BUDGET PROPOSALS AND ECONOMIC SITUATION

HC Deb 07 April 1960 vol 621 cc569-697

3.38 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

This is the fourth day of the Budget debate and I do not think that it could be denied that so far the Government have had a hard time. I imagine that the Chancellor of the Exchequer may be able to withstand the posturing of the hon. Member for Kidderminster (Mr. Nabarro) with a certain amount of equanimity, but I think that he is bound to have taken the right hon. Gentleman the Member for Monmouth (Mr. Thorneycroft) a little more seriously, although, of course, as my hon. Friend the Member for Grimsby (Mr. Crosland) pointed out yesterday, there is a big split in the Tory rebel forces.

The hon. Member for Kidderminster has demanded all sorts of tax reductions this year, whereas the right hon. Member for Monmouth has made it clear that he does not think that they were possible this year, but that in previous years we should have had a much more austere financial policy which would have made them possible. Why is it, he asked, …that we can never hope for effective and consistent lowering of taxes without running into another crisis? "—[OFFICIAL REPORT, 6th April, 1960; Vol. 621, c. 430.] It seemed to me to show an extraordinary distortion of vision to put this point in exactly this form. I would certainly have preferred to put it in the form: why is it that we cannot have continued expansion without running very quickly close to another crisis?

There are two reasons for this. First, this fixation on taxation reduction at all costs and as the primary objective of economic policy gets the matter arithmetically out of proportion. Even in last year's Budget, which was, I suppose, as generous a Budget as even most hon. Gentlemen opposite can imagine, the taxation concessions amounted to only 2 per cent. of the national income. That is only about half what the rate of growth in the national income was last year and should be in any normal, reasonably buoyant year. Therefore, the position is that, even from the point of view of increasing the wealth of consumers, taxation concessions by their very nature are not as important as a sustained rate of growth, which, in our view, it should be the primary purpose of the Budget to ensure.

There is also the point, put by my hon. Friend the Member for Grimsby yesterday, that if we are to devote absolute priority constantly to shrinking the total of public expenditure as a proportion of our national income, what sort of community are we to live in? Do hon. Members opposite really want to see, in Professor Galbraith's striking phrase, Public squalor in the midst of private affluence", as the future for this country? Let hon. Members make no mistake about it: that is what this involves, and our hospital, education and public services will become even more inadequate than they are at present if we devote our attention primarily and exclusively to the task of shrinking the proportion of public expenditure.

It would be a great mistake if the view emerged from this debate that the quarrel on the Budget is only between, on the one hand, those hon. Members like the hon. Member for Kidderminster and the right hon. Member for Monmouth in their different ways, who devote an overriding priority to tax concessions, and all the rest of us, including the Chancellor and the Opposition, on the other.

The President of the Board of Trade —I am sorry not to see him here this afternoon, because I wish to refer to him a great deal in the course of my speech —in his speech on Tuesday tried to saddle us with this position. He argued that last year the Government used the Budget to expand the economy and that this year it is using the Budget to apply a slight brake to the economy. He went on to say that the Labour Party did not oppose expansion last year and does not oppose caution this year, and that the Government's economic policy was, therefore, clearly beyond criticism so far as the Labour Party was concerned.

Listening to this facilely specious argument from the President of the Board of Trade, I think I began to understand rather more clearly exactly why our relations with Europe have been so badly managed over the past three years. I wonder how often the right hon. Gentleman, with his easy competence, won petty arguments, at least to his own satisfaction, and yet completely failed to notice that he was missing a much more important point. I wonder how often he was so concerned to prove himself right that he failed to notice how rapidly the general situation was hardening against him.

I want to return a little later to the question of Europe, but for the moment I want to deal with the point put by the President of the Board of Trade, the point that because the Labour Party last year thought expansion was good and this year thinks there is a case for caution in the Budget it automatically follows that we are underwriting the Government's economic policy. Nothing of the sort is true. It is perfectly true that we welcomed expansion last year. We thought it ought to have come much earlier, but that it was better late than never. Looking back on the arguments in favour of it having come earlier, I am bound to say that they seem to me stronger today than they were a year ago.

Why did we have to start this expansion in the already deteriorating balance of payments position of 1959 instead of, as we urged, in the far stronger balance of payments position in 1958? Why start it in a year in which the surplus was only £145 million as against a year in which it was £349 million?

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

I should just like to correct the hon. Gentleman on one point. We started the re-expansion in the summer of 1958.

Mr. Jenkins

In the summer of 1958, right at the end of the proceedings on the Finance Bill of that year, the Chancellor led his followers into the Lobby to vote against our proposals for restoring investment allowances, which, I should have thought, would have been by far the best way to start an expansion at that time.

It is perfectly true that the hire-purchase restrictions came off towards the end of 1958—and I shall have something to say about that in a moment— but so far as Budgets are concerned it was the 1959 Budget, in an already deteriorating position, which was the expansionary Budget and it was the 1958 Budget, in a very strong balance of payments position, which was the restrictive Budget. Why was that so?

I think that it was probably because the shadow of the right hon. Member for Monmouth was still looming over the Government. I hope that the Chancellor will not allow that shadow to re-emerge and dominate his thoughts and views too much in the next year. After all, the right hon. Member for Monmouth presenting himself to the Committee as the successful exponent of economic strength through fiscal austerity really is a rather implausible picture. It is no part of my duty to defend the Chancellor today, but the Chancellor at least has one year of expansion without inflation behind him whereas the right hon. Member for Monmouth gave us galloping inflation and not a trace of expansion. Therefore, I hope the Chancellor will not be too influenced by the re-emergence of the shadow of the right hon. Member for Monmouth in yesterday's debate.

What we complain about is this. Why only one year's expansion and then a return to, at any rate, modified restriction? What are the facts of the situation? Today, the Chancellor is cautious, and in the present situation we do not necessarily disagree with caution, because the balance of payments position is clearly deteriorating and some bottlenecks are developing in the economy. Examples are: steel, particularly sheet steel; labour in some parts of the country; and perhaps bricks during the next few years. But why? Last year's industrial expansion was the first since 1955, and, viewed against this background, it was not really all that buoyant a year. The figure of 10 per cent. which we hear quoted so much at present is the figure of expansion of the last quarter of 1959 against the last quarter of 1958. The figure for the whole year is 5½ per cent. over the figure for 1958.

In Western Germany, during 1959, the rate of growth was not 5½ per cent., but 7 per cent., and it followed in Germany, not as here, a year of recession in 1958. There, 1958 was not a year of recession, but at worst a year of pause in very rapid growth. Also, 1956 and 1957, so far from being stable years as they were here, were in Germany years of very rapid growth indeed. Therefore, following on a very different position, we had in Western Germany more rapid growth in 1959 than we had here, and we had it not starting with a great reserve of labour, which we always used to be told was the key factor in the German situation, but starting from a position in which the reserve of labour was smaller in Germany than in this country. Yet we had a more rapid rate of growth, and we have a position at the end of it in which the West German balance of payments is still enormously strong, with a surplus of about £700 million.

Why is there this much stronger position, this ability to sustain expansion with far less deleterious effects on the balance of payments, this ability to expand expansion more rapidly without any increase in the labour force? The answer, of course, is the much higher rate of investment in German industry— and Germany is not unique in this respect, but is merely symbolic of all the countries within the European Economic Community, and symbolic, too, of a great number of other countries. Here, we really come up against our main criticism of this boom of the past year.

Our criticism certainly is not that it has taken place, but against the form that it has taken, and the fact that because of that form it has had to be damped down so early in its life. The main instruments used by the Chancellor to promote expansion, to get away from the recession of 1958, were, first, the removal of hire-purchase restrictions in the autumn of that year, and, secondly, the concessionary Budget of a year ago. Both of these measures were primarily directed towards expanding consumption. Therefore, it is not at all unnatural that the boom should have taken place primarily in durable consumer goods of all sorts and, in particular, with motor cars.

In reply to the Chancellor's intervention, I said that we urged him in the summer of 1958, nearly two years ago, to restore investment allowances at that stage, and we did so because we thought that the thing to do was to get investment moving ahead before consumption started to move ahead and not have investment trailing behind as it has done so often in the past.

Mr. William Shepherd (Cheadle)

Is the hon. Gentleman really sure that it is possible to persuade business people to invest larger sums of money, despite these inducements, when the demand for goods already is less than the capacity of their factories? Is it not logical and sensible to stimulate consumption first?

Mr. Jenkins

Of course, one will not be able to get businessmen, or anyone else, to expand investment indefinitely unless they have an assumption that their increased investment will lead to a profitable return. What the hon. Member is arguing is that one must always provide the consumption push-forward before the investment push-forward. But one then gets into a position in which, as soon as investment gets going, the Chancellor has to tell us that the economy is being overloaded. That really is a counsel of despair, and means that there is no possibility of decisively jerking up the proportion of investment in the economy.

Mr. Shepherd

My argument was based upon the premise that the demand existed below the level of supply, and I repeat that in those circumstances a stimulation to consumption is inescapable.

Mr. Jenkins

I do not entirely accept that argument. But I do not think that we need go too deeply into it, because all I am arguing now is that the Chancellor made a great mistake in not re-introducing investment allowances in the summer of 1958. If the hon. Member is saying that they would have been relatively ineffective in this stiuation, he is entitled to his view, although I do not accept it. But it cannot be argued that it would have been harmful for the Chancellor to have done that. On any assumption he would at least have given investment a chance to get going more quickly.

What is the result of this policy of saying that consumption must come first and hoping that investment will come along behind it? The result is that in the last quarter of 1959, at the peak of the boom, we still had investment in manufacturing industry lower than in any quarter since 1955. That is the result of pursuing the policy which the hon. Member has been advocating.

We are asked to console ourselves with the fact that there was suddenly an upward revision of the estimates for investment in manufacturing industries at the end of last year, which suggests that they will be substantially higher in 1960. I hope that it will be higher, but can we be sure that that will be so? We are asked to erect a great superstructure of hopes upon this rather narrow and uncertain foundation, upon estimates by manufacturers of what they may do in certain circumstances in the forthcoming year.

It may be that the position will change. It may be that the Bank Rate change, the Budget itself, or the credit measures that the Chancellor has threatened, will have a substantial effect and make manufacturers change their minds on a number of these issues. It is not only that the total of investment has been extremely disappointing, but also that the balance of that investment has often been wrong.

The President of the Board of Trade —who is still not here, though he made a long speech on Tuesday and I am surprised that he has not come to the opening of the debate today—in his speech last year, which was very much in his Rotary club mood, said: Surely, the private sector determines the level of capital investment in the light of probable demand, but if the gentlemen in Whitehall are to determine the capital investment programme we shall finish up with an excess capacity in some sectors and an inadequate capacity in others."—[OFFICIAL REPORT, 8th April, 1959; Vol. 603, c. 241.] That was his view last year. Does he still agree with it? Do the Chancellor and the Financial Secretary still agree with it? Whose misjudgment has produced a situation in which sheet steel imports into this country in January and February this year were five times as great as in January and February last year?

This is only too reminiscent of one of the major trends of our balance of payments position in 1955, which forced us to the restrictive Budget of that time. Is the Chancellor satisfied that the investment judgments in the motor industry are phased with investment proposals in the steel industry so that they will not move too far ahead of supply? Is he satisfied that the most significant feature of the investment prospect today singled out for mention by the Chancellor is that investment in distribution and services industries is to go ahead by 20 per cent. in 1960, while a far smaller increase is expected in manufacturing industry and basic industry?

Is it not clearly the case that for several years we have been suffering from a top-heavy balance in such investment as we have had, with insufficient attention being directed to what I might might call the infrastructure of industrial development? I do not want to be dogmatic about this—the dogmatism lies on the other side of the Committee. The dogmatism is on the part of the President of the Board of Trade, and the other members of the Government Front Bench, who go on from year to year with inadequate total levels of investment, with a great deal of it misdirected, and yet still say that the gentlemen in Whitehall must always be wrong and the decisions of private investors always right.

I do not want to be dogmatic about this. I do not much mind the methods by which we do it, but it is essential to jerk up investment in this country and direct it to a far greater extent to expanding our basic industrial equipment than has been done in the past. Otherwise. we shall merely go on in a situation in which, as compared with our major trade rivals, we become increasingly vulnerable to balance of payments difficulties and increasingly unable to sustain other than extremely short-lived periods of expansion.

The inevitable result of that is that our rivals all over the world will continue to go ahead faster and more consistently than we do and that our economy, relatively, will increasingly become a stagnant backwater. If the opinions of the hon. Member for Kidderminster and his hon. Friends were to prevail, it would be an extremely badly managed backwater, one in which bombast would be a substitute for reason. If the Chancellor maintains his control, then I think that it will be quite a tidily and honestly managed backwater. But in either case it will be a backwater compared with what is happening in the mainstream of economic development around us.

I want now to turn to an area which is decisively not a backwater, to Europe and our relations with the Six, the Common Market countries. The Chancellor told us very little about that in his Budget speech and the President of the Board of Trade told us nothing about it, although I can well understand that he might now wish to draw a veil of silence over the whole subject. I cannot think that the Economic Secretary, who did mention it yesterday, believed that by any standards he was being very informative.

Is not this a major question? What are the Prime Minister's remarks in Washington? We have heard a great deal to suggest that the Prime Minister was rather badly treated in the matter of Washington methods of security, but we have heard nothing to suggest that what the Prime Minister was reported as saying was not, in fact, what he did say in Washington. What he said in Washington was that unless, by July, we could get an arrangement with the Six, there might be involved a strain on our balance of payments position of between £100 million and £200 million a year and it might cause us to reappraise the whole direction of our international economic policy. What does the Chancellor believe about that? Does he agree with the Prime Minister? Does he think that we are facing a deterioration of from £100 million to £200 million a year in our balance of payments position? Has he taken that into account in framing his Budget and in framing his estimates for the balance of payments?

This is a major issue, or the Prime Minister would not have been suggesting that we should form anti-Napoleonic alliances to deal with it. We should have from the Chancellor at least something rather more than the jejune comments on the Vienna meeting which we had from the Economic Secretary. I hope that the right hon. Gentleman will repair that omission when he replies this evening and will tell us, in particular, whether he believes that there is any likelihood of the Six abandoning their acceleration proposals for July, the Hallstein proposals as they are known, and accepting instead the Vienna suggestions of the Seven.

If the right hon. Gentleman is studying this situation at all closely, as he must, he must agree that it is, perhaps unfortunately, extremely unlikely that the Six will do anything of the sort. It seems to me, on the whole, unwise for us to claim too strenuously that they will. After all, if we are anxious to create a situation in which there are fewer suspicions in Europe of our attitude to the Common Market than there have been in the last three years, the best way of setting about lulling those suspicions is not to apply all our influence against proposals for bringing about the Common Market rather more quickly.

Mr. David Price (Eastleigh)

Would the hon. Gentleman support the views of a minority of us that we should now very seriously consider joining the Common Market?

Mr. Jenkins

There are so many minorities on the other side of the Committee that it is difficult to commit oneself to the views of any one of them. Speaking for myself, I take the view that at the moment, whether we like it or not, the Common Market would not have us in. Having gone through the incredibly delicate business of drawing up its treaty and being now engaged on the very delicate task of getting over the hump of French protectionism, the Common Market is anxious to have nothing to divert it from that path.

What I would advocate is that we should now offer much more good will to the Six than we have done in the past and make it clear that we recognise that a Franco-German rapprochement is one of the greatest things for Western Europe and even more important than matters of trade, that we genuinely mean that, and that, having created the Seven, we regard it more as a bridge towards the Six than as an extremely ineffective weapon against the Six.

The trouble is that the Seven have been created very much in the exact image of the Government's free trade area proposals, which were decisively rejected by Europe, and is, therefore, much more an attempt to soothe the ruffled pride of the Government than an attempt to create a meeting point with the Six. What is extremely important is that we should abandon that attitude, abandon our attitude of offended pride towards Europe and abandon the hopeless wishful thinking which has coloured all our approaches to Europe over the past three years.

That is why I say that it is no good the Economic Secretary suggesting that all we have to do is to wait until May and hope that the Six will then have changed their minds about July. They will not have done so and it is better that the Chancellor should face it now and tell us honestly what his attitude to that position is. Let us have much less wishful thinking about the Six and treat the Seven as a bridge and not a weapon, making it more like the Six and hoping that at some time in the not-too-distant future, when the Six get over the hump of French protectionism, it will be possible to amalgamate the two units. That seems to me to be the best course at the present.

Mr. D. Price

Illusory.

Mr. Jenkins

It is a great deal less illusory than that suddenly, at this very delicate stage of the progress of the Six, we can open up negotiations and expect them to accept a complete reversal of everything we have said for a long time past. That is an illusory view about the short term. What one has to do is to find a practical solution for the short term while keeping open the direction in which the hon. Member wants to go for the slightly more middle term future.

My last point is this. In these economic debates, hon. Members opposite seem to be increasingly obsessed by two considerations, by the level of Government expenditure and by wages. If there is a mention of any economic problem, they automatically react with an emotional mention of one or other to those two subjects. Yesterday, the Economic Secretary gave us a great lecture about wages and the damaging effect which an increase in wages might have on the economy.

I hope that the hon. Gentleman realised that that came at the end of a year in which wage rates were remarkably steady and in which labour costs per unit of output were falling quite substantially, whereas, on the other hand, as I think the Chancellor recognises, profits were rising rapidly per unit of output and there was a complete contrast between the movement of labour costs and the movement of profit margins. Nor did we see any significant price reductions during the year.

The durable consumer goods industry led the boom and the profits increased enormously, but there were no significant groups of durable consumer goods where prices came down substantially during the year. On the other hand, we have seen this morning, in the Financial Times, that during 1959 equity shares rose in value by no less than 51½ per cent., the total increase in their value in that one year alone being £6,300 million.

The Financial Times commented that this came on top of 1958 when these shares had not shown a greatly inferior rise. It went on to comment that further hopes for 1960 might not be altogether !ill-founded. Dividends, it noted, had gone up by 14 per cent. in 1959, the biggest rise since 1954, when they had increased by 20 per cent. The report then said: There is a strong possibility that this year's increase"— that is, in dividends— will exceed even that for 1954, possibly by a wide margin. Are we being asked to accept that in these circumstances the Chancellor and hon. Gentlemen opposite seriously believe that a well-administered capital gains tax would yield only £50 million a year? Is that seriously put forward by the Treasury, or by any hon. Gentleman opposite who has considered the situation carefully? Hon. Gentlemen opposite have tried to have it two ways. First, they have said it would be a derisory tax, yielding only a small amount of revenue. At the same time, some hon. Gentlemen, like the hon. Member for Torquay (Mr. F. M. Bennett), who was rash enough to attempt to defend the Chancellor, sought to mitigate his rashness and improve his standing with those round him by showing how strongly he was against a capital gains tax because of the highly damaging effects it would have.

To some extent, hon. Gentlemen opposite adopt a contradictory attitude to the whole subject of tax avoidance in its widest sense. The Chancellor has gone a little way this year towards closing some of the most blatant loopholes. Almost every step that he has taken has been broadly, though not completely, in line with proposals which have been urged on him mainly from this side of the Committee, but to some extent by independent opinion, in previous years. When those opinions have been urged on him previously it has always been said that they were of no importance. The proposals have been scoffed at because it was said that loopholes were nonexistent, or were so small that the revenue lost was negligible.

We are now to have a long Finance Bill to deal with a number of proposals, which we welcome. The Chancellor and hon. Members opposite ask us to believe that this will close all the loopholes. We are asked to believe that, although he said last year that all the loopholes were closed and he was shown to be wrong, this year he is right in saying, that he has finally closed all the loopholes, and that anything further that we may suggest will be of negligible importance and will be making a mountain out of a molehill.

The fact is that this goes only a little way towards giving our taxation structure a greater sense of reality and fairness. There are bigger loopholes still to be closed, and there is no doubt that action to close them should be taken in the near future. This is the first Budget of the new Parliament. In the normal course of events, with the majority which the Government have, they will introduce at least one or two more Budgets and possibly more.

If the present mood on the benches opposite prevails, the danger is that as these Budgets go on, and as our economic policy develops, not that there will be a sudden, economic catastrophe which will overtake us, but that our economy will remain relatively sluggish and will become increasingly vulnerable from a balance of payments point of view. We will be cut off from the swiftly flowing stream of economic growth in Europe. Our taxation system will remain notorious for its intellectual dishonesty with its high nominal rates of taxation compensated for by wide loopholes through which many are able to escape. Our system will be unfair not only between different income groups, but between different individuals in broadly speaking the same income groups. The main back bench impetus will be toward reducing Government expenditure, and this will be a guarantee that our public services, already inadequate, will increasingly become a disgrace to a prosperous and civilised community.

The Chancellor ought to turn his back more decisively than he has done so far on these developments. Unless he does that he will find himself no more popular with this side of the Committee than he is with the other side.

4.15 p.m.

The Financial Secretary to the Treasury (Sir Edward Boyle)

I shall not reply to the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) on the subject of trade with Europe, because my right hon. Friend will have something to say on that when he winds up the debate this evening, but I will say something on the subject of investment, to which the hon. Member devoted much of his speech.

I assure the hon. Gentleman that we on this side of the Committee are well aware of the fact that our competitive power in the world, and our prospects for future increases in production, depend to a large measure on the level of productive investment. I thought the hon. Gentleman was less than fair to my right hon. Friend about what has been achieved with regard to investment, and about the measures which my right hon. Friend has taken.

It is not true that my right hon. Friend totally neglected this subject in 1958, when the initial allowance was increased. We had a 4½ per cent. rise in investment in Britain between 1958 and 1959, and one point of importance, as the hon. Gentleman will surely have realised from the Budget speech, is that if one takes the coming year, 1960–61, investment both in the public sector and in the private sector, whatever the precise figure for the private sector may turn put to be, is going up by a substantial percentage.

It is not fair to say that we have neglected the importance of investment. I agree with my hon. Friend the Member for Cheadle (Mr. Shepherd)—

Mr. Jenkins

Does the Financial Secretary dissent from Sir Roy Harrod's figure, that even if the best estimate of what is likely to happen in the private sector is realised that will bring our investment back to the 1957 level and no higher?

