authority man myself I am proud that the Government's circular sent to local authorities in these difficult circumstances should so clearly recognise that local authorities are the best judges of what are the right priorities for their own areas.

The Committee will have sympathy with the plea made by my hon. Friend the Member for Howden for better roads. My right hon. Friend the Chancellor and I are particularly grateful to my hon. Friend the Member for Belfast, West for the thanks which she expressed for what the Government have done to help the linen industry.

The right hon. Member for Leeds, South (Mr. Gaitskell) opened today's debate with a speech which was in effect a torrent of abuse of my right hon. Friend for doing his duty as Chancellor of the Exchequer. Perhaps at this moment he is saying much the same thing to the British public on television. I was particularly struck by his remark that the Government's policy, announced by the Minister of Housing and Local Government this afternoon, that subsidies should not be granted to tenants who did not need them, was in his view not merely devastating but outrageous. I have never heard a more remarkable admission of the Socialist attitude towards subsidy policy.

In the last ten years we have managed, to an extent which would hardly have been believed at any time in the 1920s and 1930s, to achieve and maintain full employment in this country. At present, as the Chancellor said yesterday, the vacancies which cannot be filled far out-number the total of people out of work. What no party has managed to do in the post-war years is to get our balance of payments position secure or thoroughly to check the upward creep in costs and prices.

We have to avoid the perils and extremes of boom just as we have to avoid slump. This requires corrective action to be taken, and taken in time. The significance of this Budget is that it is action in time, and that it is a great step on the road to putting our economic affairs on a permanently sound basis and stabilising the value of the £.

If we succeed, the whole country will benefit, and no one will benefit more than those who have to live on fixed incomes, the very class of people who have been hardest hit by the rise in costs and prices since 1945. My right hon. Friend's Budget is a very carefully planned, balanced and integrated Measure. No one will like it all, because no one is completely untouched by it, but those who have least money to spend are hardly touched at all, whereas it is likely to have an effect much greater than at first realised in checking big spending.

It will make everyone think. Whatever his public or private responsibility, it will make everyone stop to think. That is precisely what is required in a situation in which most of our present economic problems and difficulties arise because we are trying to do too many things too quickly. We must sort them out; we must get them into an order of urgency. It may quite properly be said that if, as a nation, we were prepared to do this, and were prepared to save more and spend less, there would be no need of supplementary Budgets.

My right hon. Friend yesterday paid tribute to what has been done by the National Savings Movement, a very proper tribute, and urged all those who can influence saving by individuals to redouble their efforts for this great cause. I trust that, whatever our party differences over the Budget, we may still uphold the National Savings Movement as quite above our party controversies, and back it to the full. I believe that it will receive general assent and applause that the Chancellor has agreed that the limit of holding of the present issue of National Savings Certificates should be extended from 1,000 to 1,200, and that we should have this new 4 per cent. Defence Bond, with £1,000 limit on the total holding, as with the current 3½ per cent. Bond when it was first issued.

The effect of the credit squeeze, combined with a 4½ per cent. Bank Rate, on the investment programmes of private industry will be very considerable. Suggestions have been made that the Chancellor is merely appealing to private industry, but I think that, when history comes to be written, it will be seen that the practical measures which he has taken will have very drastic effects.

Action has also been announced by him as regards the capital expenditure of local authorities. I am sorry that the right hon. Gentleman the Member for Walthamstow, West (Mr. Attlee) fell into an elementary error when he was criticising the Chancellor on that point. The right hon. Gentleman said yesterday that if a local authority wanted to build hospitals, it would not get the money for the hospitals. Of course, local authorities do not build hospitals in these days. The errors and mistakes made by many hon. Gentlemen on the other side may perhaps be excused through the bad example set to them by their Leader.

Suggestions and allegations were made that the Government's policy was driving local authorities into the hands of banks and moneylenders. For some years past, local authorities have had freedom to borrow where they wish, and as to about 30 per cent. of their borrowing have gone to those whom hon. Members opposite describe as the bankers and moneylenders because they decided that it was in their interest to do so.

The right hon. Member for Leeds, South asked a question and said that it required an immediate answer. I want to give the answer. He asked what would happen about the small local authorities who were seeking to borrow. Every local authority, large or small, which applies to the Public Works Loan Board for a loan will be put on inquiry as to its ability to borrow or its own credit in the market. The scope of these inquiries may, of course, depend on the size and standing of the applicant. The market prospects of a large authority may well be more promising than the prospects of a small authority, but that does not mean that the smaller authority shall be exempted from the question of whether it can borrow on its own credit.

As well as the stock market, there is the mortgage market too, where the small authorities may well find willing lenders. The principle holds that the Local Loans Fund is available henceforth only for those who cannot raise their finance from non-Government sources. [An HON. MEMBER: "At what price?"] This principle will be applied by the Board with judgment but it will be applied all round.