Sir E. Boyle

I do not want to pursue this argument for too long, but there are two points to be made in reply. First, we must not forget that 1957 was a year of slackening economic activity, and it was remarkable that investment was kept going at a constant rate during that time. The other point about the forthcoming year is that, whatever the Treasury figure may turn out to be, we shall achieve a greater percentage increase in investment, both private and public, than in any of the other main blocks of demand in the economy, including consumer demand. That is a prospect which we regard with pleasure.

Mr. Harold Wilson (Huyton)

The Financial Secretary said that 1957, a year of declining economic activity, was the year in which it was a great achievement to maintain investment. Will he explain why his right hon. Friend the then Chancellor, in September, 1957, made a cut in both public and private investment the very centre of his proposals?

Sir E. Boyle

At that time it was necessary to give first priority to saving the £ sterling. I assure the right hon. Gentleman that in both the private and public sectors the policy of encouraging investment was pursued far earlier in 1958 than is realised by hon. Gentlemen opposite.

There is much in the point made by my hon. Friend the Member for Cheadle that we would not have had this prospect of increased investment but for the tax reductions in last year's Budget. It is unreal to suppose that one can get investment going without businessmen feeling that they have an expectation of reasonable profits for a term of years.

I am not blaming the hon. Member for Stechford, but I noticed with interest that, unlike many of his hon. Friends, he said nothing about pensions. The party opposite must decide what is its first priority. Is it first and foremost a party which wishes to increase the proportion of the national income going to investment, or a party which is more ready to respond, all the time, to appeals for greater social service expenditure? If we try to do all these things at once the effect can only be to return to a state of overstrain, in which we place the £ sterling in danger, which would be the greatest of all enemies of economic progress.

I come back now to the principal object of my right hon. Friend's Budget. As the Committee is aware, it is to exercise a moderately restraining influence on the rate of expansion. As my right hon. Friend's Budget speech showed, this rate of expansion is likely to show a continued upward trend in total demand, with consumption, public authorities' expenditure, investment and exports all expected to rise. At the same time, as we all know, the country no longer has the reserves of labour and unused capacity which existed a year ago.

Unemployment over the whole country is below 2 per cent., and in the Midlands and the South labour shortages are beginning to develop. Quite clearly, there are dangers that expansionary forces could lead to an overloading of demand. If this were allowed to happen, it would, first, destroy hopes of maintaining price stability and, secondly—and perhaps still more dangerous—it would have an adverse effect on our balance of payments.

I must make it clear that my right hon. Friend is not seeking to stop the economic expansion which has been so striking a feature of the last twelve months. There is no doubt that total demand, and particularly capital investment, will continue to increase. I emphasise that the Budget is designed not to curb the revival of industrial investment, but rather to make room for it. We want to live within our means as a nation, and fortify our balance of payments, without hitting at the roots of our future earning capacity in a competitive world.

On the other hand, the Government have shown by the decision to increase taxation and by their declared readiness to use monetary policy, that they are determined not to allow the economy to drift once again into a condition of excess demand, inflation, and balance of payments crisis. In other words, we want to hold on to the twin advantages of growth coupled with stability which we have enjoyed during the last twelve months.

Mr. William Ross (Kilmarnock)

Where? In Scotland?

Sir E. Boyle

As my right hon. Friend pointed out, the Local Employment Act has been passed precisely to deal with the difficulties of special areas. The hon. Member for Kilmarnock (Mr. Ross), who listens and takes part in many of our debates, will not seriously claim that the trouble in Britain today is a general weakness of effective demand.

I know that some people find it difficult to understand why taxes should have to be raised at a time of prosperity and buoyant tax revenue. But this is not really so surprising, because the Budget is not only concerned with meeting the expenses of Government. It is also one of the most important means of ensuring a balance between the total of our resources and the demands made upon them. A buoyant tax revenue may well be an important sign that pressure on our resources has been increasing. This is precisely why, when my right hon. Friend is framing his Budget, he is bound to have regard not merely to Exchequer considerations, but also to the state of the economy as a whole and, perhaps above all, to the state of our balance of payments.

Furthermore, I am sure that my right hon. Friend is right to ease the incipient overstrain on our resources by a combination of monetary and budgetary measures, and not by one type of measure only. During the years 1945–51 the Labour Government came under considerable criticism—not only from Conservative Members—for their neglect of the monetary weapon. A number of supporters of the party opposite have since admitted that there was some truth in that charge. The right hon. Member for Huyton (Mr. H. Wilson) has come near to doing so, and Mr. J. R. Sargent and some other economists have also done so. But it would surely be an equal mistake, at the present juncture, to place exclusive reliance on the monetary weapon. The truth is that we can consolidate our position far more effectively, and contain the threat of inflation far more securely, if we use both the monetary and the budgetary weapons at the same time.

It is true that, as a party, we want to see a further reduction in taxation during the present Parliament. Most of us—perhaps all of us—consider that personal taxation, especially on earned incomes, is still too high. But nothing has been done in this Budget which will affect the reliefs in the level of personal taxation which were made during the last Parliament. As a party, we have never said—there was nothing to this effect in any electoral manifesto that we have ever issued—that no taxes should ever be raised. And I cannot believe it is sensible to talk about modest increases of taxation as though they involved great matters of political principle.

We may differ from right hon. and hon. Gentlemen opposite in greater or lesser degree about the proper limit of State activity, the degree of equality that we wish to retain, and the sort of society we wish to achieve. But I put it to some of my hon. Friends that to stigmatise any Budget which raises taxes as a "Socialist" Budget is to make just the sort of confusion between ends and means which, I should have thought, we could much better leave to the select band of fundamentalists on the benches opposite.

The task of a Chancellor of the Exchequer can never be an easy one. Wherever we sit, we would all want to achieve, at one and the same time, stable prices, a healthy balance of payments, a high and stable level of employment, rising living standards and—we ought to add, nowadays—some increase in our ability to help the underdeveloped areas of the world. We can achieve all those objectives only if we have a Chancellor who constantly exercises good judgment at every fresh conjuncture of affairs. Just as I believe that last year my right hon. Friend gave the country the Budget which circumstances required, so I believe that the same will prove to be true this year.

I now turn to a subject which has figured prominently in these debates, namely, Government expenditure. This is, naturally, a subject which any Financial Secretary must feel about rather keenly. As I listened to some of the speeches on this subject I was reminded of several afternoons which I have spent downstairs in the large Ministerial Conference Room, being glowered at by 10 or 20 of my colleagues in the Government. I thought that when my right hon. Friend the Member for Monmouth (Mr. Thorneycroft) pointed accusingly in the direction of my right hon. Friend the Chancellor yesterday, he was really pointing not so much at my right hon. Friend as at the spending Ministers, whom he would have liked to be present at the time.

The question of Government expenditure is a difficult one, and I warmly agree with what was said by the hon. Member for Grimsby (Mr. Crosland), namely, that it is a question about which we should do our best to be rational, approaching it in a reasonable spirit.

First, we must admit that a Minister who does not appear to gain his fair share of successes with the Treasury, or with his colleagues, gets a thoroughly bad time in the House, and—just as important—an extremely bad Press outside.

Mr. H. Wilson

Since the hon. Member is making such vicious personal attacks upon those whom he calls the spending Ministers, should he not have given them notice, and should they not be here?

Sir E. Boyle

I normally enjoy the interventions of the right hon. Gentleman, but I do not think that that was quite up to his usual standard.

The same thing is true of individual Members, to a smaller degree. Hon. Members on both sides of the Committee would agree that a Member who does not press for the inclusion of a school in his constituency in the building programme will not be praised for being an upholder of public economy; the word will simply get round in his constituency that he is not very good at getting things done. It is easy to be in favour of a general reduction in Government expenditure, but the problem is very different when we come down to individual cases.

Any Government must be scrupulously careful over the spending of public money, and especially when the Government are themselves claiming scarce resources of manpower and materials. I do not believe that, as a Government, we have a bad record of supervision over administrative expenditure, and I can judge this only from work I have done at first hand in individual Departments. For instance, whereas we spend a great deal today on education, I do not think that any reasonable person can possibly claim that the Ministry of Education, as a Department, or its inspectorate, is overstaffed.

Again, when a certain kind of Government activity falls away, or is allowed to lapse, I can assure my hon. Friends that the Treasury is careful to see that there is an immediate reflection in the Estimates presented to Parliament. I can give an example from this year's figures. The provision made in the Estimates for the expenditure in connection with town and country planning has been reduced from the figure of £11.8 million last year to a little below £8 million for this coming year, a reduction of nearly £4 million.

That reduction results directly from a fall in the number of claims attracting payments for compensation under Part II of the Town and Country Planning Act, 1954. In those ways, by seeing that reductions in Government activities or services falling off are immediately reflected in the Estimates, we can make some impact on the total expenditure. I can assure my right hon. Friend the Member for Monmouth that the process known as shaking down the Estimates and the detailed bargaining with Departments, went on vigorously during this last winter before the publication of the Vote on Account, just as it has done in previous years.

But when all this has been said, there are, I believe, three important points concerning Government expenditure which the whole Committee ought to bear in mind. First, it is just no good thinking that we can, as a House of Commons, approve a major step forward in social reform, and ensue it, without the expenditure of a great deal of public money. My right hon. Friend the Minister of Education quoted the example of education expenditure during the debate on the Crowther Report. I will not repeat what he said, but I will give just one further rather striking example—expenditure on National Assistance.

On returning to the Treasury, I was struck by the fact that the Estimate for National Assistance grants had gone up from £125 million for the 1959–60 Estimate to £170 million for the 1960–61 Estimate. Indeed, it is not so many years ago that we were surprised to find a National Assistance Estimate of £100 million. I discovered, after making inquiries, that the increase in the average Assistance payments of 7s. 6d. a week added £29 million to the bill. There are 150,000 more people claiming National Assistance as a result of the last increase—people who were just above the level before and who now come just within its ambit—and that adds £12½ million.

Another point which is of interest is that very few of the clients of the National Assistance Board are in any way affected, or very much affected, by the state of the economy and the general condition of prosperity. Eighty-five per cent. of this total of £170 million goes either to the old, the sick, the long-term unemployed, or to women with children.

I quote that example to the Committee to indicate that when we introduce a large social reform, we must expect the cost to go up over the years. I do not believe that any hon. Member will grudge this money for National Assistance. Hon. Members on this side of the Committee drew attention to this increase at the time of She election, and all of us are glad of the real increase in the standard of living of people on National Assistance last year. But we have to realise that National Assistance today, even at a time of growing prosperity, inevitably costs more than any of us could have guessed even five years ago.

My second point about Government expenditure concerns the highly important consideration of the sort of society we want to see. Here, I think I cannot do better than to quote the words of my hon. Friend the Member for Mitcham (Mr. R. Carr), who made such an ex- tremely good and helpful speech in the debate the other night. He said: As our society grows more affluent we must expect, and, indeed, encourage individuals to look after themselves to a greater extent than they have been able to in the past. A move in that direction is thoroughly healthy. But there are contain sectors of expenditure which, however affluent our society becomes, can never be undertaken by individuals. The individual can never build hospitals, roads, homes for elderly people, schools and universities. Therefore, as our society increases in affluence not only should we be able to afford more of These things; it is our duty to afford more of them, because there is an increasing desire for better environmental standards."— [OFFICIAL REPORT, 5th April, 1960; Vol. 621, c. 324.] I believe that those words would evoke a great deal of support in Britain today. I can say to the hon. Member for Stechford that it is not only supporters of the party opposite who feel that it is no use achieving ever higher production in the private sector if we allow our public services to languish. Having said that, I must add that I agree with hon. Members on both sides of the Committee who say that we must look ahead at prospective claims on the economy in the light of the resorces we shall have available, and establish some priorities. I believe that to be just as important in the field of Government revenue spending as in the field of Government capital spending. We have long been used to doing a certain amount of forward looking in regard to capital spending, but we shall have to get used to the same concept in relation to revenue spending as well.

Viscount Hinchingbrooke (Dorset, South)

Does my hon. Friend accept the corollary of the view of my hon. Friend the Member for Mitcham (Mr. R. Carr) namely, that while it is an admirable thing to keep up the level of essential Government services which no one else can perform, the Government ought consciously all the time to try to shelve those things which could be done by private enterprise and thus reduce the level of Government expenditure on those things?

Sir E. Boyle

I do not quarrel with what has been said by my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke). The point is that it is not always easy to see at any given time the services which ought to be dispensed with. I think that this is particularly true about social capital spending. It is not always easy to see which—

Viscount Hinchingbrooke

There are the nationalised industries.

Sir E. Boyle

I was about to say to my noble Friend that my view has always been that, as a party, we should be prepared to be tough and to encounter political controversy and criticisms over subsidies to consumer spending of the kind which could be held to he no longer justifiable. I was always in favour of discontinuing the bread subsidy and the general needs housing subsidy. I believe that the more valuable types of State activity are very often those types of social capital expenditure to which, I agree we have in the past accorded too low a priority.

Finally, I would say, do not let us assume that, just because Government spending is rising, therefore we shall not be able to maintain the benefits of price stability. Of course, Government spending is one of the factors influencing the price level. But it is not by any means the only one. As my right hon. Friend the Chancellor pointed out in his Budget speech, we were able to achieve last year a 10 per cent. rise in industrial production while maintaining stable prices because of the sharp increase in the rate of productivity.

Again, an important reason for the present stability of prices is that food prices—they are an important factor in the retail price index—are 1½ per cent. lower than a year ago. That is why we can take considerable comfort from the present state of the index. But we could lose the benefits of price stability very easily if we allowed ourselves once again to slip back into a state of excess demand; and it is precisely the purpose of my right hon. Friend's Budget, framed in the light of all the present and immediately prospective claims on the economy, to ensure that this does not happen.

For the rest of my speech—and I shall try not to detain the Committee too long —I want to say a word or two about some of the revenue proposals. I think that the reliefs in this field have been generally welcomed, certainly the increase in the housekeeper and dependent relative allowances and the alternative allowances for widows and others with children. On post-war credits, I accept up to a point The Times criticism that in a sense we have devised a new category of social payments. But I cannot see what else we could have done other than make repayments to clearly defined categories of hardship cases. I am glad that we are to repay credits to the long-term sick. I have had more letters from hon. Members on both sides of the Committee on the question of the long-term sick than on any other matter.

Next, I wish to say a word or two about Profits Tax. Not very much has been said about this in our debates this week, but I wish to refer to it. Profits have been rising strongly during the last eighteen months. The right hon. Member for Huyton, as I rather thought he would, made considerable play with the comparison of short-term movements in profits and dividends and those of wages and salaries. But it is only fair to remember that profits fell in 1958 when production was running below capacity; and over the whole period between 1948 and 1959 profits and dividends have risen somewhat less than wages. It remains true that in recent months profits have been running at a fairly favourable level.

My right hon. Friend believes—and I think that he was justified in believing —that this was a sector of the economy on which it would be reasonable to lay some of the burden of the moderate degree of restriction at which he is aiming. Although the increase in the tax rate cannot be called a drastic one, it should be enough to make itself felt in certain ways.

First, I do not believe that the change is likely to have more than a marginal effect on capital investment decisions in the near future.

The reason for thinking this is that, even allowing for the rise in Profits Tax, the firms concerned will be getting a flow of ploughed-back profits on an adequate scale in relation to their capital programmes. Furthermore, as my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens), who wound up the debate last night, fairly pointed out, they will still enjoy the benefit of the investment allowance. But a more important effect will be to reduce the accumulation by firms of financial assets, wholly or mainly in liquid forms. This will facilitate the control of the economy through monetary and credit measures, if these come to be applied. Our previous experience in 1955, to which a number of hon. Members have referred, showed very clearly how difficult it is to make monetary measures effective when there is a state of excessive liquidity.

Secondly, I think that the higher tax may have some effect on dividend distribution by discouraging certain increases which would otherwise have taken place. We have never believed that compulsory statutory dividend limitation was either right or practicable. One ought always to remember that if we want companies constantly to renovate their plant, it is no good supposing that we can limit dividends by statute. On the other hand, there may be times—I believe that the present is one—when some direct encouragement of dividend restraint seems justified.

Finally, a further possible result of the rise in tax may be a slight checking effect on the further advance of Stock Exchange prices. This will not be a bad thing, either. A great deal has been said about this in the last few months. I listened to what my hon. Friend the Member for Kidderminster (Mr. Nabarro) said about the effects of the tax. I am bound to say that there is really no evidence for the view that a moderate rise in Profits Tax is likely to prove inflationary. There is the interesting statistic, which I am sure is well known to the Committee, that the profit margins of electrical engineering firms in 1937, when there was a relatively low rate of tax, and in 1950, when the rate was higher, were almost identical.

Viscount Hinchingbrooke

The increase in Profits Tax in the autumn of 1955 put up the cost of living.

Sir E. Boyle

With respect, I do not believe that that was the case. I do not believe that the increase in Profits Tax had an effect on the price level at that time.

I want to say a few words about one or two of the tax avoidance measures. Businessmen often point out to those of us who are not members of the business community, when we take part in these debates, that we have no first-hand knowledge of the subject with which we are dealing. For my part, I find tax avoidance an extremely difficult subject to grasp, and I have no doubt that the overwhelming majority of people who are active in business have little idea of the shifts to which a very small number of people will resort. One does not want to over-rate the importance of this subject and to dwell excessively on it.

I think that at the last General Election, hon. Members opposite made far too much of a feature of the rackets of the capitalist system. At the same time, I recognise that in the modern world, when economics matter more than ever before, and when our economic performances not only affect us in this country but other countries as well, it is an extremely bad thing if too much cynicism is generated about our economic system. That is another reason why my right hon. Friend is taking action on all the major matters to which his attention has been drawn. Incidentally, my right hon. Friend never said last year that no more cases of tax avoidance were likely to arise. No one would be rash enough to say that. But he is dealing with all the matters which have been drawn to his attention by the Revenue at the present time.

I should like to answer a question on what has been called the "hobby farming" provisions. My hon. Friend the Member for Torquay (Mr. F. M. Bennett) and one or two other hon. Members asked me about woodlands. The new test proposed for the admission of loss claims under Section 341 will apply to loss claims arising from the occupation of "commercial" woodlands as well as to losses arising from other trades and professions. This seems right when a new test is being introduced generally for the purposes of Section 341. But if the occupier of commercial woodlands who satisfies the new test of Section 341 relief has a bad year because of a lot of trees dying due to difficult climatic conditions, or because of disease, he will continue to be entitled to make a loss claim just like a genuine commercial farmer. There will be no question of owners of woodland being treated in an unreasonable manner.

In general, in applying the new provision, what will affect the General Commissioners in deciding whether to allow a loss claim will be the trend revealed in the facts brought forward by the taxpayer. If it is clear that he has taken steps to ensure that he will have a reasonable chance of making a profit in a normal year, then he should be in a favourable position. If a great deal of stock—potatoes, or whatever it may be— has been ordered well in advance of this Budget, no tax commissioner will expect anything unreasonable in the first year.

There are two other proposals of my right hon. Friend to which I want to refer. The first is the proposal to impose tax in certain cases where certain potential trading or dealing profits are, in effect, converted into non-taxable capital appreciation. I should make clear to the Committee that this is not intended as a tax on capital gains, but as an essential part of the armory against tax avoidance with which my right hon. Friend proposes to equip himself this year. The point is that it will check devices by which profits which, in the ordinary course, would be subject to Income Tax are placed on the capital side of the line by some manipulation. That is the point of the proposal, and it is one about which the Committee need have no doubt or hesitation at all.

The other point is the provision requiring a person who sells stock to the market cum-dividend to produce a voucher for the dividend, or to account to the Revenue for the tax on the dividend if he cannot do so. This provision is directed against a new variant of bond-washing; and the device depends on the fact that, at certain times, near the dividend date, Government stock can be dealt in either cum-dividend or ex-dividend. The difference between the cum-dividend or ex-dividend price in the market is more than the net amount of the dividend after standard rate tax has been deducted.

If, therefore, the operator can sell to the market a net dividend, that is to say, a dividend less Income Tax at the standard rate, without possessing that dividend, he can make a profit on the deal. The manipulator buys stock ex-dividend and sells cum-dividend—that is to say, he sells on condition that he will pay over an amount equal to the divi- dend less tax. He is not entitled to the dividend he purports to sell. But by abusing the Stock Exchange machinery, he is able to pass on, as income which has borne the standard rate of tax, a net amount of cash equivalent to a taxed dividend.

I apologise for troubling hon. Members with this matter, but I have simply chosen the questions about which I have been asked by individual Members. I will not say anything this afternoon about the general anti-avoidance provision, about which my right hon. Friend will say a word when he winds up the debate tonight.

In conclusion, I would suggest that there is no need for us on this side of the Committee to take too gloomy or too modest a view about the achievements of our economy during the 1950s. If we look at the eight years from 1951 to 1959, our gross domestic product has risen by almost 20 per cent. In the same period, industrial production has risen by nearly one-quarter. In 1959, gross fixed investment was 46 per cent. higher than in 1951. The amount of electricity generated was up by three-quarters and the production of crude steel by nearly one-third. At the same time, disposable incomes of persons per head rose by over one-quarter, by 27 per cent., in real terms. Consumption has risen by 19 per cent., or nearly one-fifth, and in 1959 personal savings were more than five times what they were in 1951.

Mr. Anthony Crosland (Grimsby)

This is most uncharacteristic. Does the hon. Gentleman not agree that to recite the figures of British increases without giving any idea of how they compare with what is going on in other countries is precisely what encourages this appalling national complacency?

Sir E. Boyle

I hope that my next words will show that whatever my faults may be, national complacency is, I hope, not one of them. I have not the slightest desire to live in a backwater, whether it is well or badly managed. Considered in themselves, those figures may not compare too well with those of some other countries, but to the overwhelming majority of people in Britain the 1950s have been a better period in which to live than any other decade of our national history. It is always worth while to remember that.

I entirely agree with the hon. Member for Grimsby that it would be a bad thing if we were complacent and were to go no further. In the 1960s, our performance in world trade, in supplying aid to underdeveloped countries and in playing our full part as a member of the Western Alliance will be more important than ever before. I quite agree that it would be wrong for us to approach our economic future in a complacent or negative spirit.

We must certainly adopt a purposive attitude to our economy, and wish to promote a steady increase in our real wealth. Surely, however, the hon. Member and all who feel like him will agree that the base of our forward drive, and the grounds of our success, must be our ability to pay our way in the short term and to keep the £ sterling a strong currency. If the £ were to fall again, the effect would inevitably be that we should have to sell more investment goods for the same quantity of imports, and, therefore, we should all the time be weakening our ability to compete in the future. There is, therefore, no inconsistency in desiring an economic policy which gives a high priority to stability as well as growth.

It is for that reason that we need a Chancellor of the Exchequer who recognises the needs of the future and, at the same time, is determined to take the right decision at each conjuncture of affairs. I genuinely believe that on the present occasion, my right hon. Friend has taken a decision which is in accordance with our present needs and opportunities.

Dame Irene Ward (Tynemouth)

Before my hon. Friend sits down, may I ask him a question? I did not want to intervene, but my hon. Friend passed hurriedly from the subject of tax reliefs. I expected him to explain why the anomaly has been retained in the housekeeper allowance for widows or widowers to the detriment of spinsters and bachelors. Will he bear in mind—

The Temporary Chairman (Mr. H. Hynd)

Order. The hon. Lady must not make a speech.

Dame Irene Ward

I was not making a speech, Mr. Hynd. I listened to everybody else intervening, however, and I understood that my hon. Friend would deal with that matter. So I cannot quite see why I cannot intervene as well as hon. Members opposite.

Sir E. Boyle

I have occupied the Floor of the Committee for a considerable time. I suggest that we might deal with that on the Finance Bill.

Dame Irene Ward

No, not at all.

4.55 p.m.

Mr. Frederick Mulley (Sheffield, Park)

As usual, the Financial Secretary to the Treasury has made a moderate and persuasive speech. It might well have been more honest, if, perhaps, unpopular, if that had been the keynote of the Government's economic policy that they put out last October. I know that to make comparisons between the state of play today and what it was in October is not well received by hon. Members on the other side of the Committee. This is in marked contrast to their readiness in any difficulty to find somehow that it all started more than nine years ago in the Labour Government. The hard fact is that the Government cannot escape the comparisons which, I hope, people throughout the country will make between the Budget and the brave words and the bold posters of last October.

The Financial Secretary has made so many interesting points that I should like to take up a considerable number of them, but in the interests of other hon. Members I shall try to ration my replies to him. I would, however, take up the hon. Gentleman's final words about the great achievements, as he put it, during the 1950s. I would have thought that he was too intelligent to fall for the idea that every year is a record —in employment, in production, and so on. That is no more valid than for each of us to get up year after year and to say, "I have now reached a record age". If we have a growing, expanding economy, surely each year's figures should be better than those of the one before. The figures for the country under the management of the party opposite are disgraceful.

Only this week, I happened to be looking at the recent report of the O.E.E.C, which shows, for example, that taking the level of industrial production in 1953 as 100, in the last quarter of last year we reached the figure of 126. This compares extremely badly with Germany, which had an increase of from 100 to 170 in the same period. In view of all the difficulties connected with the Algerian war and everything else, the contrast between this country and France is surprising. In the period when we were moving from 100 to 126, the French managed an increase in industrial production of 69 per cent. In the same period—at least, up to the third quarter of 1959, which is the latest figure available—Italy, which many of us, perhaps, have thought to be backward in its economic activity, achieved an increase of 57 per cent. compared with our 26 per cent.

It is all too easy and quite unrealistic to say that what we must have is expansion, stable prices and the rest of it. That is a doctrine of perfection that can never be achieved absolutely. One has to make up one's mind whether to have a little amount of risk on the side of inflation because one goes for expansion, or whether to risk the stagnation of the economy by giving priority to price stability.

The appalling thing about the Government is that over the last nine years they have not achieved either price stability or expansion. As my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) said, when the right hon. Member for Monmouth (Mr. Thorney-croft) was in office they managed to achieve almost the impossible—galloping inflation at the same time as a declining production throughout the economy. Certainly, without going into the details which have been covered so admirably in other speeches by my hon. Friends, the Government seriously neglected to deal with capital investment.

The Financial Secretary was, in a sense, too frank in his observations when he used the well-chosen phrase that he thought that last year and again this year the Chancellor had produced a Budget which the circumstances required. When he went on to talk about means and ends, I could not help asking myself the question whether the end which the party opposite had in mind was not the prosperity of the people of Britain but the electoral prosperity of the Conservative Party.

I have heard it mentioned by Conservatives in private conversations that, whatever else one may say about this Budget, the Chancellor has left a very substantial legacy for his successor. It seems to me that, having regard to the short length of public memory, we are seeing again the building up of a Treasury chest for dispersal at a time when it will have more immediate impact on the electorate if it is done in the years just before an election. I hope—and I say this without any particular party point—

Mr. John Biggs-Davison (Chigwell)

Does it follow from the hon. Gentleman's argument that he would advocate that the Chancellor should have included more tax reliefs in his Budget?

Mr. Mulley

If the hon. Gentleman will give me a little time I shall certainly deal with that point. The short answer at the moment is "Yes". I intended to come to that aspect in a moment.

I believe that there is a danger of repeating the pattern of 1955, and the test of the Budget will be whether or not we get expansion in production this year. It may not be possible to get expansion at the same rate as it was last year, but let us see that we are going forward all the time, so that again the Financial Secretary will be able to talk in a naive way about the record of production and so on, and not let it go down again so that an even bigger record can be shown in the year immediately before an election.

The hon. Gentleman made some extremely interesting and fair points about Government expenditure. I agree very much with what he said and with what my hon. Friend the Member for Grimsby (Mr. Crosland) said yesterday. It was also put extremely clearly and precisely by my right hon. Friend the Member for Huyton (Mr. H. Wilson) in opening the debate for the Opposition, when he said that: The real problem that we are facing is value for money, the avoidance of waste, tighter systems of controlling expenditure."— [Official Report, 5th April, 1960; Vol. 621, c. 206.] All Members on both sides of the Committee are in a great difficulty in trying to assess the amount of Government expenditure. The difficulty arises from the fact that the accounts are still kept in the form which was once described as the "penny notebook system." It is true that today the notebook would cost very much more than 1d. to contain the accounts.

The accounts are exceedingly uninfor-mative—perhaps they are meant to be uninformative. Having served on the Select Committee on Estimates for ten years, I would say that it is impossible to draw a distinction between what is financial expenditure to implement policies taken by the Government and by the House and expenditure of an administrative character to implement those decisions. It seems to me that if we are to have any reasonable discussion in the House of Commons on the question of Government expenditure, there must be an attempt completely to overhaul the presentation of Government accounts so that one can try to form some view as to the amount of administrative costs and whether the administrative costs, as distinct from the policy decisions, are going up out of all proportion to the work involved.

While I should be the last to wish to criticise the work of civil servants, undoubtedly the system and the question of size is such that Parkinson's Law must apply. Any system whereby remuneration and responsibility depend more on the number of people working under one than on the actual financial record of the Department concerned must lead to empire-building; and although the Financial Secretary has information which is not at the disposal of the Com-witness who gives something away in cannot decide whether, on questions like the amount spent on telephones, postage and rents and all the administrative costs, there is any scope for economies.

The Estimates Committee is placed in very great difficulty in attempting to form some opinion as to possible economies. It has no expert adviser comparable to the Comptroller and Auditor General. In my experience one has little in the published Estimates to go on, and it is only when one gets an unskilled witness who, gives something away in answer to a question that a profitable line of inquiry is opened up to members of the Committee.

It is extremely difficult to draw the distinction which has to be drawn and which is drawn in the accounts of most commercial undertakings between administrative costs and policy decisions. This, of course, is more obvious in defence than anywhere else. While security considerations, may apply to some extent, I think that we could be given a great deal more information.

I feel also that the Government had a very easy ride in the defence debate on this issue because of certain policy arguments which perhaps clouded the fact that we are spending more money on defence, although, in my opinion, we seemed to have little to show in terms of additional effective defence for the expenditure.

The Government might well consider the suggestion put by the hon. Member for Wolverhampton, South-West (Mr. Powell) a year or two ago—I think that it was also mentioned in the debates by my right hon. Friend the Member for Ebbw Vale (Mr. Bevan)—and that is whether in these days we can exist with just the one annual budget, with just an annual statement of accounts.

Obviously, the Government cannot bind themselves or their successors over a period of years, but I think it might be of great interest and value to the public outside and to hon. Members if, when policy decisions are taken to raise old-age pensions or to implement any particular social policy, we were given the figures not only for the current year but so far as can be foreseen for the next four or five years, so that when we come to approach the general question of fiscal and economic policy we can know, in the words of the Chancellor, to what extent future revenue has been mortgaged by policy decisions already taken.

I believe that this Committee, a Select Committee or some other Committee of the House of Commons, must take much greater interest in the scrutiny of public expenditure so as to try to see that administrative costs are kept to a minimum. I differ from the hon. Member for Kidderminster (Mr. Nabarro) and others on the benches opposite in the sense that I do not regard public expenditure as such as a bad thing and think that it ought necessarily to be reduced. In fact, I should welcome substantial increases of public expenditure on matters like housing in areas such as Sheffield and other cities which have special housing problems, on education and old-age pensions. We have to draw the line between policy expenditure, the purpose of the expenditure, and the cost of carrying out those policy decisions. My submission is that the Committee at the moment has no accounts and no information on which to form a judgment.

The hon. Member for Chigwell (Mr. Biggs-Davison) asked me my view about whether or not there should be an increase in taxation this year. One has to take risks—calculated risks, it is true —to ensure that our expansion is not halted. This year there could well have been a modest relief in taxation or additional social expenditure.

As the hon. Member for Kidderminster pointed out, we have also to consider, when looking at the national taxation picture, the fact that local Government rates have been increased by £50 million. Although it does not count in the taxation which we are considering, in the pockets of the individual taxpayer it obviously has to be considered. The Government have been extremely neglectful in not examining the possibility of local authorities financing their expenditure by means other than, or in addition to, the rates. This is an extremely urgent question if, with the block grant, etc., local authorities are properly to discharge their duties.

I also quarrel very strongly with the Government on the particular measure which they chose by which to increase taxation. I suppose that I should declare an interest, because I shall be paying 2d. a packet more for my cigarettes. The estimated return from tobacco duties this year is £829 million and the cost of all the health services is £612 million. Therefore, if there is an argument about health, the smoker more than pays for any treatment that his folly may require him to undergo.

I am sure that the only reason why the smoker was selected was that he is very easy meat. It is quite easy. There is no great organised lobby to protest. Someone should form a smokers' protection society, because all too often Chancellors of the Exchequer of both parties find the smoker an easy victim. One of the difficulties is that there is no means of taxing the non-smoker as such. I do not think that any tax has been thought of which would tax the non-smoker without at the same time taxing the smoker. It may be a good idea for the Chancellor of the Exchequer to offer one of these £5,000 prizes for ideas on how to tax non-smokers to restore a little equity into the system.

When considering the incidence of Income Tax, it is worth remembering that the personal allowances today of £140 for a single person and £240 for a married couple are very little more than they were forty years ago. In 1920, the respective allowances were £135 and £225. When one remembers the change in the value of the £ and the increase in wages, one sees the bite that Income Tax has in the system as compared with forty years ago.

I will try now to deal briefly with the very interesting point of view which the Financial Secretary put to us about the balance of payments. If there is any justification for the Chancellor of the Exchequer's policy, it can only be because of his anxieties about the foreign balance. I do not believe that his fear of price rises would justify the Budget. It is anxiety about our balance of payments. The great failure of the Government has been that, in years when the terms of trade were in our favour and we had all the world economic advantages on our side, we failed to expand production. It is true that the terms of trade are now likely to turn away from us. Obviously any increase in consumption is likely to involve an increase in imports.

One problem which as puzzled everyone who has tried to think about these subjects is how, in a completely unplanned economy, where quite understandably private industry seeks the maximum profit, one persuades firms to export when they can sell their goods easily on an expanding home market. We must solve that problem at some time, unless we are to be subjected always to restriction at the first sign of a balance of payments problem.

Sir E. Boyle

If there were what the hon. Gentleman would call a planned economy, how could one force other people to take our exports if they did not want to? The hon. Gentleman is advancing an unreal point.

Mr. Mulley

The Financial Secretary has completely misunderstood the point. My point was that the decision to sell on an easy home market was that of the manufacturer, because in that way he would maximise his profits. I do not say—obviously one would be a fool if one suggested—that one can make people buy our exports. My opinion of the Financial Secretary is going down, after his great talk about records in his peroration and his attempt to turn a serious point into a fifth-form debating point.

Mr. Gerald Nabarro (Kidderminster)

My hon. Friend the Financial Secretary has graduated to the sixth form.

Mr. Mulley

I accept that from the headmaster, the hon. Member for Kidderminster. This is a serious point Which needs examination, because unless we can get people to go into difficult export markets, like North America, rather than switch all our effort on to the home market in a temporary boom, we shall have this up and down, year in, year out.

Behind the talk about the balance of payments there is a recognition by the Government of their failure over the last few years to solve the central economic problem of our time, namely, our relations with Europe. Undoubtedly we shall face after 1st July, unless reasonable understanding can be achieved, very serious difficulties in some of our export markets. While we are likely to restrict production, from the figures it is apparent that all the Common Market countries are quite naturally advancing. Apart from losing the exports into Germany—for example, with washing machines and motor cars, to which my right hon. Friend the Member for Huyton referred on Tuesday—we shall also feel stiffer price competition from some of the Common Market members in the markets of third countries. If we succeed, as now seems possible, in postponing the date from 1st July, we shall achieve only a deferment of the problem.

We must come to grips with the question whether we can achieve some association in economic terms with the European economy. It is largely our own fault that we are in this situation. For far too long we have persisted in the idea that somehow or other, by some majority decision, we could achieve the free trade area of the original Maudling Plan. We took far too long to be convinced that that was a non-starter. I still think that it is possible to achieve some understanding, provided that we are prepared to give tangible evidence to the countries in the Community that we not only want to be associated with them, but are prepared to make some political and defence sacrifices as well as take such economic advantages as flow from that association.

As I have stated on previous occasions, I believe that there is room for associate members as well as full members in the Community club, provided that if the associate members pay lower subscriptions they will then receive lower benefits. But we have definitely to subscribe to the rules of the club. We must commit ourselves to Europe in a way that so far Her Majesty's Government have not been prepared to do. I put forward what I thought was a helpful suggestion in connection with defence policy at the Assembly of Western European Union. It would have been instrumental in showing our willingness to associate with Europe politically and in defence. We shall certainly not achieve the association which we want unless we make real efforts in the next few months.

As I think the hon. Member for Eastleigh (Mr. D. Price) indicated earlier, there is a minority of hon. Members who would say, "Let us join the Common Market." I certainly think that, if we could persuade the whole of the E.F.T.A. countries to make application to join the Common Market, we should. I believe that the forming of E.F.T.A. was probably a mistake, but, having formed it, we cannot now, before it has begun to operate, walk out on the other six countries. When the Chancellor replies tonight on this central point, as I see it, in our economic problems, I hope that he will tell us the Government's policy on it. We have as yet, as my hon. Friend the Member for Stechford said this afternoon, heard very little about it.

It is in the balance of payments field rather than in terms of internal inflation that the Government can expect difficulties. If we could have a franker and more realistic appraisal of these problems instead of the kind of complaisancy with which the Financial Secretary concluded an otherwise moderate and reasonable speech, I think that we should make more progress more quickly.

5.22 p.m.

Mr. Marcus Worsley (Keighley)

I rise to ask for the traditional forbearance of the Committee on a maiden speech. I appreciate that it is a great honour to be called during the Budget debate when there are so many hon. Members who wish to address the Committee.

I have listened with great enlightenment to the debate. Indeed, in the last few minutes I thought that I was receiving a great deal of education. I have listened with great interest to those hon. Members executing what I may, perhaps, describe as a "fell race" over the commanding heights of the economy. I have admired the speed with which they have gone round each peak in record time. Indeed, the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) included some European peaks in the tour which he gave us. All that I shall attempt is a gentle walk over Scafell.

I am very proud to represent the constituency of Keighley. I am not the less proud because that represents a change of political allegiance for that town. I am quite sure that one of the reasons for that change of allegiance was a conviction on the part of the people who elected me that we on this side of the Committee were better at holding the value of money steady. I believe that when the electors of the country have studied the Budget, it is by that test that they will judge. I think that people will remember—I believe that they remembered last October—that prices have been stable for nearly two years. It is perhaps not altogether an accident that that period coincides pretty roughly with the tenure of office of my right hon. Friend the Chancellor.

I come from a Yorkshire family and represent a Yorkshire constituency. Hon. Members should know that Yorkshire people always behave with becoming modesty—they have not even asked for a Grand Committee, yet. I think that Yorkshire people have certain qualities, and I do not apologise for reminding the House of them. These are what I think they are. First, I would put independence of mind; second, I would put down to earth common sense; third, I would put thrift.

My constituents in Keighley possess these qualities to an extreme degree. Indeed, of one of the largest communities outside the borough, the town of Silsden, it is said, as perhaps of some other places, that every man there owns his own house and the one next door. These virtues which, I have modestly suggested, belong to Yorkshiremen are, perhaps, rather old-fashioned. However, I think that perhaps they have their value in a day when opinion is often mass produced and in a country which is sometimes referred to as "Never-Never-Land".

I believe that a Budget aimed at the stability of money and at the encouragement of thrift will be understood and appreciated in this country. We have heard a great deal about pensioners in this debate. I must confess that as a new Member I have sometimes been puzzled at the way in which certain hon. Members opposite appear to regard an adjustment of a contributory pension scheme as something to do with the Budget. I believe it to be profoundly true that it is not the case that pensioners are getting nothing out of the Budget. They have got steady prices, which is the biggest thing that they could have.

I believe that the steadily eroding £ has demoralised a great number of people and that it has hurt most those who are most deserving of praise. I believe that it is a prime duty of this Committee, both sides of the Committee, to protect the thrifty. I cannot help feeling that over the last years—I am not trying to make a party point on this matter—it has been the hard case which has been remembered, sometimes to the exclusion of the thrifty and the deserving. There is a legal saying that hard cases make bad law. It is possible that hard cases can also make bad social policy. I would say that we have been too apt, both in pension policy and housing policy, to listen too much to the thriftless, who are always prepared to squeal loudly, and not to worry enough about the thrifty who are the people who remain quiet and proud in the face of difficulty.

I believe this to be a Budget with the right priorities. It puts its first domestic priority on steady prices. I believe that to be sound. We should applaud the Chancellor in that he has managed, with the firmness of his touch on these matters, to include also a certain amount of characteristic humanity. The allowances I will not mention, but I do wish to say just a word on post-war credits.

We were told by previous Chancellors that special provision in the matter of the repayment of post-war credits for people in difficulties was not possible. If I may disclose a certain interest in this matter, I remember some six years ago addressing the Central Council of the Conservative Party and trying to persuade it in my inadequate way that some repayment of post-war credits to those on National Assistance would be a good thing. Unfortunately, my eloquence was not enough.

In his concession the Chancellor has, in a small way, helped the kind of thrifty people to whom I have already referred. I hope that my right hon. Friend and the Government will not forget in future the claims of holders of post-war credits nor the great feeling which exists among them of betrayal by the Government of this country in a matter which concerns what they regard as their own money.

I will end with a brief reference to a matter which concerns Yorkshire and the North-East a great deal, though not my constituency in particular. It is a matter to which my hon. Friend the Financial Secretary referred in his speech this afternoon—the matter of woodlands. We in the North-East are very proud of having led the pace over the rest of the country in the replanting and the restoring of our national woodlands, part of our national heritage, after many years of neglect, not only by the owners but also by the Government. As I listened to what my hon. Friend had to say, I was not altogether convinced that his right hon. Friend's laudable attempts to stamp down on "hobby farming" were not, in fact, likely to injure the legitimate interests of the woodland owner and the planter of woods.

The difficulty with the forestry industry, as will occur to anyone who thinks about it, is that it takes a very long time—twenty, thirty or forty years —from the initial investment to the return and, on those grounds, special taxation provisions must be required. It is not just a matter of trees dying— things of a similar nature can happen in any business. There is also the matter of the actual length of rotation before returns may be expected. I therefore hope that before the Finance Bill is presented my right hon. Friend will be able to make quite sure that the great forestry industry in the North-East is supported by the Government.

I thank the Committee for the courtesy with which it has received me. As I have said, I find it a great honour to represent the town of Keighley, and I feel sure that, when the people who sent me here think this Budget over, they will feel it to be a good Budget, and one worthy of support.

5.31 p.m.

Mr. Ifor Davies (Gower)

I very much welcome this opportunity to congratulate the hon. Member for Keighley (Mr. Worsley) on his maiden speech. Having delivered my own maiden speech only in recent months, I can well understand the great relief he now feels at having jumped this hurdle. I also congratulate him most heartily on the manner of his delivery, with which, I am sure, every Member has been impressed. We look forward to hearing him again.

I also congratulate him on being a Yorkshireman. Of my many reasons for doing so, one is that I come from Glamorgan, where we have always admired Yorkshire's prowess on the cricket field. Now in addition, I can also congratulate Yorkshire on having returned the hon. Member to this House. I am quite sure that I express the sincere feelings of every hon. Member present when I say that we look forward to hearing more often from him.

Having said that, I am afraid that I must here part company from the hon. Member, because of some of the controversial matters he raised. I know that a maiden speech must not be controversial, and I am prepared to forgive him, but to one point that he made I must refer, and that was his emphasis on priorities. In reply to the speech also of the Financial Secretary, we have made up our minds where our priorities stand. One of a Budget's main aims must be to promote social justice, and there is no doubt whatever what we on this side of the Committee mean by social justice.