Wild speeches have been made from the other side of the Committee about the Government's housing policy. I happen to have been closely connected with housing in my local authority life, and I was shocked by remarks thrown out by the hon. Member for Kilmarnock (Mr. Ross), and, I am sorry to say, by the hon. Member for Itchen also, suggesting that people who are unable to pay the rent will not get houses or will be evicted from their houses.

The whole purpose of a differential rent scheme is to make sure that those who can least afford to pay will, if their housing need is greatest, get the houses. I shall be more impressed by the attack made this afternoon against the Government's housing policy when the number of houses built under a Conservative Government falls below the 200,000 which was all that a Labour Government managed to build.

As Financial Secretary to the Treasury, nobody could be more sympathetic than myself to the calls for Government economy. It is the principal charge which is laid on me by my right hon. Friend the Chancellor of the Exchequer to examine the Departmental Estimates as closely as I can. If there are faults or waste, I take full responsibility for it. I must, however, remind those hon. Members, on both sides of the Committee, who imagine that there could be sweeping cuts in Government expenditure and taxation by administrative savings that, as my right hon. Friend said, the big money lies in policy decisions.

I calculate that if the whole of the Civil Service were to work without pay, Government expenditure would still continue at 91 per cent. of its present level. In other words, the whole pay of the Civil Service amounts to less than 2s. in the £ of Government expenditure. I want to see administrative costs squeezed as low as they can be and I shall go on doing the squeezing. I shall be most grateful for the help that will be given by the Select Committee on Estimates under the excellent Chairmanship of my right hon. and gallant Friend the Member for Leicester, South-East (Captain Waterhouse). We look for valuable reports from that Committee.

I was grateful for the helpful speech made by my right hon. and gallant Friend during the debate. He had the courage, which some people who call for economy have not, to make specific suggestions for economy. I shall certainly invite my right hon. Friends concerned to examine each of those, though I think it would be a great mistake to reach a decision on one of them concerned with the National Health Service in advance of the receipt of the Report of the Guillebaud Committee.

The taxation side of the Budget includes an increase in the tax on distributed profits which will in effect bring the rate of tax on a company that seeks to distribute the whole of its profits—I grant that no company could precisely do that—up to no less than 70 per cent.; because, of course, the Profits Tax does not rank for tax relief for Income Tax purposes now, and so this 27½ per cent. Profits Tax has in effect to be added to the 42½ per cent. Income Tax.

The Budget, as will the Finance Bill also, includes action to stop the process of dividend stripping, of which I thought an admirable account appeared in the "Daily Telegraph" this morning, and also contains Surtax provisions relating to Lloyd's underwriters which, though I have heard this criticised as being irrelevant to an emergency Budget, will have a direct and valuable effect on our balance of payments.

As part of his policy of checking spending my right hon. Friend had to turn his attention most carefully to the Purchase Tax. Incidentally, very little extra tax will be collected this year through these alterations, because the tax is payable quarterly in arrear, and the Committee will recognise that the only tax which will actually come into the Exchequer before the end of the financial year will be virtually that which is collected during November and December. But this tax will operate to check spending, and check it much more forcibly as soon as the exist- ing stocks in retailers' hands are exhausted, and that is the main purpose which my right hon. Friend has in mind.

In examining the Purchase Tax two points presented themselves to my right hon. Friend. The first was that there should be a general rise in all the Purchase Tax rates. If that is criticised by hon. Members opposite, let me remind them that even so the rates will be lower than when their Government left office. This is a rise of one-fifth throughout the Purchase Tax range. Though my right hon. and gallant Friend the Member for Leicester. South-East asked that these extra taxes should be temporary, I can hold out no hope of an early reduction of that part of my right hon. Friend's proposals.

Mr. Glenvil Hall (Colne Valley)

I gather than the right hon. Gentleman said that the Purchase Tax now on all goods is lower than it was when the Labour Government left office. I should like to remind him that the Purchase Tax on household goods was taken off by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) in 1946, and was not put on again till now.

Mr. Brooke

I was coming to that, but the general rates of Purchase Tax will be lower.

Secondly my right hon. Friend saw that this was an opportunity to remove the harmful, illogical and indefensible features of the Purchase Tax. The first and most striking of those was the D scheme. The D scheme has frankly been a failure in its practical application. It has been constantly criticised from both sides of the Committee, and much of the criticism is just.

The D scheme has two major defects. First, the fixing of the D levels can never be accurate, and even if one gets them right at the start they are liable to be put wrong by price changes subsequently. Secondly, anything on the basis of a D scheme is an incentive to manufacturers to concentrate on lines below the D level.

Mr. J. T. Price (Westhoughton)

We told hon. and right hon. Members opposite all that last time but they resisted it.