This Budget has been given many titles. Many hon. Members opposite have described it as a "Socialist" Budget, but my right hon. Friend the Member for Ebbw Vale (Mr. Bevan)— who I know everyone in the Committee looks forward to seeing with us soon— has said that the language of priorities is a fundamental principle of Socialism. This is, therefore, not a Socialist Budget, because our first priority is to give assistance to those who need it most, and those who need it most are the pensioners.

I do not apologise for referring to this matter once again. It needs to be emphasised again and again, because there are 5 million people today who are in dire need, and it is a scandal that there should be so much poverty amongst pensioners in a year of apparent prosperity. I raise my voice in protest that this Government in this Budget have ignored the promises they made at the last election.

The pledge then given by the party opposite was: We pledge ourselves to ensure that pensioners shall continue to share in the good things which a steadily expanding economy will bring. What is the economic situation? I quote what was said by the President of the Board of Trade only this week. He said: The prospects for 1960 and 1961 are, clearly, a further vigorous expansion of trade, business and prosperity."—[Official Report, 5th April, 1960; Vol. 621, c. 229.] If that is true, what has become of the pledge to the old-age pensioners—a pledge repeated at the Box only yesterday? We are looking not only for pledges but for pledges that will be carried out.

Having emphasised that the first object of a Budget should be to promote social justice, I want to refer to another object —its effect on the economic situation. I am surprised that one aspect of our economic life that has hardly been mentioned is the importance of good industrial relations.

The Chancellor has declared that the purpose of the Budget is to … consolidate and fortify our present prosperity."—[Official Report, 4th April, 1960; Vol. 621, c. 32.] If we are to meet the challenge of overseas trade, and especially the challenge of the Common Market, of which we have heard already this afternoon, we shall have to do far more than merely consolidate. We must explore every possible avenue for extension of our trade and discover new methods of improving our productive resources.

It is a truism that we must either produce of perish, but in the speeches of hon. Members opposite I have failed to sense any realisation of the gravity of our economic situation. From the other side, there have been proud boasts that our production is now 11 per cent. higher than it was a year ago, but the facts given in page 24 of the Economic Survey reveal that in the fourth quarter of last year production was still only 8 per cent. above that of the corresponding quarter of 1955—an average increase of only 2 per cent. a year. This clearly proves that we are still lagging behind the rest of Europe, and in this debate we should be deeply concerned with ways and means of increasing production.

The great importance of this is stressed in page 8 of the Economic Survey, which states: A significant feature of 1959 was that total employment rose by 300,000 …. But because of that growth in employment, there will be less scope this year than last year for increasing the numbers at work in the country as a whole. Thus the possibility of meeting the increase in home demand depends primarily on the scope of increasing the output per head of those already in employment. Increasing output, therefore, becomes a matter of economic urgency. My hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) has effectively emphasised in great detail the importance of an investment policy, and so I should like to remind the Committee of another important aspect of our economy, and that is the prime importance of good industrial relations which I believe to be the cornerstone of our economic life. I recognise at once that we already have a very proud record of good industrial relations, but that record is still not good enough. Speaking with some years of practical experience in this field, I say that there is still room for great improvement.

For example, I am not satisfied that joint consultation, in the real sense of the word and not as a sham, is sufficiently practised in industry today. We hear a great deal about wild-cat strikes, but we do not hear very much about their causes. Many industrial disputes are the results of emotional disturbances and poor communications between management and men. Indeed, even in this twentieth century, the so-called enlightened age, there are still managements in this country which refuse to recognise trade unions. It is unbelievable, but it is true.

The truth is that, despite the good work achieved by the Industrial Welfare Society, the T.U.C. and many other organisations, we have as yet barely started to study the human problems of management. Indeed, it is a sad fact that we spend more on advertising than we do on industrial research. I submit, therefore, that increased productivity is complementary to good industrial relations, and that this Budget will fail in its economic objectives if mutual trust, confidence and good will are not established in British industry.

5.41 p.m.

Mr. J. Enoch Powell (Wolverhampton, South-West)

Important though questions of industrial relations are, they take us some distance away from the central topic of the Budget, and the speech which the Committee has just heard from the hon. Member for Gower (Mr. Ifor Davies) resembled in this respect the majority of the speeches which the Committee has heard throughout this debate, in that it did not challenge or criticise the central point of judgment by my right hon. Friend the Chancellor of the Exchequer which is embodied in this Budget; the decision, namely, in view of the commitments which were before him and the prospects as he has put them to the Committee, whether he was justified in increasing, or ought to reduce, the net amount which, during the coming financial year, he sought to borrow.

I listened with particular care to the speeches of the right hon. Member for Huyton (Mr. H. Wilson) on Tuesday, and to that of the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) this afternoon. Both were scrupulously careful not to challenge this, the essential decision of my right hon. Friend. The right hon. Member for Huyton did not call this an assignment with inflation; neither did he call it an assignment with deflation. He was most careful not to criticise at all the essential budgetary decision which my right hon. Friend put before the Committee.

Those commitments and those prospects, in the light of which my right hon. Friend took that decision, threw up a net deficit of £331 million, the sum in the Budget to be met by borrowing, if rates of taxation remained unaltered. His decision was that it would be wrong in the circumstances as he saw them to increase the amount which he counted upon borrowing. Indeed, he has proposed certain changes in taxation which effect a net reduction of about £13 million in that sum, and bring it down to £318 million, practically the same as was met by borrowing in the financial year that has just ended.

I believe that it would be a bold man, and there have been few such found in the course of this debate, who would criticise my right hon. Friend for over-caution. Quite apart from the commitments inside the Budget, which appear upon the face of the Financial Statement and which throw up the deficit which I have mentioned, there are a good many commitments lying around outside the Financial Statement. For example, in the Civil Estimates for National Insurance, under the item "Contribution to the National Insurance Fund", there is this noteworthy sentence, which stands against the figure of £47 million "additional contribution by the Exchequer" in Subhead A (2) of the Estimate. This is the note to that entry: In so far as this provision is not sufficient to meet the excess of the fund's expenditure over its income in the financial year, the remainder of the deficit will be met from the existing balances in the fund. In plain English, that means that securities held by the National Debt Commissioners will have to be sold to the public in order to realise the necessary sum, which, I understand, will amount to about £45 million in this financial year.

Again, the Chancellor himself reminded the Committee of the additional commitments arising out of the Guillebaud Report. He reminded the Committee of the commitment in respect of doctors' pay. And there are all sorts of other elements which feature largely in a Chancellor's thinking, but are outside the Financial Statement. My right hon. Friend cannot, in this year—at least, I hope he cannot—count upon any assistance from the Exchange Equalisation Fund, for in this year we would hope to maintain, and, indeed, strengthen, our reserves of gold and foreign currencies, which means that there will be a net outflow of cash from the Exchequer. On the other hand, there is undoubtedly the fact that 1960 is a happy year, in that maturities are remarkably low, compared with any year in the recent past or, I believe, any year in the near future.

The feature, however, which overhangs the whole scene is that in the circumstances of the present and of the near foreseeable future the Exchequer cannot count upon any net borrowing from the public, except by way of National Savings. Indeed, my right hon. Friend was frank with the Committee, and told us that in the last twelve months, there has been not only no net borrowing, but a net outflow from the Exchequer over the whole of the field, except for National Savings. Little wonder that National Savings occupied so important a part in my right hon. Friend's speech and in his Budget proposals. They are, in fact, the only visible means available for meeting the deficit on his Budget.

I think, therefore, that we ought to look a little closer at the history and the reality of National Savings. Until two years ago, and for the whole of the previous decade, the Exchequer borrowed nothing through National Savings. In fact, there was a slight net outflow on National Savings. The situation changed dramatically about the end of 1957, and in the last two years we have had record surpluses—a record intake through National Savings. My right hon. Friend must be counting upon an equally record intake, or an intake, certainly, of the dimensions of this year, something just short of £350 million—that is the figure, because one must exclude the special investment departments of the trustee savings banks—in order to make sure of a sound Budget.

Why is it that there was this sudden, dramatic alteration in the experience of National Savings two years ago? I do not believe that anyone who looks at the details dispassionately can come to any other conclusion than that it was due to the relatively high, and in many cases tax-free, rates of interest which are now offered on National Savings. In fact, what we are doing—I make no criticism of it, but it is good that we should be clear about what we are doing—is meeting our budgetary deficit by borrowing for which we pay at very high effective rates of interest.

What came so suddenly could go with equal suddenness. If it should be the experience of the coming months that interest rates rise still further, then a point could easily be reached when the experience of 1957–58 would be precisely reversed. Then we should have to face the fact that National Savings are in one sense the most liquid form of Government borrowing. Not only might the net inflow cease as quickly as it began, but we might have to contend, as in the years before, with something of a net outflow.

Against that picture, against those facts, I believe that it would be a bold man who would urge my right hon. Friend to pile another £100 million or £200 million on to his deficit.

I want to refer here to what I would call the "Kidderminster doctrine." I do so not because Kidderminster has a monopoly in the doctrine, but, if my hon. Friend will allow me, I do it honoris causa—[Hon. Members: "Translate."] —as a compliment.

Mr. Nabarro

I am grateful to my hon. Friend. I am not a professor of Greek, nor, indeed, a student of the classics. I apologise for interrupting my hon. Friend and asking for a translation.

Mr. Powell

I am not a professor of Greek, either, though I was more than twenty years ago.

The Kidderminster doctrine, if I may state it briefly but, I hope, not inaccurately, is that if my right hon. Friend would take a chance and remit substantial sums in taxation, then he could do so without financial or economic risk because the bread which he cast in this way upon the waters would return to him, and, in particular, would return by way of savings. This is a doctrine quite commonly inculcated, but I believe that it contains three distinct fallacies. The first is that however great the tendency of personal savings to rise—and that tendency in recent years has been one of the most encouraging features of our economy— even on last year's experience one could only count upon one quarter of the amount of the remission returning by way of savings, so that there would be a net addition of three quarters to the monetary demand which is now so dangerously near to the available resources.

The second fallacy is the assumption that personal savings are somehow a withdrawal of that amount of purchasing power. Of course, they are not. Unless the savings are held in a very liquid form, they represent a transfer of purchasing power from one type of spending to another type of spending, namely, investment spending. Therefore, the application of an amount remitted in taxation to saving in that sense of the word does not noticeably or appreciably relieve the monetary pressure of demand.

Finally, I believe that people often confuse savings with a small "s" with savings with a capital "N.S." Even if the whole of any remission of taxation which my right hon. Friend made went to personal savings, it still would not help him—it would still leave him at risk —unless it was saved by way of being lent to the Government. I do not believe that the most optimistic of us could assume that any but a tiny fraction of any sums which my right hon. Friend might have decided to remit in taxation would return to him by way of lending to the Government.

Therefore, I am sure that the vast majority of the Committee—and this has appeared quite clearly during this debate —believe that my right hon. Friend was right in deciding that, on the assumption of the commitments and the prospects with which he was faced, he durst not take the risk of increasing the sum which he had to meet by borrowing. But, of course, that assumption is a very important one, and a great part of the debate has been devoted to challenging and criticising it. I refer, of course, to the central Government's commitments as they face us in the Financial Statement and were the basis of my right hon. Friend's decision.

Most notable words were used on this subject by by right hon. Friend the President of the Board of Trade; they were especially notable as coming from one who sits on what—I sometimes think rather ironically—is called the Treasury Bench. He said: … I think that what we and the country have to face are the consequences of this growing expenditure, urged on us from all sides, when looked at as a single sum. He continued: … the problem is essentially the lack of correlation between claims for spending on individual desirable items and the total bill as it is presented to the taxpayer. That is the fundamental problem at present facing the Exchequer."—[Official Report, 5th April, 1960; Vol. 621, c. 231.] It is, indeed.

In the Budget debate of a year ago I ventured upon the prediction that in the financial year 1959-60 we should find that the claims of the central Government upon the national income had ceased to fall but had risen. That has, in fact, been the case. Central Government expenditure has increased in the last twelve months at a faster rate than the gross national product, with the inevitable mathematical consequence that for the first year since the Conservative Government came into office, in 1951, the proportion of the gross national product laid out upon central account by the Government has ceased to decline, and has increased. This is bound to have important consequences for taxation.

The effect upon taxation of an increase in the Government's claims upon the total national income can be deferred—by borrowing— but it cannot be deferred indefinitely. Indeed, we find that in recent years taxation, upon personal incomes in particular, so far from becoming lighter, has become heavier. I will not weary the Committee with more than one or two figures, and hon. Members can check these for themselves from the figures which are given in the Preliminary Estimates of National Income and Expenditure. In 1953, the percentage of personal incomes which was taken in tax, including the compulsory insurance contributions, was 12.3 per cent. It had risen by 1958 to 13-8 per cent. It stands today, and has done for the last two years, at a higher proportion than at any time since the great taxing year for ever associated with the name of the right hon. Gentleman the Leader of the Opposition, 1951.

There was an interesting article in The Times, a fortnight ago, which made the same point of the basis of the reports of the Commissioners of Inland Revenue. It came to this conclusion: Whichever concept of income is taken, gross, 'actual' or 'taxable', up to 1958-59 there had been no decrease at all in the average rate of tax paid"— that is to say, over the previous five years. If anything, the average rate had tended upwards"; and the article ended: … the average rate of tax paid on income has not fallen, as might be supposed—it has been tending to increase. On page 14 of the Economic Survey itself we find, with reference to the year 1959, that despite the reduction in income tax rates in the Budget, the proportion of income paid in tax was roughly the same in the last quarter of 1959 as it was a year earlier. There is no mystery about all this. These are the consequences, seen in the form of the burden of taxation upon personal incomes, of what we decide to do in regard to the claim of the central Government upon the national income.

I listened to the important contribution to the debate, if I may say so, made yesterday afternoon by the hon. Member for Grimsby (Mr. Crosland), who deplored the consequences which would follow from a fall in the proportion of the national income spent on Government account. The hon. Gentleman drew a line of distinction between his own party and that of my right hon. and hon. Friends who, in his words, wish that public expenditure should decline as a proportion of the national income."—[Official Report, 6th April 1960; Vol. 621, c. 436.] There is a great deal of contradiction about this—I had thought of a harsher word—because, during the election campaign, the party opposite was anxious to convince the people of this country that they need not fear an increase in taxation under a Socialist Government. One tax after another was publicly pegged by the Leader of the Opposition. The great thing the Opposition were afraid of was that the public might suppose that there might, under a Socialist Government, be an increase in taxation. But one cannot accept a stable or rising proportion of the national income taken in Government expenditure and deny that the inevitable, inexorable consequence must be either a maintenance or an increase of the present rates of taxation.

Mr. Crosland

I am listening carefully to the hon. Gentleman's extremely important and thorough argument. In fact, one could rely upon that occurring. The hon. Gentleman will be well aware that, because marginal rates of taxation are higher than average rates of tax, as the national income increases the proportion taken in taxation automatically increases. It would, therefore, be possible, without any increase of rates of taxation, to have precisely the situation which he is now envisaging.

Mr. Powell

I quite appreciate that, if the proportion of the national income taken in Government expenditure remains stable, then the proportion of income taken in taxation will remain stable, because these are two sides of the same account. But one cannot argue for a greater share of the national income to accrue to the Government without recognising that that means acceptance of a greater proportionate burden of taxation by the population, for, sooner or later, the point will come when the deferment which is possible by way of increased borrowing can no longer be pursued. Indeed, we are at that point today.

This brings me to what is really, in my view, a much more serious consequence even than the effect upon personal taxation of the present proportion of the national income which is spent upon central account. This is that, whenever demand is rising, whenever there is an upsurge of activity in our country, the Chancellor of the Exchequer and the Government are constantly at risk of being presented with the dilemma either of increasing taxation or of gambling on being able to borrow sums which, if the Government fail to borrow, the consequence will be that the Chancellor will lose control of the monetary system and, indeed, will contribute to inflation at the very moment when he wants to do the opposite.

That was the dilemma by which my right hon. Friend was confronted in the preparation of this Budget. Like a man, he chose the right course of not gambling upon an increased borrowing which might—indeed, I believe, probably would—have been the means of his losing monetary control and bringing again the evils from which we have been so glad to escape in the last two years. But to say that is not to agree that we can go on seeing this film round and round. Neither confidence nor the spirit of the country will stand this constant succession, at two-year or three-year intervals, of Chancellors of the Exchequer being faced with this absurd dilemma. It comes about because we are not prepared to ensure that the proportion of our national income which is pledged to central Government expenditure is a proportion which can be borne honestly and without hardship in the honest way of being met through taxation.

I believe that this debate has brought a substantially new feature. That is the determination of this Committee, the Committee of Ways and Means of the House of Commons, to give support to a Chancellor of the Exchequer in ensuring that the total claim made by the central Government—that "total bill" which my right hon. Friend the President of the Board of Trade mentioned—is not such that we are constantly poised on the horns of this dilemma, but that our economic progress, subject to the natural and inevitable fluctuations of trade, investment and consumption, can go ahead without the periodic intervention—necessarily a forcible and arbitrary intervention—of the Government. If that is the meaning and upshot of this Budget debate, it will be a memorable one indeed.

6.8 p.m.

Mr. Cyril Bence (Dunbartonshire, East)

In discussing the Chancellor's proposals, I wish to apply them to Scotland rather than to the United Kingdom. I am sure that many hon. and right hon. Members will agree with the hon. Member for Wolverhampton, South-West (Mr. Powell) in his analysis of the Chancellor's problem if one considers it within the framework of the economic situation in the Midlands and the South. I represent a Scottish constituency, and, if there is one thing which this Budget has shown, as previous Budgets have shown, it is that a fiscal policy which may be justified by the picture in the Midlands and the South cannot be justified in the interests of Scotland. Scottish Members must view the Budget as it affects Scotland. The effect of damping down the economy in the Midlands and the South will be to make the situation in Scotland worse. If the object of the Local Employment Act is to enable the Chancellor to offset some of the ill effects of the Government's fiscal policy in the Midlands and the South, there should be some proposals in the Budget to stimulate activity North of the Border.

Another thing which the Budget reveals is this. The Chancellor is interested in the stability of prices. We are all interested in that. We do not want catastrophic falls in prices. We all know that if that happens it will bring ruin to everyone concerned. The gradual rise in prices eats into the fixed income group and forces wage demands and demands for higher returns on capital. This also is injurious. When the economy in the Midlands and the South, where most of the consumer durables are made and a large percentage of proprietary products are manufactured, is affected, we have the phenomenon in Scotland of a deflationary situation in employment and production. The people in Scotland suffer from the price pressures generated in the South.

Scottish Members are now getting a surprising number of demands from the Housewives' League in Scotland complaining of high and rising prices in Scotland. Because of retail price fixing, there is often a 5 per cent. increase in the price of proprietary products in Edinburgh, Glasgow, Stirling, Perth and Aberdeen compared with the price in London. We get the worst of both worlds. We have both unemployment and higher prices. Traditionally, the position has been that where unemployment was heavy prices should be lower, but that is not the situation in Scotland. Everything that we buy in Scotland is dearer than it is in London and the Midlands. Although we have heavy unemployment and what might be called a deflationary situation, prices in Scotland are higher than they are in the South.

The right hon. Gentleman and his hon. Friends are pledged to maintain full employment. Part of the price that society is paying to maintain full employment is that the Government are taking a larger proportion of the national income and the personal income of individuals. I hope that every Conservative in Great Britain will read the speech of the hon. Member for Wolverhampton, South-West, because very few of them realise that a Conservative Chancellor has been taking every year an increasing amount of their income.

Mr. Shepherd

The hon. Member's statement is demonstrably untrue. When we took office the figure was about 31 per cent., and we have got it down to 25 per cent. Last year, largely because of the rise in defence expenditure and certain other expenditure, it went up by 1 per cent. We reduced the percentage of national income taken in taxation from 31 per cent. to 25 per cent.

Mr. Douglas Jay (Battersea, North)

Perhaps I can help to clear up this point. The hon. Member for Wolverhampton, South-West (Mr. Powell) referred to the proportion of personal incomes taken in direct taxation plus the insurance contribution. Undoubtedly that has risen over the last five years. That is different from the proportion of total tax revenue of the whole nation.

Mr. Shepherd

rose—

The Deputy-Chairman (Major Sir William Anstruther-Gray)

We must not have too many interventions from too many hon. Members.

Mr. Bence

Thank you, Sir William. I also thank my right hon. Friend the Member for Battersea, North (Mr. Jay) for coming to the rescue. The hon. Member for Wolverhampton, South-West made the point that over the last six years a larger proportion of personal incomes has been taken by the Government in taxation. As the Chancellor has rightly said, much of this taxation has been for capital expenditure, Government expenditure and expenditure on Government account within the United Kingdom.

We in Scotland pay the same taxes as people in the Midlands and the South. Individually, people in Scotland are greater savers than people in the Midlands and the South. When we compare the sum spent in Scotland on social and capital investment with that spent in the South, it is almost infinitesimal, or it is very small indeed. We in Scotland, with our 92,000 unemployed, are not getting our fair share of Government spending. An ever-increasing number of supporters of the Conservative Party in Scotland are thinking the same.

We have heard a lot about the central Government spending too much of personal incomes. There is too much Government expenditure. It should be cut. There is an amazing pictorial chart in the Daily Express this morning showing a figure of £660 million of Government expenditure in the last seven years. The amazing thing is that this £660 million has been spent on capital equipment which is of no use. It has been thrown down the drain. Most of this equipment does not work. Blue Streak and other things do not work. Some that work are out of date. Altogether, £660 million of the taxpayers' money has been wasted over the last seven years.

Mr. E. G. Willis (Edinburgh, East)

Without the hon. Member for Kidderminster (Mr. Nabarro) objecting.

Mr. Bence

It is an amazing story. If only that newspaper had appeared in the period last September-October with the same pictorial chart, we could well have watched the results of the Gallup polls after the appearance of that chart, and there would have been an entirely different result to the election. But it came out after the election.

Mr. Nabarro

I consistently pointed out the cost of defence before the last General Election.

Mr. Bence

Everyone appreciates that whatever is said one day by hon. Members will have been said the day before by the hon. Member for Kidderminster (Mr. Nabarro). We accept that.

Mr. D. Price

Could the hon. Member give us some details of this article? I am very interested. What sources of information has he? I respect him far too much to believe that he rests his argument entirely on something appearing in the Beaverbrook newspapers.

Mr. Bence

I have great respect for the newspapers of this country. I realise that a free Press in this country, in conjunction with free speech, is the best safeguard of democracy.

Mr. D. Price

Are they accurate?

Mr. Bence

If hon. Members read HANSARD from day to day and week to week they will see that everyone who speaks in the Chamber is inaccurate according to other hon. Members. Very few hon. Members agree with everything said by everyone else. This column in the Daily Express this morning may contain little inaccuracies in little details, but we are concerned with the whole picture.

Mr. Ross

I do not know whether my hon. Friend's attention has been drawn to the Special Report of the Committee of Public Accounts, containing an Abstract of Appropriation Accounts. He will find there all the details he wants.

Mr. Bence

My hon. Friend the Member for Kilmarnock (Mr. Ross) is an expert on this subject. He is a member of the Public Accounts Committee and I am not. I have not read this Report. I am satisfied that, in the main, the figure is £660 million. It may be a little less or a little more. It may be inaccurate on the low side. There is no doubt that an awful lot of money is being wasted by the Government.

Hon. Members opposite complain that the Government are spending a high percentage of the personal incomes of the country. In the last three years we have debated the subject in the House and we have had Questions on the Order Paper. One hon. Member has even suggested a new industry. My hon. Friend the Member for Fife, West (Mr. W. Hamilton) was so impressed by the amount of money which the Chancellor was paying to all sorts of private enterprises that he suggested that we should start a new industry to manufacture begging bowls in which the firms could carry away these contributions. I have never heard any suggestions on the other side of the Committee that this process should cease. I have never heard the hon. Member for Kidderminster objecting to the £30 million to the cotton industry.

Mr. Nabarro

A moment ago the hon. Member said that he intended to make his speech about Scottish affairs. I am one English Member who has the distinction of having addressed the Scottish Grand Committee on one occasion for fifty-five minutes on the extravagance of the North of Scotland Hydro-Electric Board, for example. I protested about the high level of expenditure, much of which was being wasted, in Scotland. Will the hon. Member now return to the subject of Scotland and tell us what economies he is practising?

Mr. Bence

The North of Scotland Hydro-Electric Board is one of our most successful public enterprises. It has made a tremendous contribution to the creative energies of this country.

Mr. Willis

Even the Tory Party in Scotland admits that.

Mr. Bence

The greatest waste of the country's resources has been in the last seven years, with the lavish expenditure on so-called instruments of defence, which are, in fact, useless. The hydroelectric system of the North of Scotland will stand for generations to produce cheap electric power for the people of this country. It is not for the hon. Member for Kidderminster to say that that is a waste of our resources.

Mr. Nabarro

I said that it was extravagant.

Mr. Bence

Nor extravagant.

Mr. Nabarro

Very extravagant.

Mr. Bence

Not extravagant at all. The hon. Member has this anti-Scottish attitude. I remember his contribution at the meeting of the Scottish Grand Committee. Thank goodness no one was impressed by it. He did himself a great disservice, because since that contribution no one in Scotland has ever taken him seriously. His attempts at reform, therefore, do not get the ear of Scotland. It is rather unfortunate, but when one gets the name of a comedian in the House of Commons one cannot expect to be taken seriously. No doubt the hon. Member is very competent and able, but he has certain characteristics which result in his creating that impression in the eyes of the Committee.

Why do not hon. Members opposite complain about the use of the resources of the country in subsidising the farmers or about the cheap money for industry? I have not heard them object about that. There were no objections to the Cotton Industry Bill. There was no objection to the shot-gun marriage of the aircraft manufacturers or to what follows from that—that millions of the taxpayers' money will be poured into the aircraft industry. There has been no objection to that. I have never heard any hon. Member opposite oppose this central Government spending on these interests.

Almost the only objection we have from hon. Members opposite is to the money which is spent on subsidising council houses. They object to that. They object to the money spent on the Health Service. But there is never an objection about the money which flows to private enterprise.

There is one point on which I have some sympathy with the hon. Member for Kidderminster. He told us that it was stupid to pay initial allowances and other fiscal benefits to industry and then, following the profitable exercise of that industry, to raise the Profits Tax by 2½ per cent. It seemed to be giving to them with one hand and taking away with the other. That is a simplification and an over-generalisation, but that is what he meant.

Mr. Nabarro

It is also very inaccurate.

Mr. Bence

Does the hon. Member say that it is inaccurate?

Mr. Nabarro

Let me quote exactly what I said, from column 309 of the OFFICIAL REPORT of 5th April. I said: I want to see Profits Tax, the whole 12½ per cent., totally abolished and at the same time I want investment and initial allowances totally abolished. The total cost of abolishing Profits Tax will approximately be offset by the abolition of capital allowances to industry."— [OFFICIAL REPORT, 5th April, 1960; Vol. 621, c. 309.] Of course, I was confirmed in what I said by the Lloyds Bank Review of April, 1960. It was a thoroughly sound argument.

Mr. Bence

I said in the first place that I had some sympathy with his suggestion that it was strange for the Chancellor to hand out benefits to industry through an initial allowance of 40 per cent. and then to raise the tax on the resulting profits to 12½ per cent. I would point out that I do not think that dry docks enjoy the initial allowance.

Mr. Amory

Dry docks attract an initial allowance at, speaking from memory, the same rate as an industrial building.

Mr. Bence

But that puts them in a worse position than a manufacturing industry.

Mr. Amory

I ought to add, in respect of the mechanical parts of a dry dock such as the gates and machinery, that they enjoy the rates appropriate to industrial machinery.

Mr. Bence

I thank the right hon. Gentleman for clearing up that point. I knew that there was a difference in the rates, but I was not sure whether the dock equipment was included in these rates. I appreciate that dockside machinery is included. I understand that the Shipping Conference is still concerned about the effect which the increase in Profits Tax will have on its undertakings, in view of the fact that these undertakings do not attract, through the allowance, benefits as great as those which go to manufacturing industry.

I want to get back to Scotland again. In Scotland we are awaiting some very important developments. We have been awaiting some of them a very long time, the Tay Bridge, for instance, and the graving dock in Greenock. We are also expecting a couple of North Atlantic liners, two Cunarders. Then there is the tremendous demand for a bridge over the Clyde down near Bowling and Erskine to get rid of the frightful bottleneck from west of the river to east of the river, and vice versa. We in Scotland expect a lot to be spent on roads, and are looking for an increase in Government expenditure on public works. That was what we were expecting, but we are afraid that a possible hardening of interest rates and the possibility of a credit squeeze, which may be justified in England, will make the situation in Scotland hopeless.

If hon. and right hon. Members opposite spent twelve months in Scotland they would be shocked at the difference between the picture presented there and that presented here. It really is like going from one country to a quite different one—although, of course, the two countries are different countries. There is almost a different economy in Scotland.

It may indeed be necessary, and I think that the Chancellor is quite right in thinking that it is, to put some restraint on output, but that is true only South of the Border. In Scotland that policy will be tragic in its consequences, especially if it is persisted in. No doubt it will be persisted in till near the time of the next General Election, when the ground will be prepared by the Government for that election. Unless there is stimulation of capital expenditure and capital development in Scotland any prospect of our reducing our 92,000 unemployed there to anything like reasonable proportions is doomed. The economic; picture in Scotland is shocking. One does; not have to come down to the Midlands of England to see the need for the improvement of roads to get the traffic moving and to eliminate the congestion, the shocking congestion and the wasted effort caused by overcrowding on the roads.

We can see in Scotland the failure to use all our resources while ait the same time we are being governed by a Government down here who, according to most hon. Gentlemen opposite, are spending far too much money from the centre in supporting all sorts of enterprises and all sorts of capital developments. We in Scotland must watch this scene being played out while Scotland plays only a very small part in the scene indeed. The two new industries coming to Scotland will employ between 6,000 and 7,000 men between them, and while they are establishing themselves and developing in order to employ that number, more than 9,000 men are likely to be withdrawn from current production in Scotland as a result, very probably, of the Chancellor's restraining Budget.

6.34 p.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I am particularly grateful that I have been called now, because I want to say a word about one who will take no further part in our debates, Christopher Holland-Martin, late Member for Ludlow, who died this week. His contribution to Parliament is not measured in the columns of HANSARD but in the gifts he brought of wisdom and kindness, wide experience and unswerving integrity. He will be missed by all who had the privilege to sit with him in this Committee, by Members on either side.

I am not going to follow the hon. Member for Dunbartonshire, East (Mr. Bence), because I have a number of things to say and there are a number of other hon. Members who have things to say; I would rather leave Scotland to his care.

In my short experience of this Committee, this is the first Budget I have come to with real feelings of surprise. For the first time, one felt that there really was a completely open change in front of my right hon. Friend the Chancellor of the Exchequer. In all previous Budgets the lines of our economic progress seemed fairly well marked; the economy was either going too fast or too slow, and corrective action had to be taken. This year, for the first time, it seemed the choice was an absolutely open one. It was also a position of enormous possibility and offering unbelievable chances.

With the General Election of 1959 behind us, there is no country in the Western world which offers a better chance of ten years of stable Government and full prosperity for its people. If my right hon. Friend did not feel that was the case, I can assure him that the business people of this country had no doubts on the subject at all. Hence the remarkable building up of inventories in the last quarter of 1959 and, with its corollary, a deterioration in the balance of payments. Business people were making plans for ten years ahead and. naturally, laid in stocks.

On the balance of payments question, I should like to say one small thing. All through our debates we are haunted by the miserable size of our gold and dollar reserves, under £1,000 million. I suggest to my right hon. Friend, and I take it from the statements of his own officials, that our real monetary reserve is about three times as much as that. In addition to the figures of the gold and dollar reserves, there has also to be reckoned the dollar securities held by the Exchange Equalisation Fund of 1,000 million dollars.

I have extracted from the evidence given before the Radcliffe Commission by Sir Dennis Rickett, at Question 13401, the fact that in the so-called dollar pool, of dollar securities, whose fate is ultimately controlled by the Bank of England, there is a sum of 4,000 million dollars. Sir Dennis Rickett's actual words are: All we can give is what we hope is a reasonably well informed guess that it is currently of the order of 4,000 million dollars. Let us, therefore, in support of the £1,000 million we talk about in the gold and dollar reserve, take that in, and we have 5,000 million dollars on which the Bank of England can lay its hands if the need should arise. I make the point because today there seems to be completely muddled thinking on this subject. After all, what are reserves? They are really small change. It is their movements that are important as giving information on the economy as a whole.

I remember being in Germany in 1950 when there was not a penny of reserves in Germany, and Germany joined E.P.U. and drew out of E.P.U. every penny it could lay its hands on and put the whole lot into food. The shops in Germany were full of food. The German population were ill-clothed and rottenly housed, but they had food in the shops such as we had not in England, and they used it to build themselves up and thus to build up their economy. Take the State of Israel. I am familiar with some of it. It is a country which has never had any reserves but still manages to make its way in the world. Therefore, movements in the reserves are only a reflection of the state of a country. I quite agree that they are a useful barometer, but they are not the limiting factor which they are sometimes held out to be.

My hon. Friend the Financial Secretary to the Treasury, in his interesting speech today, made a point of what should be the objects of the policy. He detailed stable prices, low unemployment, the maintenance of a favourable balance of payments and, finally, a surplus available for investment in the under-developed areas. I do not think any of us would quarrel with these objectives. The decision before the Chancellor, therefore, was how these objectives could best be obtained. If one is walking on a tightrope it is just as dangerous to stop as it is to go too fast. I am sure my right hon. Friend appreciates that. The danger of taking measures to restrain the economy, as the hon. Member for Dunbartonshire, East has said, is that they may prove too effective.

Anyway, the decision was my right hon. Friend's, and I do not envy him it. He took the decision to restrain the economy, for which he has been praised by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) and, I am sure, nearly all speakers on this side of the Committee. The disadvantage of restraining the economy is that it is nearly always investment that suffers. In his interesting speech yesterday, the hon. Member for Grimsby (Mr. Crosland) drew attention rather strikingly to the need for investment. We are faced with the disagreeable fact that in 1959 the investment in the private sector, leaving out dwellings, was less than in 1958.

I am not altogether enamoured of these figures, because I suppose that if I were to buy a car that would appear to be an expenditure on a consumer durable, but that if I had the foresight to turn myself into a one-man company that expenditure could be termed an investment. Therefore, I feel that although we have used the word, thinking in terms of industrial plant, it is capable sometimes of abuse. But if the economy wants throttling down, what steps have we taken to do this? Frankly, I was disappointed. I was quite prepared to follow the Chancellor in his view that the economy should be throttled down, but a close study of his Budget shows that the only damper he produced was the rise in the Profits Tax.

A rise of 2½ per cent. in Profits Tax takes only 1½ per cent. away from a company's earnings, because there is a corresponding gain in Income Tax. I ask myself whether 1½ per cent. off profits will really damp down the economy. The really striking increase in our economy this year has been in what are roughly called consumer durables. Between 1955 and 1959, our expenditure on food rose by 17 per cent., which shows the increasing prosperity of the country, but the expenditure on durables rose by 40 per cent. in the period and went up by £200 million last year. We all know that that is due to the hire-purchase boom, and hire-purchase has boomed because of the support of the banks. It seems to me, therefore, that if the Chancellor really is concerned to control the economy in that respect and is nervous about the balance of payments, the sooner we do something about hire-purchase the better.

There is no question that the fact that the leading banks have taken an interest in hire-purchase has given these companies a respectability which they did not previously enjoy, and it has allowed people to enjoy a high rate of interest by placing their money at the disposal of hire-purchase companies with the feeling at the same time that the repayment of their deposits is guaranteed for them by the bank. Psychologically this is very important. I am disappointed, therefore, that if the Chancellor took the view that the economy needed to be controlled, his efforts to do so were so very, very minor.

I also follow my hon. Friend the Member for Wolverhampton, South-West in what he said about the state of the country's borrowing power and the fact that the Government can borrow only on small savings. There is a maturity of £800 million to be met in 1961. In other words, preparation must be made for it now or in the near future, and it would be worth considering the question whether the increases in the Premium Bonds and the new Defence Bonds which are to be issued are intended to meet this maturity. If they are, that is something a good deal less than Gladstonian financing.

The Government's attitude towards the gilt-edged market is frankly cynical. I know that it is out of order for me to quote directly words spoken in another place, but my right hon. Friend the Member for Monmouth (Mr. Thorney-croft) referred to the remarks of the Hereditary Standard Bearer for Scotland.

Viscount Hinchingbrooke

My hon. Friend can quote a Minister speaking in another place.

Sir H. d'Avigdor-Goldsmid

I Chink I am correct in saying that he said in another place that the Government were not going to be the sink down which surplus gilt-edged was to be poured.

Sir Kenneth Pickthorn (Carlton)

Not going to put a sink under.

Sir H. d'Avigdor-Goldsmid

That is a cynical attitude, and it is disgusting, too, when one thinks of the number of people, whose position has been raised in the House of Commons time and again, who have invested, by mistake no doubt, in 3½ per cent. War Loan and other undated Government securities and now find themselves really hard up. They bought these securities in ignorance or without full cognisance of what they were buying. It would be absolutely fantastic, of course, to put a date on War Loan as a whole, but special consideration should be given to small holdings of £500 or less which have diminished 50 per cent. The owners had an opportunity to sell at a profit but have not taken it. They bought the stocks and they are now suffering. The Government should not be cynical about this. They should not leave these people entirely to their own financial devices, because they are really a prejudice to the Government's financial standing.

I do not consider that the extra 2d. on cigarettes is a contribution either to the tightening up of the economy or to the balance of payments. It has not been suggested that we shall import less tobacco and the extra tax is not a hardship. It is a pure irrelevancy and something done in a most irritating way.

I am not going to make a Finance Bill speech. I want to try to talk about the Budget and the financial situation. My right hon. Friend's Budget speech was well described by The Times as a "Somerset House Speech". I would refer only to the heads of the speech: Hackney Carriages, Playing Cards. Tobacco Retailers' Licences, Mechanical Lighters. Hydrocarbon Oil."— a negligible concession— Post-Cessation Receipts. Compensation for Loss of Office, Hobby Farming, Other Claims for Loss Relief, Deduction of Tax by the Crown,"— retrospective in this case— Dividend Stripping, Other Tax Avoidance, Income Tax Penalties, N.A.T.O.…"— [OFFICIAL REPORT. 4th April. 1960; Vol. 621, c. 52–9.] I could go on, but it is really not surprising that so many of my hon. Friends were really amazed to hear this long list of Somerset House suggestions. They really felt that we were entitled to expect a lead in these days, but we did not get a lead in this Budget.

My hon. Friend the Member for Keigh-ley (Mr. Worsley), who made a particularly attractive maiden speech, had something to say about the qualities of the people whom he represents. He talked about their independence, their thrift and their down-to-earthness. I think that in a sense that was the image we put before the country at the 1959 Election, an image of the prudent and enterprising husbandman with a firm belief in the virtues of common sense rather than in an intellectual approach, and also an enjoyment of the pleasures of this world. We put that concept before the country, and I think the country was delighted to support it.

I must tell my right hon. Friend that, in my opinion, this Budget has cracked that image. In a maiden speech yesterday, my hon. Friend the Member for Birmingham, Yardley (Mr. Cleaver) discussed whether a man in his constituency who has a grocery shop and a fish and chip shop might be allowed to set the loss on one against the profit on the other, and the Chancellor intervened and said that that would be in order. Frankly, I do not think it worthy of the dignity of a Budget speech that there should be this grave doubt in the minds of the Chancellor's supporters whether little situations like that are caught by the Budget. If we really are heading for a balance of payments crisis, action should be taken. The 2½ per cent. increase in Profits Tax is, to my mind, quite inadequate; if the crisis is coming the increase should be 10 per cent. We should also simultaneously be taking action against hire purchase. If the crisis is not coming then we have the wrong Budget.

I hope that my right hon. Friend will forgive me if I quote from the First Epistle to the Corinthians: If the trumpet give an uncertain sound, who shall prepare himself to the battle? My right hon. Friend reads history. I wonder whether he is aware of the historical parallel of Sir Robert Peel, who sat in the House as the leader of an unassailable majority. Sitting in the House after an election which he had won on the issue of protection, he suffered an intellectual conversion to free trade. It was not rotten potatoes, as the Duke of Wellington suggested, that gave Peel this conversion. He suffered an intellectual conversion, and he got his free trade, but there sprang into being against him one of the most unlikely combinations that the House in its long history has ever seen, that of Disraeli and Lord George Bentinck. Sir Robert Peel despised them. Intellectually, he did not consider them his equals, and he regarded their arguments as unconvincing. He got his Bill, but he split his party irremedially. I beg the Chancellor, surrounded as he is by so many eminent knights and even baronets—I particularly noticed the Freudian lapse of the Financial Secretary, who spoke of an hon. Gentleman on the other side of the Committee as his hon. Friend—to resist an intellectual conversion to Socialism.

I personally believe that it is right to order one's actions on the basis that they should be capable of, as far as possible, universal application. Therefore, I would not consider voting against a Measure unless I wanted to see it defeated, with all that that could imply for the future existence of the Government. I certainly shall not vote against this Measure, but if my right hon. Friend persists in promoting measures of Socialism and water I shall be driven to the conclusion that my constituents who voted so unhesitatingly in 1959 for Conservatism would not want to continue supporting a Government who were willing to practise Socialism in disguise. This is not the case now: we must never let it so become.

6.54 p.m.

Mr. William Ross (Kilmarnock)

One thing about the Budget, which is really rather dull and unimaginative, is that it has probably aroused the most interesting debate of any Budget that we have had for a long time. The contributions that we have had from the other side of the Committee have given us an insight into the measure of disappointment and anger, and I would almost suggest disillusionment, of hon. Members opposite. However, one quality which should have been shown is lacking, and that is shame.

The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), like the rest of his hon. Friends, went on platforms fed with the usual stuff from the Tory Central Office about the strength of the economy, the determination of the Conservative Party to go on reducing taxation, what they have done and what they were going to do. Yet within a few months here is the proud Tory Party, which spoke about us squandering the nation's wealth, embarking on expenditure which above the line comes to nearly £6,000 million. I can remember the right hon. Member for Woodford (Sir W. Churchill) speaking when he was the Leader of the Opposition about the jaunt and jubilee of expenditure, and yet the Labour Government was not spending half that amount of money in a year.

We are proposing to spend in the coming year £1 million a day more than we did last year. This is the Tory Party which told the people that it would reduce Government expenditure. We have not heard a word about the National Debt. We have been told about all the things which are going up, but the National Debt has never been higher. It has gone up by £360 million. This is the "prudent financing" of the Tory Party. The funding of the National Debt alone is £40 million more this year, and the figure may well go up considerably more before we have finished if there are further changes in interest rates. This is not a very proud record.

We were led to believe by the Prime Minister's messages to candidates that taxation would go down. We have now had sincere confessions from two hon. Members whose views are diametrically opposed—the hon. Member for Wolver-hampton, South-West (Mr. Powell), whose intellectual honesty we all recognise and appreciate, and the hon. Member for Kidderminster (Mr. Nabarro)— that personal taxation has not gone down over past years but has actually gone up.

The Times itself on 24th March said more or less the same thing: … as the value of the pound goes down and levels of price and incomes go up, a standstill in the progressive scale of direct taxation is tantamount to a gradual increase in taxation. That is what is happening.

Can one wonder, then, at the dissappointment that there is in the country at this breach of promise on the part of the Conservative Party? Can one wonder at the concern on the other side of the Committee—much of it is still unspoken—that what the Budget did was to show that the Chancellor has not even made up his mind about what he should do? The right hon. Gentleman just does not know what will happen over the next year and what steps he ought to take either to prevent certain things happening or to meet the consequences of them.