Mr. Brooke

This country lives by its export trade, and we cannot successfully export if we ignore quality goods. When the hon. Member for Westhoughton (Mr. J. T. Price) says that we ought to have done this earlier, I am very grateful that now we have his support for what we are doing.

Mr. J. T. Pricerose—

The Chairman

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

Mr. Brooke

Let us consider one of the absurdities of the D scheme. Overalls of over 42 in. in length have had a D of 40s., shorter overalls with sleeves a D of 16s. and shorter overalls without sleeves no D allowance at all. Most of the D goods pay tax at the rate of 25 per cent. less D. That tax in future is to be 5 per cent. On very cheap goods, those bought by the poorest of the community, the tax will be negligible. The goods which are likely to bear most additional tax are the middle and upper qualities just below the D line.

I read in the paper this morning about the wife's winter coat having to bear 10s. more tax. In fact, the maximum additional tax that the best winter coat might bear would be 6s. 6d. A woman's non-woollen frock could only bear an additional 2s. tax and a man's shirt only an additional 1s. Scarcely any headgear had the benefit of D allowance, and it was decided that in the case of hats the new rate should be 10 per cent. without D. In fact, most hats will bear less tax in future, just as blankets and travelling rugs, hitherto subject to tax, will in future be free.

D goods formerly paying 50 per cent. will mostly bear 10 per cent. I know that furs are a special case. It would have been strange to bring down the tax on furs in a Budget of this character. The tax will remain at 50 per cent. but the furs will lose the benefit of the D allowance.

The hon. Member for Itchen said that what we were doing in respect of the D scheme would be hard on the poor and generous to the rich, but nobody has suggested any satisfactory means of curing the present anomalies in the D scheme short of abolishing it altogether.

I wish to refer to the effect of Purchase Tax on exports. This is a matter which the Government have been very carefully reviewing in the last few months. The Purchase Tax is liable to hit quality goods heavily. It is also liable to hit the more expensive products of craft industries. Those two categories of goods may suffer in the export markets if there is not an adequate home market to maintain manufacture. There are two craft industries on which the Purchase Tax is particularly severe—silverware and cut glass.

In those cases, under the former Tax schedules a special tax of 50 per cent. was put on, even though, if the article had been of some other metal, or had been of ordinary glass, it would have been taxed at a lower rate. As Financial Secretary, I have received deputations supported by hon. Members from both sides of the Committee saying that this 50 per cent. tax was strangling these two craft industries. They are exactly the sort of industries that should be making and exporting the best goods in the world, and for that reason I am grateful to the hon. Member for Sheffield, Park (Mr. Mulley) for approving this move. That is the reason we have removed the extra tax on them.

I come to the controversial topic of the tax on household goods. Most of these goods were taxed when Purchase Tax was introduced during the war. The Socialist Government had the theoretical idea of freeing household goods from tax. The right hon. Member for Leeds, South expressed that idea in his speech this afternoon when he said, and I took down his words: Our policy was as far as possible to limit the Purchase Tax to luxury articles only. I must say that he went about that in a very curious way. His method and his party's method of freeing household goods from tax and leaving tax, as he said, only on luxury goods was to exempt breadbins and tax meat safes; to exempt chromium-plated dishes but tax electro-plated dishes; to exempt aluminium saucepans but tax saucepans of stainless steel; to exempt celery vases but tax ordinary flower vases; to exempt shoe brushes, but tax clothes brushes.

I have heard it said that the Government's proposals are likely to be especially hard on those who cannot afford much. It is curious, therefore, that up to now electric toasters have been free of tax, but the person who could not afford an electric toaster and has had to make do with a humble toasting fork has found that the toasting fork attracted Purchase Tax. When I bear in mind that the right hon. Member for Leeds, South said that his policy was to limit Purchase Tax to luxury articles, I am interested to note that scrubbing brushes were exempt, but nail brushes were apparently regarded as luxury articles.

The Government have decided that there is only one course to take. It is to bring this class of goods into tax. In this way everyone will be making a contribution to the country's needs, either by refraining from buying, or by buying and paying the tax—exactly the point that my hon. Friend the Member for Belfast, West has made in her excellent speech. It will make Purchase Tax a much fairer and less unreasonable tax. Hon. Members opposite ask whether the country can afford it. At present the people of this country are spending on betting, tobacco and alcoholic drinks of various sorts the sum of more than £2,000 million a year and yet I am told by hon. Members opposite that to find an extra £15 million in Purchase Tax on household goods will drive people into direst poverty.

The irrelevance of so much that has been said against my right hon. Friend's proposals is proved by the fact that the whole of his Purchase Tax proposals will add less than one per cent. to the cost of living. I would remind hon. Members on both sides of the Committee that this Government—and I am proud to say it—a few months ago increased the rates of the old-age pension by some 20 per cent. and that since then the cost of living has risen by only 3 per cent.

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

Committee report Progress; to sit again Tomorrow.