I agree with most of the things said by the hon. Member for Walsall, South, but there was one thing with which I could not agree. He said that the extent of our reserves is not quite as important as people believe. Does the remember 1951? Does he remember what happened after Suez? If he will read the memoirs of an ex-Prime Minister he will discover that one of the things that halted us was what was happening to our reserves. If he wants to do any service to the country, he is very wrong in thinking that we can rest satisfied with the position of our reserves at the present moment. This is the kind of thing that curbs us in the kind of activity that we want to carry out, not the Suez type of activity but in respect of our commitments in the Commonwealth and elsewhere. This is the kind of thing that has taken us year after year into the kind of crisis we now face. I do not think that we have had enough speeches from Members opposite expressing disappointment and anger, but we have heard none at all expressing shame and apology to the people for the way in which they were misled last October.

I feel very sorry for the Chancellor, who is, I understand, to have a rough time. The Kidderminster knives have been sharpened, so we are told. The dirks from Dorset will be out, and I suppose that in Brighton they are getting the paste ready in order to give the Chancellor a pasting. All this will take place some time before eleven at night, I expect, because we have seen the resolution of Members opposite in their previous revolts, including the resolution of the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke).

We remember the speech which he made the other night, when the Government were under close attack about Parliamentary responsibility and the examination of Estimates, contracts and the like. He found it convenient, because it was getting late, to make a speech letting the Government out of their position. Hon. Members opposite will have some support from me on some of the things which they are putting forward, provided that they show some resolution. I am afraid, however, that the barks will not be followed by bites when it comes to the hon. Member for Kidderminster, the hon. Member for Shipley (Mr. Hirst) and the others. I do not think that there is grave danger of these threats being supported in the Lobby and by action in the House against a Government who have thrown their pledges overboard.

Viscount Hinchingbrooke

If the hon. Member is referring to our failure to vote the other night, perhaps he did not see the letter that my hon. Friend the Member for Kidderminster (Mr. Nabarro) and I wrote to the Sunday Times last week, in which we explained why we did not take into the Lobby quite a sizeable group of Members. It was because the Minister answered our point about three seconds before the Division was called. If the answer had not been made in this time we should have voted.

Mr. Ross

The noble Lord has not been listening to me. I was referring to his speech when we discussed a different Amendment from the one in his name and in the name of the hon. Member for Kidderminster. We were discussing an Amendment which insisted that the Minister should come to the House with a draft Order about contracts. The noble Lord got up during that discussion and defended the Minister. I felt that that was related to his convenience than to his principles.

I am concerned about the effect of this Budget on the country. There is no doubt that our power in the world, our influence for good, as well as the prosperity of our people depend entirely on the efficiency of the economy. That efficiency is always relative to the efficiency of other countries which are our competitors. There is no doubt that we are lagging behind our competitors, and yet the Chancellor and the President of the Board of Trade say that we must put some restraint upon that very expansion on which our prosperity depends.

My hon. Friend the Member for Dunbartonshire, East (Mr. Bence) spoke of the effect on Scotland and I shall continue with that theme, because it has been admitted that all this sounds rather unreal to the people of Scotland. I have interrupted the Chancellor, the President of the Board of Trade, and the Financial Secretary on this subject.

Our situation in Scotland is one of tension and of strain over-riding the economy. We have in Scotland 100,000 unemployed—these are the registered figures—and behind them is a body of labour available for further expansion. We have to reckon with the unpopularity of the cigarette tax with workers in the Midlands, whose expansion has been the cause of this restraint, though I agree with the hon. Member for Walsall, South that this new tax is irrelevant. At least the workers in the Midlands have had some benefit from this expansion. What about the workless in Scotland, however? They are not the cause of this strain and tension in the economy, yet they have to meet exactly the same consequences. They have to pay the increased tax.

It is the same with the industrial economy of Scotland. I represent a constituency that is to get no help at all from the Local Employment Act. Between one-third and one-quarter of the unemployed in Scotland do not live in areas that are eligible for help under that Act. In Ayrshire more than half of the unemployed will not be eligible for help under the Act.

At present in Kilmarnock the unemployed figure is more than 5 per cent. A month ago it was 7 per cent. and we welcome the change, but over this past year, while the boom has been proclaimed, together with the slogan "You've never had it so good"—what it really means is "never, never had it so good"—we have had worse conditions than we have known for many years. Now the financial policies of the Government are to affect the places in Scotland which are not covered by any special legislation in respect of assistance just as muct as they are to affect the Midlands and the London area. The Scottish economy, which has already shown itself to be specially vulnerable in these matters, is to be driven down even further.

Any of the dubious benefits which may come from the Local Employment Act will be offset by the worsening state of Scottish industry as a result of these new measures of restraint. If the Government are really serious about doing something about the slack in the economy in Scotland, then the sooner they learn that a general policy brought about by circumstances in England cannot fairly be applied to the rest of the country the better.

It is no good saying that these pockets of unemployment are affected by the Local Employment Act. It is quite irrelevant to the situation. When a general policy of restraint is applied throughout the whole country it will affect Scotland as much as anywhere else, and will drive up the unemployment figures even more, according to our industrial history over the past year.

I regret that the Government have not seen the warning light about Scotland. The other day a meeting was organised in Glasgow by the Scottish Trades Union Congress and Members of both sides of this House were present. The Members opposite who were there showed their interest, and the Leader of the Liberal Party—who is the only Scottish Liberal Member—was also there. As a result, a delegation of all parties in the House is to wait upon the Prime Minister before very long and ask him to do something about unemployment in Scotland.

What is the Budget's effect on Scotland? We have heard something about what has been done in Malta, where taxation benefits have been given to encourage industry. However, this Budget will act as a disincentive to industry likely to go to Scotland. It does not end there. I think that the hon. Member for Walsall, South was right. The sting of the Budget is in the untold tail, the mysterious warning given to the country generally that the Chancellor stands ready to take further measures. I suppose that those measures will apply equally to Scotland as to the rest of the country—monetary measures like the Bank Rate and the credit squeeze. That is what has caused the trouble in Scotland. While the Government say that their measures are for the benefit of the economy's stability in the long run, that is not a very pleasant creed to preach to people who have been unemployed not for just a few day's, but for more than six months, or even for a year.

I appeal to the Economic Secretary to commend to the Chancellor the speech which he made in Elgin before the election, when he promised that he would never rest while unemployment in Scotland was so high. I hope that he will devote himself to the task of introducing taxation benefits to enable new industries to come to Scotland and to help existing industries to expand, and not to restricting those benefits to areas to which the Local Employment Act applies. Let the Government forget the Local Employment Ac, which contains nothing which has not been available since 1945 and available to the present Government since 1951.

The first test of the new application of those powers was the introduction of the motor car industry to Scotland. In the opinion of Conservative as well as Labour Members, it failed that first test. The Government say that there are many jobs in the pipeline, but how long is the pipeline? It is a bagpipe line. We are rather tired of the tune that the Government are playing. This pipeline is about five years long.

Mr. Bence

It is all wind and no pipe.

Mr. Ross

It is a Kidderminster pipeline, in other words. When the hon. Member for Walsall, South made his quotation about the "uncertain sound" of the Chancellor, I thought that he intended to use another about the attitude of the hon. Member for Kidderminster towards his own Front Bench— Though I speak with the tongues of men and of angels, and have not charity, I am become as sounding brass, or a tinkling cymbal. The doctrines of the hon. Member for Kidderminster and their effect on the economic situation do not commend themselves to the people of Scotland.

Hon. Members opposite stand condemned for their failure to keep their promises. They stand condemned by the continued irrelevance of what they are doing in this Budget and by the present economic situation. No one could listen to the hon. Member for Wolverhampton, South-West without appreciating that we stand on the edge of a crisis. If the hon. Gentleman had followed the logic of his own argument, he would have told the Chancellor that taxation should have been raised still more. That was the logic of his argument and that of the hon. Member for Walsall, South. There is a failure of leadership, because of a failure to tell the people the truth.

The truth is that an artificial boom based on consumer goods is something which cannot possibly be in the true interests of the country. We do not live by importing sheet steel, manufacturing motor cars and selling them to ourselves. We do not get the right attitude by this kind of easy-living philosophy which the hon. Member for Kidderminster proclaims and which the Government followed last year. We are not facing the economic facts of the world when we do that and when the Government say how well we are doing as a nation, when as individuals we are more in debt than we have ever been.

That is the relevance of our attack on the easy money gentlemen who avoid tax. Most people in this country pay their tax, if grudgingly at least with a smile, but the knowledge that there is a section of the community which avoids the full payment of taxation—probably legally, although some illegally—causes more than irritation. The tax-free entertainment racket is the sort of thing which rocks the country's solidarity.

I hope that in the Finance Bill the Chancellor will set himself the task of attacking tax avoidance. That kind of thing cannot be justified when at the same time the Government say that this is not the time to deal with old-age pensioners. We cannot take one Budget alone. The last Budget gave away £360 million, and we now have a Budget following a great prosperity election when we were told that the old-age pensioners would share in that prosperity. There is nothing for them. If the Chancellor were honest he would say tonight that there will be nothing for them.

The plans are laid. In future, everything will be done under the new National Insurance legislation and any additional benefits which a Tory Government may give to old-age pensioners will come through National Assistance. The Government have said nothing about old-age pensioners in the Budget, because they intend to do nothing about them. However, do not let them blame us when we raise the subject. Do not let them say that this is not the time for making an attack on these things.

I shall be with the noble Lord the Member for Dorset, South and the hon. Member for Kidderminster if they return to Parliament's duty to address itself to Government expenditure and to the proper examination of Government expenditure.

Mr. Nabarro

I am grateful.

Mr. Ross

I have been doing that for a long time, before the hon. Members took an interest in it. It was my privilege for about ten or twelve years to be a member of the Select Committee on Estimates and eventually to be its vice-chairman under the chairmanship of Captain Waterhouse. I had a fair training in the examination of Estimates. We produce Report after Report of the Estimates Committee but those Reports are never discussed in the House. They contain valuable information which would Temind hon. Gentlemen on the Tory back benches of what goes on. Reports from the Public Accounts Committee also are produced year after year and are a mine of statistical information. They contain dramatic stories of the waste that goes on in relation to Government expenditure: not just the odd million, but even a hundred million.

The last Report produced evidence of waste and miscalculation in relation to guided missiles. It equally produced evidence in relation to how the Government were deceived by some farmers in Scotland for ploughing-up grants. All Government Departments are gone into, and if the House would address itself to discussing the Reports of this important Committee we would be in a better position to challenge the Executive.

Mr. Alan Green (Preston, South)

I presume that the hon. Gentleman appreciates that the Select Committee does not deal with policy. It is not allowed to do so. It is policy about which my hon. Friend has been talking.

Mr. Ross

When one examines the Estimates, one quickly comes to an opinion about where the policy is right and where it is wrong. They lay bare the weaknesses in respect of each Department. That is why they should be discussed and examined not only in relation to the Estimates but to the policy.

While the Committee is limited in relation to policy, the House is not limited in relation to discussing policy. When we come to the Finance Bill, if the noble Lord the Member for Dorset, South and the hon. Member for Kidderminster return to the question of Parliamentary responsibility, I hope that they will show their effectiveness by treading the carpets in the Division Lobby.

I think that I have said enough to express my disappointment and anger, not only with the Government in relation to the Budget but in relation to hon. Gentlemen opposite. No wonder they are divided. No wonder they are angry. No wonder they are disappointed. I regret that they have not shown their true sense of shame in relation to the way in which they have treated the people of this country since October last year.

7.23 p.m.

Viscount Hinchingbrooke (Dorset, South)

If the British are true to their political genius, there will be a Parliamentary crisis before long when the issue is ripe. All external events point to it, and I hope and trust that it will be of the healthy sort such as occurred in the period between 1900 and 1906. Meanwhile, we all go on in the grooves of our gramophone records mouthing the same things without much effect, without great Parliamentary enthusiasm, and without a very notable gallery of listeners.

The hon. Member for Kilmarnock (Mr. Ross) is a very good gob-stopper, if that is a proper phrase. My children tell me that it is a delectable sweet, so I do not think that there can be anything very un-Parliamentary about it. He has been put in by the party Whips, as have other hon. Gentlemen, except the leaders at the beginning and end of the debate, at short notice to fill in the time, and to claim a certain amount of attention for the Labour Party, which has nothing to say in this Budget debate because it is not in the least bit roused by it, either positively or negatively.

The speeches that we have heard this afternoon have, on the whole, been extremely sombre, as befits a half-empty Committee. Indeed, the only speech which was scintillating in this debate was the only one delivered to an absolutely packed Committee—except when the Chancellor himself spoke—by the right hon. Member for Huyton (Mr. Wilson).

The Evening Standard said of the right hon. Gentleman. Mr. Harold Wilson's speeches on the Budget from the Opposition Front Bench are now established as one of the most attractive events in the Parliamentary calendar. Yesterday, he gave another sparkling performance, assailing the Tories with wit and verve. During the absence of Mr. Bevan, Wilson has added opportunities to secure a dominating position in Parliament. There is every sign that he is doing so. Advancement in politics depends on the skilful playing of all the cards available. Wilson has one particularly powerful ace—his birth certificate. He is only 44. I have often thought that there was a marked resemblance between the right hon. Member for Huyton and Walpole, that famous Parliamentary Whiggish figure. I think that Walpole, when he was 44, was making money speculating on his own account and on account of Queen Caroline in South Sea Bubble activities. The South Sea Bubble exploded the following year, and it is not reported what happened to the fortunes of Mr. Walpole or Queen Caroline.

When he was 45 Walpole became Prime Minister and Leader of the House. If the right hon. Member for Huyton thinks that he has any such opportunity, it is unlikely to be achieved, in spite of some of the shortcomings of the Government to which I will refer in a moment or two. At any rate, I think that Macaulay, whom the right hon. Gentleman quoted against me the other night, probably got him right, as well as Walpole, when he said that he loved power so much that he could not endure a rival.

The right hon. Gentleman's speech was fascinating and agreeable, as has been reported in the Press, and as we all know. It was about the only one that was. From our side of the Committee there have come speeches of marked distaste for this Budget, and from hon. Gentlemen opposite there have been produced speeches of no intellectual content whatever, no excitement, and no enthusiasm. I should like to know how it comes about that that situation is created. It is not very long ago—indeed, it is within living memory of us all—that Chancellors of the Exchequer from both parties in the House produced Budgets that received tremendous acclaim and support from their supporters, and roused elements of direst fury and resentment on the other side of the Committee.

I ask the Chancellor of the Exchequer, who, I understand, cannot be here just now—he has been very assiduous in his attendance and one cannot expect to have the most notable political figure on the Front Bench present when one speaks—how it is possible to arrange a Conservative Budget, a national Budget, that does not satisfy the basic political requirements of the House of Commons and does not satisfy tradition.

My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) regarded the Budget as a fiddling one which gave no lead to the nation. I agree with every word that he used in that connection. What has happened in the higher reaches of the Cabinet? What has happened in the Treasury that a very marked and notable political figure, who, not long ago, came from the back benches of this party with universal acclaim, with great enthusiasm, as a man of the future, has been able to make the sort of Budget speech he made to the country in the last few days? Why is it that there is so little enthusiasm on the benches behind him and no marked discontent on the benches opposite?

Yesterday, my right hon. Friend the Member for Monmouth (Mr. Thorney-croft) made an excellent speech, the burden of which was that it was essential, now that expenditure had been sanctioned, passed and was in the process of being embarked upon, to produce a Budget which equated expenditure with revenue and satisfied the requirements of the Exchequer. My right hon. Friend complained that the expenditure was too high. He drew attention, in a way that has not been done previously, to the very strong stand he took two years ago. He helped us to understand that it is necessary to economise in the interests of the nation. I can see the point of view which my right hon. Friend takes—the view that expenditure comes first; that if it is high we must face the unpleasant consequences and produce a Budget to match it—although I shall have something to say on that shortly. But I ask myself whether that is a fundamentally true picture of our finances.

We can put the question in the time-honoured way: which comes first, the chicken or the egg? Can anybody put his hand on his heart and say that the depletion of funds must precede their replenishment, or vice versa? I go to church on Sunday. I do not know whether I go to church to shrive the sins of the previous week, or to give myself grace against the dangers of the succeeding week, and it seems to me just as true to say that the Budget proposals initiate expenditure as it is to say that the expenditure initiates the Budget proposals.

We can stop sinning when we like. I hope that I stopped sinning last October, when I left out of my election address half the Tory manifesto because I thought that it was intolerably inflationary, and would operate against the higher ideals of the British people. I fought my election on something much more moderate, and it apparently worked the trick, because here I am. My hon. Friend the Member for Kidderminster (Mr. Nabarro) did not start quite so soon. He started not many weeks ago, in connection with the absurd proposal for Government lending to the iron and steel industry. I am not saying that he has never ventured to put forward views on economics before, because he has, and we all know them very well, but on this school of argument he did not start at quite the same moment that I did.

Mr. Ede (South Shields)

What did he put in his Election address?

Viscount Hinchingbrooke

My hon. Friend has now caught me up, and his primary end, along with mine, is to see that the process of concessions, of reducing the power of the State and its demands upon the economy, and of giving more private freedom, begins now.

My right hon. Friend the Member for Monmouth says that he will join us next October.

Mr. Peter Thorneycroft (Monmouth) indicated dissent.

Viscount Hinchingbrooke

I can appreciate the philosophy of his outlook. It has been put forward by other of my hon. Friends, including my hon. Friend the Member for Louth (Mr. C. Osborne).

They will not start now, because they say that what is happening now is the consequence of what preceded it. They will start in the expenditure year, next October, on their big campaign to stop the Government from doing the same thing as they have done this year, to get them to reduce the impact of their affairs upon the life of the nation and to secure more private freedom. I have no objection to this. The point is that we are all going in the same direction, and the whole thing will roll up in the end. My hon. Friend the Member for Mitcham (Mr. R. Carr) wants to keep his fishing grounds at the full extent of the three-mile limit from my hon. Friend the Member for Kidderminster, but he will find that his three-mile limit has expanded to six miles before he knows where he is, and he will be in the same net with all of us.

I said that I would try to put forward another ground for starting this operation now and not waiting until next October. It is a fairly conclusive ground. I should like to put some figures before the Committee to reinforce the view that tax reductions can be made now without inflationary consequences arising. I fear that my next remarks will necessarily sound like the recital of about seven of the twelve tribes of Israel out of Revelations, but I will say them as quickly as I can.

The present Home Secretary's 1954 deficit of £397 million—an overall above-and below-the-line deficit—was followed by a 10-point increase in the cost of living over the following two years. His 1955 deficit of £436 million was followed by an 8-point increase in the cost of living over the next two years. The present Prime Minister's 1956 deficit of £343 million—the Committee will note the enormous size, regularity and similarity of these overall deficits—was followed by a 5-point increase in the cost of living over the next two years.

The 1957 deficit of my right hon. Friend the Member for Monmouth, of £125 million, was followed by a 2-point increase. The 1958 deficit of my right hon. Friend the Chancellor of the Exchequer—who, I am glad to see, has been able to return to his place—of £236 million was followed by no increase in the cost of living, and his Budget last year, with a deficit of as much as £721 million, has been followed by no increase in the cost of living—so far.

I claim from those figures that the external events—the other fiscal measures that are taken, which need not be specified, but which include even such matters as Government exhortation, which I dislike very much as a policy—are far more effective than an overall Budget deficit of £100 million, £200 million, or £300 million. In those circumstances, I say that the Chancellor could have produced a deficit of at least £100 million more than it is this year and could have given that away in tax reliefs.

This is an economist's and an accountant's Budget. This is a Budget which lacks imagination. It is not a statesman's Budget; it is not a Budget of somebody who is deeply concerned about our social situation. I complain not entirely that taxation has not been remitted by the means that I have just described; I complain of the complete failure to start reorganising our tax structure. We could have had the beginnings of a transformation in the tax structure of this country and yet have maintained the total yield of taxes sufficiently high to satisfy those timorous people who are afraid that another £100 million given away will result in an unbalanced situation and a drain on our gold and dollar reserves.

That has not been done. I want to ask the Chancellor to tell us tonight, if he would be so good, why has he neglected this opportunity? Why has he not absorbed the messages which have come from the Conservative Party? Why has he studiously avoided putting into effect some of those specific recommendations of a most expert committee of the party which he knows very well? He has slighted that committee in a waspish, donnish way which, I think is quite intolerable for distinguished people, like my hon. Friend the Member for Walsall, South, who took a great deal of trouble about it, to say nothing of one of my best political friends, who has passed away in the last 48 hours, and who did wonderful work on this subject. It is a very serious slight for a great public figure to perpetrate on his party.

I should like very briefly now to say what I think some of the structural changes might have been. I do it within the context of three propositions, which I should like to give very briefly. The first is that business is allowed to escape from the consequences of high taxes and that, broadly speaking, the professional classes are not. We had an admirable maiden speech from my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), in which he referred to the ever increasing impact of Income Tax and Surtax on the qualified professional classes, those round about the £2,000 mark, who have attained considerable positions as the result of their early training and their intellectual capacity, and who are marrying and starting up in business.

It is perhaps unnecessary to enumerate to the Committee the sort of people one thinks about in this connection— educationalists, scientists, technicians, members of the Armed Forces, either active or retired, bishops, priests and clergymen, local government officers, civil servants, judges and magistrates, solicitors, salaried staffs. While I have been sitting here I made a note of some descriptions of professional classes which are not allowed today—such is the structure of our Income Tax—to enjoy the same kind of standard of living as the commercial classes.

I think that there is something to be said for the State, in a period immediately after a major war, deliberately, by various devices, to encourage the commercial classes to re-create the high standard of living of the community. But when we have an affluent society; when we have a situation where every council house today—and we glory in the fact—is filled with aids to the good life, or nearly so; when we have a standard of living which surpasses that of any other country in the world—save, possibly, Sweden, or the United States— is it not time to do something for the people who work by brain rather than by hand; for the people who give the leaven to the community; who do the voluntary work; who are of decisive importance to the welfare and well-being of our society? To allow those people to continue to be taxed by direct taxation at the rate they are seems to me quite extraordinary.

Then I make another proposition, that those who spend are those who should pay taxation and that saving and investment should be rewarded. That would lead to a diminution of direct taxation and an increase in indirect taxation. I know that the Labour Party has always disliked the idea of indirect taxation. I am not sure whether it is of the same way of mind today. If we are trying to secure increasing investment; if we are trying to leaven society with voluntary activities; if we are trying to find some peace and easement of mind for study and quiet reflection, surely those who make life a tremendous industrial excitement—and strain, if hon. Members wish—those who get the maximum out of it and want the maximum from it, are the people who ought to pay the taxes.

I do not want to go into a philosophical dissertation on this subject now, because it would only bore the Committee. It is a matter more the subject for a lecture than a debate in this Chamber. I feed instinctively and very deeply that the taxation system today is miscast for the affluent society in which we live, but there is no sign of that coming from my right hon. Friend in his third Budget, no sign whatever. I wish to know whether the Chancellor holds any of these views, whether he is in the least bit unhappy about the present tax structure, and why he has not begun to give indications of a change.

Finally, I have a note here that high working-class standards eliminate the need for differential taxation. Before Keynes, in the time of Lloyd George and those radical Liberals who, by and large, devised the present taxation system— which has not been altered sufficiently in my view—the only way of providing for the needs of the poor was to tax the rich. Indeed, one of our failures before the war, when Mr. Runciman was President of the Board of Trade and Mr. Neville Chamberlain was Chancellor of the Exchequer, was the refusal of the Government to take a position complementary to the aggregate of private spending in the country.

Then the Government took the same view as private spenders, that when times were bad they should not spend, when unemployment was rife the State must draw in its horns. That was the theory until Lord Keynes came on the scene. The only thing they could think of to alleviate the hard-pressed masses in those days was to impose penal taxation on the well-to-do.

Now we are in the post-Keynes period. Cannot the Labour Party see that the great impact made on the liveliness of the masses of people of this country is made by their own endeavours and by the deliberate activities of the State, and with this process, the redistribution of taxes is not of fundamental importance at the present time? For that reason I would make a start on Estate Duty, on Surtax, on Profits Tax and the very high grades of Purchase Tax. Why should we still allow so-called luxury industries to be curtailed and held back because of the imposition of large taxes? I would begin to sweep away all forms of differential taxes and I want to know why it is that the Chancellor has not found room for this theme in his Budget this year.

Were there time, I would have liked to go a little wider than our present deliberations on the Budget and say something about certain implications of the wage claims, the Guillebaud Report and other reports which come to hand constantly. But I will leave that for another occasion.

My right hon. Friend's supporters—I estimate them at approximately half of the Conservative Party—claim that this Budget is a sort of Pandora's Box. They mean that it contains everything that is ugly except Hope. Hope for next year, that is what we are told. This pigeon's egg lying on the window sill will crack itself and open in another twelve months—

Mr. Bence

It will be addled by then.

Viscount Hinchingbrooke

It was addled when it was laid.

Mr. Nabarro

Rotten, squiffy thing.

Viscount Hinchingbrooke

My hon. Friends say that this Profits Tax increase is a wonderful thing, because next year it will create a wonderful nest-egg, a pigeon's egg, which will open up and reveal tremendous opportunities and benefits for all. Why do they lay that flattering unction to their souls? There is no fund, there is no chest. The Exchequer is an account. Things that go into it are put down in ink and things which come out of it are put down in ink. Surpluses have to be created de novo every year.

If, in twelve months' time, we have a crisis on our hands, an emergency of some kind in Africa, or the Middle East, the Budget will be very different from what it is today and so the opportunity will have been lost in this year to make satisfactory transformations in the life of our country. We cannot wait in these matters for a happier day to arrive It is the duty of statesmen to eradicate the evils of society when they arise and it is their duty, also, to bestow benefits when the need is proved.

Life is not so nasty and brutish as it used to be, but it is still hard for many millions of people and short for all of us. Why does the Chancellor of the Exchequer neglect his opportunity in the time which is given to him?

Before I sit down I am compelled to say something about those very senior members of the Cabinet to whom, no doubt, the Chancellor refers before framing his Budget speech. I believe that the Prime Minister and the Home Secretary are political disciples of the 1920s. They are the orphans of the economic storm which supervened after the end of the Great War. It needs genius to jump oneself out of the framework of political thought which one dwells on in middle life. I am sure that my right hon. Friend the Member for Woodford (Sir W. Churchill), if he were even more active in our political events than, in fact, he is, would be doing today what he did in 1902, as a young Tory, when he went to the Constitutional Club and called for peace, retrenchment and reform.

Mr. Emrys Hughes (South Ayrshire)

He joined the Liberals then.

Viscount Hinchingbrooke

I am sure that that other genius, Lord Keynes, if he were alive today, would be operating this theory in reverse. He would be giving counsel to us in a situation of incipient inflation and almost permanently over-full employment to follow the lines laid down by that other very famous economist, Mr. Colin Clark, who said that it is axiomatic in a free democracy that if the State takes more than 25 per cent. of the spending power of the entire nation inflation will result because the people cannot be induced, in a free society, to cut their commitments by what the State itself demands. I am certain that we are in that kind of situation today.

It is true that we have "never had it so good". It is true that the Prime Minister and the Home Secretary have arranged a sort of society which gives a great deal of satisfaction to millions, but I am conscious of some matters which terrify me as I look around the world today. There is a weakness in policy both at home and abroad, particularly abroad. At home, the Government give way to every single pressure that comes to them, except from their own supporters. I believe that the cynicism of much of our youth, the demoralisation of much of our social life, the introverted forms which some science and nearly all art are taking today are due in part to the prodigality of Government, to their sloppy methods and to lack of inspiring leadership.

To some extent in this country today, as the works of writers and philosophers have told us, democracy is on trial. I believe that as political parties we are guilty now and have been guilty in the past of competitive devaluation of social and moral standards in the community. I am sorry that this magnificent opportunity has not been taken this year. It will be our duty, in the years ahead, to brace ourselves to pursue some of the finer instincts of our society and some of the higher ideals of our people.

7.56 p.m.

Mr. Bruce Millan (Glasgow, Craigton)

We have had a very interesting speech from the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) and I wish to begin by saying something about some of the things he said. On his criticisms of the leaders of the Government, I am naturally delighted to say that I have reached the same conclusions as he, if for different reasons.

I am not going to follow him in that, but I want to say something on the question of taxation reliefs in relation to inflation. We had from the hon. Member for Kidderminster (Mr. Nabarro), as we have had from the noble Lord, the rather startling thesis that taxation reliefs would not have an inflationary effect. I thought that that argument was answered in anticipation, as it were, by their hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). I think he gave an admirable analysis of the situation and demonstrated how impossible it was for the Chancellor of the Exchequer to have done anything in the way of tax reliefs this year without encouraging inflationary demand.

I want particularly to say something about what was said by the noble Lord on the question of the tax structure. I had great expectations when I heard him say that he would like to see considerable improvements in the taxation structure because that is something which we on this side of the Committee have been saying for a considerable time. The noble Lord first mentioned professional people, particularly those with incomes of about £2,000 or £3,000 a year. No one likes to pay Income Tax, or any other kind of tax. I dare say they feel, as all of us tend to feel, that they are particularly hard done by, but I have to remind the noble Lord that there was a considerable amount of Income Tax relief in the 1959 Budget and there have been considerable Income Tax reliefs in previous Conservative Budgets which have favoured professional people and people round about that level as much as anyone else. Our quarrel on this side of the Committee is not that too little has been done for those people, but that too little has been done for various other members of the community who are far more deserving.

Another interesting argument of the noble Lord was that the amount of direct taxation today was too high, that we ought to reduce it and increase indirect taxation and taxes on expenditure. I find from Table 21 of the Economic Survey that the taxes on expenditure are almost as high as the taxes on income. Let me quote the figures for 1959. The taxes on income were £2,777 million and the taxes on expenditure were £2,485 million. The taxes on expenditure are already fairly near the total taxes on income. In the opinion of hon. Members on this side of the Committee, it is the taxes on expenditure which have tended to become too high in recent years and the direct taxation on income which is tending to become too low.

When he came to his practical conclusions from this analysis the hon. Member talked to us about differential taxation. I was not sure that I followed him when he spoke about the general principle, but there was no difficulty in following his conclusions about death duties, Surtax and Profits Tax. There was a contradiction when he talked about Purchase Tax, because he asked for a reduction in the higher rate of Purchase Tax on certain articles. I would point out that Purchase Tax is one of the major taxes on expenditure which, three or four minutes earlier, he told us we ought to be decreasing.

Viscount Hinchingbrooke

I am in favour of a 15 per cent. Purchase Tax all round.

Mr. Millan

I ought to have said "increasing", then. That still does not explain the contradiction, and it certainly does not meet the point that the differential rates of Purchase Tax ought to be under consideration, because they tax certain goods which are necessities for everyone and certain goods which are luxuries. We on this side of the Committee have no compunction at all about higher rates of taxation on luxury goods, but we show considerable disquiet about any Purchase Tax on necessities, which is one reason why we were so distressed about the 1955 autumn Budget.

If the hon. Member wants to revise the tax structure in any dramatic way, I suggest that he should look again at Table 21 of the Economic Survey. I have already quoted the taxes on income and expenditure, and I will repeat them. In 1959 the taxes on income were £2,777 million and on expenditure £2,485 million. But the next figure is the most startling of all, because it is of the taxes on capital; and they are only £213 million, about one-twelfth of the taxes on expenditure and one-thirteenth of the taxes on income.

It happens that a great deal of the prosperity and a great deal of the extravagant spending of the last few years have arisen directly from capital accretion and capital gains, which are not subject to taxation. There is a very strong case, on these figures in Table 21, quite apart from moral considerations, for the Government to consider the whole question of a capital gains tax. If the noble Lord, who has been looking at things afresh, as I think he has been trying to convey to the House, will look at them afresh from that point of view and consider what we might take in taxes on capital, he will not only have the support of the hon. Member for Kidderminster (Mr. Nabarro) and one or two other hon. Members opposite but will have the universal support of this side of the Committee.

One main theme of the hon. Member and his hon. Friends, and it was also the main theme of the hon. Member for Wolverhampton, South-West, was that at present we have an excessive amount of Government expenditure. It occurred to me, listening to the hon. Member for Wolverhampton, South-West, that his analysis, the logic of which I think we all accept, stopped short. His conclusion was that Government expenditure was too high and that while it was running at the present level, with a prospect of increasing, the Government's various difficulties were incapable of solution— certainly incapable of solution within the philosophy of hon. Members opposite.

If we are to talk about reducing Government expenditure, there is an obliga- tion upon us to say in which directions we want to see Government expenditure reduced. We have had a certain amount of detail about this from hon. Members opposite, but it is noticeable that in so far as they particularise at all, they talk about Government capital payments and they do not talk about Government payments out of revenue. But it is Government revenue payments which are particularly important from this point of view, and they re-present considerably more than capital payments. If we are to talk seriously about reducing Government expenditure, we must then talk about reducing Government revenue expenditure, and we are entitled to ask hon. Members opposite in which directions they think that that expenditure should be reduced. Naturally there is considerable reluctance on their part to say anything about this because it is political dynamite.

We had some rather vague references from the right hon. Member for Mon-mouth (Mr. Thorneycroft) on this question. He talked about the Welfare State, and he talked about education and housing. Again, however, there was a complete lack of detail. It seems to me that we can take seriously the arguments which we have had only when we are given this detail. If we are given it, then we shall be able to argue the matter out not only in financial and economic terms but also—which is just as important—in political terms.

I am convinced that the whole trend of Government expenditure which we have had over the past few years is bound to continue in an upward direction in the years to come, and we on this side of the Committee are perfectly frank in admitting that we see nothing wrong in that. The claims on Government expenditure are bound to increase, sometimes for Welfare State reasons but often for economic reasons. After all, education is not solely a part of the Welfare State; it is also a very important way in which we can strengthen our economy, because our economic progress depends on a sound educational system, on an increasing amount of technical education and on getting the qualified people that we need into teaching, universities, industry and commerce. Our educational expenditure, therefore, has a direct economic effect and is not to be treated simply as part of the Welfare State. We know that education is one of the main items of Government expenditure which is expected to increase over the next few years.

If it is true that Government expenditure will increase, are we placed on the horn of a dilemma, as the hon. Member for Wolverhampton, South-West said that we were? I do not think that we are, provided that we do certain things. One of the points which struck me particularly about the hon. Member's speech was that he dealt with the situation completely in monetary terms. I think I am right in saying that during the whole of his speech he made no mention of production or the gross national product, and it seems to me that that is a fundamental objection to the arguments which he was putting forward. I would rather place the emphasis not on monetary terms but on the question of the gross national product and on industrial production.

What we want is a sufficient increase in our production year by year to enable us to meet all the demands which the community, the Government and we as private individuals are putting on the gross national product. What we want is an economy which can expand steadily year by year, and which we have signally failed to have in eight years of Conservative Government. We have had an economy which takes a great jump forward and then spends the next two or three years recovering from it. Last year we had one of the jumps forward. Now we seem to be moving into a situation in which we shall not only seek to consolidate our position but, if a crisis occurs, perhaps go backwards again.

This is not inevitable. It is not happening in every Western country in the world. I was very impressed by the figures quoted in the debate yesterday by my hon. Friend the Member for Grimsby (Mr. Crosland). He said that since 1955 the percentage increase in the gross national product in the Common Market countries has been 29 per cent., whereas in the United Kingdom it has been only 11 per cent. over the same period. He quoted various other figures about our production which demonstrate that Britain has begun to fall behind in the production race. Until recently we considered ourselves the leading nation in Western Europe, but we are very rapidly losing that position, if we have, not already lost it.

My hon. Friend also quoted the figures for investment, which I think are equally striking. He pointed out that investment in this country, excluding housing —which is not so important from the direct economic point of view—was only 14 per cent. of the gross national product as against 17 per cent. in the Common Market countries, countries which will be very serious competitors of ours in international trade in years to come, and just on 20 per cent. in Germany.

Surely one of the significant features of the present economic situation here, one of the major difficulties which we have, and one of the reasons for the recurrent crises is that our investment is not high enough. It is true that our investment went up in the last year, although the increase was not evenly spread. It is also true that we shall get increased investment in the years to come. But it is at this very point that we begin again to hear the Government talk about the probable necessity of exercising some restraint on the economy. That means that, presumably, they will think again in terms of the Bank Rate, monetary restrictions and restrictions on credit, which will lead to a reduction in investment.

We have had a large increase in production over the past year. This came largely by taking up the slack in the economy. It has come from a reduction in unemployment and by putting back the industrial capacity previously not used. But our increase in production should not come merely when we have a certain amount of slack in the economy. We should be able to get a steady increase in production without the necessity of taking up slack in the economy; there should be no slack in the economy at all. The fact that there is slack in the economy implies that there has been a run-down of production and an increase of unemployment in the years before, as indeed was the position in 1959.

It seems to me that it would be disastrous if within the next few months we were to have anything like a return to the credit squeeze to the extent that we had before, or even to a limited extent. That would be disastrous from the point of view of our economy generally and of the need to keep up our industrial investment, and also—and I am particularly concerned about this as a Scottish Member—from the point of view of any attempts to alleviate local unemployment. For one of the factors which led to Scotland's serious unemployment position was precisely the credit squeeze that we had in 1957, and it would be disastrous if we were to go back to that again.

Surely the point is that we need an increase in investment sufficient to allow us to get this annual increase in production steadily over the years. We must, therefore, make an attempt at the same time not necessarily to cut consumption but to restrict consumption sufficiently to allow us to divert resources to investment for a few years until we get to the necessary level which will give us a steady annual increase in production. That seems to be the Government's dilemma and we have not had an answer from them on this or even a serious examination of the position.

It is particularly difficult, and I am by no means suggesting that I have a solution, because the present investment boom, which is in danger of being cut again, arises not so much from the taxation reliefs of the last Budget as from the derestriction on hire purchase six months before in the autumn of 1958. In other words, the durable consumer goods boom preceded the investment boom. Yet if we want to keep investment going, to get the level of investment that we require for a steady increase in our annual product, it is consumer goods at which we have to look from the point of view of restraint.

I think that the Government are m a serious dilemma here. I agree with the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) that if it comes to the point of having to impose some restraint on the economy it ought to be done at the consumer goods end and not at the investment end. In particular, the Government should look at the question of hire-purchase restrictions, but not only at that, for there is obviously need for restraint all round. When we talk of restraint, Government supporters immediately think of wages. If it were as simple as that, it would be very good, but, in fact, it is not as simple as that, and I hope that the Government will not fall into the errors which they did before, and which they certainly did in their propaganda, of suggesting that it is simply a question of restraint on wages.

There is also the question of dividends, equation of profits, equation of share values. All these things have been dealt with considerably in debate and I have no intention of going over them again. I think, however, that it ought to be pointed out to the Government that any question of increase of dividends, profits and share values makes it particularly difficult for the Government when such increases are positively gloried in both by the financial Press and by all of those who are traditionally supporters of the Tory Party, and, indeed, by certain hon. Members opposite. It will not be possible to get any sort of restraint, particularly on wages, if we have a continuing tendency to glory in the free-for-all which we have had over the last year and on which the election was fought and won.

I want to say something briefly about prices. The hon. Member for Kidderminster the other night criticised the increase in Profits Tax from the point of view that it would be inflationary. That seems to be standing facts on their heads. He said that any increase in Profits Tax would automatically be put on the price of goods. It seems to me that it would be disastrous if that happened. The Financial Secretary said that it will not happen. I wish that I were as sanguine as he is that it will not happen, because a great many businessmen and financial people feel the same as the hon. Member for Kidderminster, and use the excuse of an increase in Profits Tax or Purchase Tax, or anything they like, to take the opportunity of adding several times over that amount to the prices of the commodities they sell.

The hon. Member for Walsall, South has already pointed out that the increase in Profits Tax represents only about 1½ per cent. of the gross profits of companies in Britain, taking the 1959 figures. In terms of price of commodities the increase in Profits Tax represents considerably less than that, and I hope that the Government will say to their friends in industry and commerce that they will not in any circumstances stand for those people using the Profits Tax increase as an opportunity to impose another round of price increases. If we have that, we shall have a considerable acceleration of wage demands and, I think, quite justifiably so.

It seems to me that, despite that, there is a fair chance that we can continue with prices as they are at present at a reasonable level although there now seems to be a slight tendency for them to go up. If we get into the trouble which the Government seem to be anticipating that we shall, I return to the view that I have stated before, that we should look at it from the point of view of restraining consumer demand rather than of cutting investment. I do not want to say any more on this point. I think, however, that I ought to say that it is not inconsistent to have a general restraint and yet to have certain increases for those members of the community who are obviously desperately in need of such increases, though, obviously, there are difficulties and the Government have, or would have, to make, from their own point of view, certain unpalatable decisions. In particular, it is quite indefensible that the old-age pensioners have had nothing from the Budget. They, above all, should have had priority, despite any economic or financial difficulties.

I repeat my hope that, if difficulties come, as it seems they will, the Government will not be panicked into cutting investment, into a credit squeeze or into monetary restrictions, which would return us to the position which we had in 1957 and 1958 and from which some parts of the country, notably Scotland, are still suffering very disastrously even up to the present day.

8.21 p.m.

Mr. Alan Green (Preston, South)

The House owes two debts to my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell)—first, for a very agreeable, well-informed and well-organised speech, in which I think most of us took pleasure, and, secondly, for the pleasurable consequence that his speech allows me to be mercifully brief.

The hon. Member for Glasgow, Craigton (Mr. Millan) started by being intellectually more honest than his right hon. Friend the Leader of the Opposition. The hon. Gentleman stated quite plainly that it was his belief, policy and thought, that the Government should progressively take a larger percentage of the gross national product and spend it on behalf of the people. Unfortunately, he later deviated from that line by proceeding again to suggest that he was not talking about money. He was talking about some unit, which he did not specify, whereby he measured the gross national product. He said that, provided that production rose, he would not need to do what he said at the beginning of his speech that he believed in doing.

Mr. Millan

That is quite a familiar argument from this side of the House, but it was not in fact an argument which I used. I said nothing about rates of taxation.

Mr. Green

Nor have I said anything about rates of taxation yet. Let us face the fact that, if the Government are to take a greater share of the gross national product, in whatever fancy terms one measures the gross national product, whether in monetary terms or some other unit not yet devised, they will in fact impose higher taxation upon the people and not the same rate of taxation generally.

This time last year I was bold enough to suggest to my right hon. Friend the Chancellor of the Exchequer that he might find later on a need to restrain, either in his next annual Budget or perhaps at an intermediate stage, the processes set up—very properly, in principle, set up—in his Budget last year.

Because in this Budget, facing the circumstances manfully, as has already been said, he has taken restraining action, I should like to add my voice to those who now applaud him. I am certain that in the circumstances he has acted in the right direction. I ask him to be good enough to set a precedent for all future Chancellors of the Exchequer, by stating publicly, either in his Budget statement, or preferably in a White Paper, his estimate of the proportion of the gross national product which will be spent by central and local government combined in the year in question.

If this figure were stated by the Chancellor at the beginning of the budgetary process every year, we—Government, back benchers and electors alike—would be able to judge what was the actual direction of policy in budgetary matters. This should be done whichever party is in power, because then back benchers, Government and electors, all of whom need this information, would be able to judge in what direction policy was moving.

If policy were moving in the wrong direction, all three of the parties to this Government contract would have a real incentive and a real basis for seeking to change the policy in time, instead of complaining about what they had conspired together to do. It seems to be a not unreasonable request to ask for this figure. My right hon. Friend must make many estimates. This estimate is in fact the end-product of his own figuring and thinking. I believe that the figure should be given at the start of the budgetary process. Then, whichever party is in power, we shall have a much better and more simple means of telling in what direction policy is moving and a much surer guide about whether or not we should seek to change that policy.

Finally, having praised my right hon. Friend for his courage and common-sense in the circumstances in which he finds himself, I must tell him that I shall be amongst those who will look with the greatest care and attention at the wording of the Clause in the Finance Bill dealing with tax avoidance. I am no more interested in other people evading taxes at my expense than any other hon. Member. I believe that we shall make a very grave mistake if we allow ourselves to pass a Clause in the Finance Bill which gives any blanket powers to the Inland Revenue.

A Draconian Clause, a severe Clause, over tax evasion or avoidance is all right, provided that it is explicit. If it is not explicit, if one is allowed to tax intent or intention, I believe that both sides of the House will later be sorry that they agreed to such a Clause. I should support an explicit law to prevent "evasion". It is not "avoidance". People are perfectly entitled legally to avoid taxes if they can contrive it so. An explicit Clause or series of Clauses to prevent evasion will have my wholehearted support.

What I should find it very difficult, I think impossible, to support would be a Clause allowing some other body—not the legislature, not the judiciary—to decide whether or not the person intended to evade.

I promised to be brief. I have been brief. With those words I am about to sit down, having commended my right hon. Friend's action at this time under the present circumstances.

8.29 p.m.

Mr. Charles Pannell (Leeds, West)

The hon. Member for Preston, South (Mr. Green) said that he was not in favour of a Draconian Clause—a blanket Clause against tax evasion—

Mr. Green

A blanket Clause.

Mr. Pannell

I want to put to the hon. Gentleman the point that the principle of all taxation is equity; that we deal with one person in equity with another. For the wage earners we have devised P.A.Y.E. where no evasion whatsoever is possible. It is paid week by week, and there is no argument about it. It is settled on the job. A firm's accountants feel themselves responsible to the Inland Revenue, and the wage earner does not get the chance of getting away with one single half-penny—

Mr. Green

I am not entirely out of sympathy with what the hon. Gentleman says, as I hope I made clear in what I said. It is not only the wage earner who is subject to P.A.Y.E.—so is the salary earner and, in effect, so is the dividend earner. Most people are, except those who can juggle or fiddle a bit. All I ask is that those people should be specified, and that blanket powers should not be given.

Mr. Pannell

I was not dealing with that, but with the wage earners among whom I work, and whom, in a special way, I think, I represent. They all know that as Thursday or Friday comes round their assessment under P.A.Y.E. is made. Whatever the figure of tax evasion may be, whatever its aggregate at the end of the year is as nothing to the mischief that it does. A taxation system will never be respected if the people on the job, the production workers, who are taxed on every bit of overtime, believe that there is a fiddle somewhere at the top.

What have we found? We have found so often that a retrospective Clause is brought in to deal with one form of tax evasion, but year by year we have also found that the ingenuity of certain people with mathematical minds puts up another obstacle to the Board of Inland Revenue. These things get round, they get known, and they lead to there being no respect at all for our taxation system. We ought to arm the State against these completely anti-social people.

The hon. Member for Preston, South would not attempt to defend unethical practices where he met them. Why should not the State, on behalf of us all, be armed to meet those tendencies?

Mr. Green

Was the hon. Gentleman asking me a question?

Mr. Pannell

If the hon. Gentleman was not following my speech, there is not much point in my repeating what I said.

Mr. Green

I did not know whether it was rhetorical or not.

Mr. Pannell

No, I am not a rhetorical sort of person.

Mr. Green

I am much obliged. I will repeat what I think. I do not propose to help tax evasion. I am against it. But I am also very much against giving people outside—people who are not Members of this House or members of the judiciary—certain blanket powers of inquisition, and making them, not the House of Commons or the courts, the judges of whether or not a man has intended to evade.

Mr. Pannell

I should have thought that pretty wide powers were exercised already over all kinds of taxpayers. I have often had to interview the Inland Revenue on behalf of people who have suffered from an excess of innocence. These people are always innocent when they come against it. I conclude that part of my argument by saying to the hon. Gentleman that, broadly, I disagree with him.

I still think that we can have people who, even if not responsible to the House, can at least be got at through it, and be responsible to the Government. There is no question of that. I would not give away any rights of Parliament to intervene and give some sort of modern Star Chamber the power to act as judge and jury in all this, but I must confess that I get rather tired of what happens.

I have now heard ten or eleven Budgets, and the Chancellor of the day always tells us of somebody who has thought of something else; dividend stripping, bond washing—something under a new name, and something about which I seldom know very much. Always, Parliament has to go through it all, and always we get this terrific bleat from the benches opposite about retrospective legislation, as though tax evasion itself was rather clever. I believe that evasion does an inordinate amount of harm among the great generality of taxpayers who meet their taxes.

The only other thing I want to say is that we all particularly enjoyed the speech of the hon. Member for Wolver-hampton, South-West (Mr. Powell), because he spent a lot of time in debunking the Kidderminster crowd. When all is said and done, the party on this side of the Committee quite recently has been arguing about principles and about ends, but it seems to me that the splits in the party opposite are about means. I must say as a student of politics that that is something I have rather enjoyed, because I have always understood that if ever one wanted to pursue politics with office as an end, one did not generally join the party of the Left, because parties of the Left tend to fragment under the impact of change, and indeed must necessarily do so, whereas parties of the Right generally stand for the status quo.

The Conservative Party has always been concerned to defend privilege. The Conservative Party never liked the grammar schools. One of my hon. Friends once told me that before the war they defended the direct grant schools, and when the comprehensive schools came along they defended the grammar schools because they thought they conferred privilege on someone or other.

We have had a very amusing spectacle during the last few days. We have not had the classic arguments of the Old Testament or the New Testament—

Mr. Ede

We have had Corinthians quoted to us.

Mr. Panned

I am sorry, I missed that —or the niceties of Clause 4 and all that, but we have seen the party of the Right fragment and change in this Committee at this time, and it is a very pleasurable sort of thing to be looking at them instead of them looking at us. It has been quite a good week for the Labour Party. What the whole of the Press would say if the position had been reversed would be remarkable. We were a party in disintegration or decline, but, of course, when we look at hon. Members opposite we realise that this is part of the liveliness that is supposed to characterise them from time to time.

This seems to us to be a rather sordid squabble on the benches opposite about taxation, because we judge this Budget in contradistinction to what happened last year, which, as my right hon. Friend the Leader of the Opposition said, was merely a repeat of what happened in 1955, when, with an election in the offing, £326 million was dispersed. That is what happened again last year. No doubt hon. Members opposite, probably including the hon. Member for Wolverhampton, South-West—although I may be doing him an injustice, and if so he can contradict me, because I am only guessing at what was in his election address—gloried in their election addresses about the record of the Conservative Government.

Mr. Powell

I will send the hon. Gentleman a copy, so that he might discontinue this part of his speech, and get on with something else.

Mr. Pannell

That sounds all right, but it is rather a trifle too glib, because I am willing to bet that, in essence, his election address was not a great deal different from that of the hon. Member for Kidderminster. There was no quarrel between them then. There was no criticism of last year's Budget as being a dishonest prospectus, or anything like that. They stood solidly behind the Budget, and behind the social changes which they thought they had worked out. They knew full well that they were all solidly behind it and that there was no difference of principle at all about it.

As a matter of fact, this Budget is the pay-off for the price they paid to win the election, and they know full well that it is so. There has been a lot of humbug spoken from that side of the Committee from all sorts of people, including those who vaunted their honesty the most. There is no question about it —they merely won the election on giving the pay-off to all sorts of people with the glibbest sort of promises, and now they are up against it. This is purely a matter of tactics. We know that after the General Election the Chancellor has had to begin to husband his resources for the next four or five years so that he can be distributing largesse. He has not done it that way.

It has been rather amusing for us to look at. This is the Tory Party in its most characteristic mood. All sorts of people on that side have said all sorts of things about one another, not unlike the things the right hon. Gentleman the Member for Woodford (Sir W. Churchill) said many years ago. I do not think the Conservative Party has shown up particularly well in this debate on this Budget. It has had merely a squabble between vested interests, not about ends but about means, and we only hope that eventually the public will catch up with it.

8.40 p.m.

Mr. David Webster (Weston-super-Mare)

I am glad that the hon. Member for Leeds, West (Mr. C. Pannell), who, I gather, has always been an advocate of brevity in speeches, has carried out his own precept so well. I support the Budget. Despite the fact that my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) left out most of the things I put in my election address, still he was elected, and my son was proud to work for him in his election. Whether he will work for him in the next is a different matter.

I am one of the Members who have asked the Government for new hospitals. I have asked for a new hospital in my own constituency. I know that all these things have to be paid for. I am one of those who are very much in support of keeping up the National Health Service and of better remuneration and better conditions for the medical profession. I realise that that, too, has to be paid for. I am one of those who support the programme of improving our motorways, and improving the A roads, and solving the traffic problem in the towns. I appreciate that that also has to be paid for. I am one of those who support the programme for modernising the railways and for improving the railway men's pay, because I know that by doing that we shall keep and recruit the best men in the industry, as in the old traditions of the Great Western Railway.

These things have to be paid for. For these reasons I support the Government, who are proposing to find the means to pay for this massive programme which the people of this country very rightly want. At the same time I am concerned at the fact that there is a tendency towards inflation today, and I am concerned, as is the Governor of the Bank of England, who has said so frequently that he is worried about so much money chasing so few equity shares. I would say that there is probably a corollary to this too much money chasing too few equity shares, and that corollary is too many gilt-edged securities chasing too little willing money.

We have had Questions in the House about War Loan 3½ per cent. Irredeemable Stock. We have had suggestions that a date should be put on War Loan. I consider that that is simply tinkering with the problem, and I consider it to be also a breach of the Government's original contract. We have had suggestions put that there should be a sinking fund for War Loan. That is certainly not going to deal with the problem outright, and that also is only tinkering with the problem. What we have to do is to get to the nub of this problem whether too much money is chasing too few equity shares and too much Government debt for the available money willing to invest itself in it.

That is the fundamental unbalance of our economy today. It has persisted for many years. Public ownership and nationalisation in many ways has been rejected not only by the electorate but by the investor, and also by the investor from overseas. Many hon. Members opposite have been pleading for greater investment in this country. We must consider that much of the investment we try to get is investment from overseas. We must, therefore, make it attractive for it to come to this country. That is the unbalance of the economy, in which there is too much demand for industrial equities and too little for gilt-edged stocks. That is the fundamental difficulty, and the Government in the years ahead will find it virtually impossible to raise irredeemable loans on the market, because the British investor is fed up with this pouring of money down the drain.

I do not wish to repeat the words quoted by a Minister in another place. I cannot at present quote the actual words, but I think that we must get to the fundamental basis of this problem. We are asking for more investment to be put into hospitals, railways and other aspects of the public sector of the economy. At the same time we must consider whether there are not other aspects of the economy where the Government have an interest which it might be advisable to get rid of.

I know that this will provoke a storm from the other side of the Committee, but I think that we must consider today, when we are putting so much into the capital side of the railways, that there are many assets in the railways— £28 million worth, under no date of valuation that I can ascertain from the British Transport Commission, which have nothing to do with the running of the railways. On the same valuation in the present balance sheet £10 million are invested in hotels.

I should like to talk for a moment about the £28 million of assets which have no connection with the running of the railways. The valuation is old. I suggest that if they were revalued the assets would be found to be very much in excess of the book value in the accounts. I am told that the earnings are 14 per cent. on the assets at that valuation, but I wonder what the percentage is on the real value of these assets. These are things which I would not be too dogmatic about, but I beseech the Government to investigate this, to revalue the assets, see what they are worth and what they are earning for the taxpayers.

If we are increasing Government debt in order to modernise the railways, there is a strong case for reducing Government debt tied up in assets which have nothing to do with the running of these things. I am very glad that my right hon. Friend has said that he intends shortly to dispose of Richard Thomas and Baldwin. This is another way of getting more equity into the equity market and less Government debt. I hope that that issue will be successful and that it will bring in the maximum amount of invested money into industry from the public sector of the economy and release the Government from a large amount of Government debt. One is told so frequently that Service establishments are being reduced. Here is a case where considerable assets could be turned over to private industry if it wishes to invest in them.

Mr. C. Paunell

Would the hon. Member sell the Army, or what?

Mr. Webster

No, I would not. I had some rude remarks to say the other day about the Air Ministry, but I have had the privilege of serving in all three Services at one time or another. I have no intention of selling the Army, but I think that even the hon. Member is aware that there is a reduction in the Armed Forces, a reduction in National Service and a reduction particularly in the Navy where many establishments have been closed down. I am sure that the hon. Member reads the newspapers and is aware of that. Some of the vast houses and hotels which were occupied by the Services and requisitioned during the war should now be returned to private ownership.

Mr. C. Pannell

After nine years of Conservative Government? I thought that they had put everything right.

Mr. Webster

No, they have not. I should be happy to take the hon. Member round. I am sure that he is as aware as I am of the size of this problem.

I have had the pleasure of listening to the whole debate, and I know that other hon. Members will wish to speak after me and therefore I must be brief. But I should like to point out that one of the great difficulties today is the lack of balance in the tremendous demand to go into companies and invest in them. One sees today repeated demands to buy unit trust shares and to go into investment trusts. One sees the insurance companies' investment portfolios always expanding with the savings of working people buying shares in industrial equities. That is a first-class thing. I am glad to know also that the trade unions are investing in these things. I know that some of them have already bought Government stock and have "caught a cold" on that, and I sympathise with them very much in that respect.

But when there is this massive amount of funds available from every section in the community for investment in not Government stock but private enterprise, in which more and more people are sharing, and when there is a greater reluctance than ever before to buy Government debt, this is a matter which should be looked at and the maximum number of assets which can be released should be disposed of in order to retain the balance.

I have discussed the parts of the Government's programme concerned with trying to raise enough money to carry out their programme and with the retaining, or regaining, of a balance between the public and the private sectors of the economy. There is another aspect which is worth considering. During the Budget debate last year the Chancellor, when taking the brake off the economy and so giving some incentive to firms to build up stocks, quite definitely said that one of the factors that was in his mind was the responsibility that we in the House of Commons have for the primary producing countries, particularly in the Commonwealth.

It is because of that release of pressure and the boost that was given to the economy that our industries then began to build up stocks. We saw the spot price of rubber in Malaya rise in eighteen months from 20d. per 1b. to 34d. per lb., as it is today. We saw copper recover from its lowest nadir of £160 per ton to £240 per ton today. That is a good thing for Rhodesia just as the rise in the price of rubber is a good thing for Malaya. We see greasy merinos, which I do not need to tell the hon. Gentleman from Leeds are something to do with wool, stable at 100d. per 1b. and that is good for another part of the Commonwealth—Australia.

That is one way in which we have assisted in releasing purchasing power to build up stocks in industry. It has assisted greatly in supporting our Commonwealth. We knew when this happened that there was a grave risk that there would be balance of payments difficulties for some time, and it was said very candidly during the debate that that would be the case. We were aware of that risk, it has happened and our balance of payments has been affected adversely. It was a risk that we took with our eyes open, and it is a risk which I hope will be reduced because the products which came in as raw materials are now being restored as manufactured products and are swelling our exports.

It was encouraging in last month's review to see a rise in our balance of payments, and I think that more credit should be given to the Chancellor for what he has done to assist not only our home industry but the Commonwealth. That is not the only thing that should be remembered. We should also remember, if there is to be a Division tonight, that we have all asked for this expenditure and we must all be aware of our responsibility in footing the bill.

8.54 p.m.

Mr. Douglas Jay (Battersea, North)

First, I should like to congratulate the hon. Member for Keighley (Mr. Worsley) upon his maiden speech, which displayed those virtues of modesty and common-sense which he attributed to all other Yorkshiremen.

We have had an exceptionally interesting debate this week. The most outstanding speeches in it from the other side of the Committee have come not from the Chancellor, but from the hon. Member for Kidderminster (Mr. Nabarro) and the right hon. Member for Monmouth (Mr. P. Thorneycroft). There is no doubt in my mind that it was those two rival leaders of revolt below the Gangway who were really speaking for the Tory Party and for millions of Tory supporters in the country.

The hon. Member for Kidderminster was at least right when he said—speaking, as he told us, for a group of mutineers and not just for himself—that there was a deep cleavage between himself and his followers on the one hand, and the Chancellor, on the other. That is quite true. Plainly, there is a deep cleavage within the party opposite. The reason is, of course, that the hon. Member for Kidderminster and his hon. Friends can preach their stern, unbending Toryism in the void, while the Chancellor has been forced to come to terms with unpleasant realities like the balance of payments.

The Chancellor has found, once again, that Tory election pledges and realities do not mix very well. The hon. Member for Kidderminster also said—and I agree with him—that this post-election Budget repeats the story of the election Budget of 1955, and that this whole tale is a political disgrace. Once again the taxes come down before the election; and, after the election, in complete disregard of the pledges of almost all Tory candidates, they go up again. Once again this week, we are having the hangover.

The President of the Board of Trade —who has returned at long last—delights in saying that other people cannot have it both ways, and he asked us whether we were accusing the Chancellor of not being tough enough now or not easy enough last year. Of course, we agree that having got into the free-for-all boom in which he finds himself now he has had to hold back. Of course, we agree that last year, having held down the country's production for three years of chronic stagnation, he had to give a stimulus.

Our complaint is that he waited three years to do it; that he abandoned all semblance of planning; and that he did not reduce taxes until he was within a few months of a General Election. That conduct deserves some of the rather strong adjectives that we have heard from below the Gangway opposite in this debate.

There is one justifiable grievance against the Chancellor which the outraged Tories have not even mentioned in the debate. Neither of their rival leaders has mentioned it to-day. I must warn the Chancellor that this movement has both an Archbishop Makarios and a General Grivas facing him over these next few months. Only one is present at the moment, however.

The grievance they have is this. The Chancellor misled them, and everybody else, last year, particularly all those Tories who have never really understood post-1939 economics, by pretending that he was cutting taxes because conditions were good. Really, as he knew perfectly well, he could only make these large tax cuts because of industrial stagnation and unemployment. But, of course, if one says in one year that tax reliefs are due to prosperity, it is not surprising that in the next year, when the country is nearer to full employment and one has to raise taxes, one's misguided supporters accuse one of political turpitude. If the Chancellor had been more candid last year he would not have been in such political trouble today.

The hon. Member for Kidderminster also rightly complained that after a supposed cut in Purchase Tax the total amount raised has gone up from £497 million two years ago to £501 million last year, and that the estimate for this year is £535 million. What he did not say was that in the last full year of the Labour Government the total rise was less than £300 million.

The right hon. Member for Monmouth could have made an even stronger case against the Chancellor if he had gone back a few more years and recited how much total spending and total tax revenue had arisen since the time of the Labour Government, ten years ago. Do. hon. Members opposite realise how much the actual figures of expenditure and revenue have risen compared with the last full year of the Labour Government? The total rise in tax has gone up from £3,978 million in 1950–51 to £5,980 million, a rise of more than £2,000 million, or over 50 per cent. Ordinary expenditure has risen from £3,258 million in 1950–51 when I was Financial Secretary, in such a more modest way, to £5,676 million today, a rise of £2,400 million, or 75 per cent.

In the present year, as the right hon. Member for Monmouth has told us, both expenditure and revenue are increasing by about a further £350 million.

Though I believe that we ought to get much better value for money, particularly in defence, I profoundly disagree with the right hon. Member for Monmouth that social expenditure ought to be cut. On pensions, housing and schools we are spending not too much, but too little.

Mr. Cyril Osborne (Louth)

The point that the right hon. Gentleman is making is that our expenditure is so much greater than it was when he was responsible. Will he not admit that the vast majority of that expenditure has been going to the old-age pensioners and social services, which he wants us to expand even more? He should be congratulating us on what we are doing.

Mr. Jay

I am dealing with the whole of that argument, if the hon. Member for Louth (Mr. C. Osborne) will wait. Does the right hon. Member for Monmouth really think that it is a bad thing to build schools and a good thing to sell motor cars? His economics are getting so topsy-turvy as to reach the point of obsession.

I agree with the hon. Member for Louth that the rise in Government spending and tax revenue over those years is the inevitable consequence of the facts of economic life nowadays. My complaint is not that it has risen. My complaint against the Chancellor and the Prime Minister is that they have misled their simple-minded and gullible followers, including the hon. Member for Kidderminster and the right hon. Member for Monmouth, into believing that a Tory Government would make large cuts in taxation and spending. Indeed, the outraged mutineers below the Gangway, and the millions more puzzled Tories in the country, are perfectly justified in feeling that they have been double-crossed by their leaders in this matter. They have. They are now being told the truth for the first time.

What else do these figures of rising tax revenue and expenditure prove? They prove what we constantly said during the election and what hon. Members opposite constantly denied—that if production expands, the natural increase in revenue will sustain a controlled increase in expenditure. In a letter to The Times, a few days before polling day, I modestly estimated that the natural increase in revenue at existing tax rates would yield at least £150 million a year. The Chancellor's Financial Statement this week gives the exact figure for this year, £328 million. Therefore, according to the Chancellor's own figure, against the £1,000 million which the Tories say our programme would cost at the end of five years, the natural increase in revenue at this rate would by that time have been £1,600 million a year.

The President of the Board of Trade (Mr. Reginald Mandling) indicated dissent.

Mr. Jay

I see that the President of the Board of Trade shaking his head. He at least produced a slightly more subtle argument than did the hon. Member for Kidderminster, as one would expect; but it was not valid. He said that no doubt there was a natural increase in revenue, but that there was also a natural increase in spending from existing policies to set against that.

The President of the Board of Trade cannot have it both ways. If he says that the whole of this extra £320 million a year revenue is already mortgaged by the Government for spending policies, he is telling his supporters that they cannot expect any reduction in tax rates in the next five years. If he said that, I cannot imagine what the language would be below the Gangway. If he is not saying that, and he says that a substantial revenue over and above that will be available, it is clearly possible to use it, as we say, for additional social services.

We on this side of the Committee have our own complaints to make against the Government. Are the Government now receding, as has appeared at times in this debate, from the election pledge to help old-age pensioners? There was an express pledge contained in the official manifesto of the party opposite "The Next Five Years", which had on the front a picture of the Prime Minister. The pledge was: We pledge ourselves to ensure that pensioners continue to share in the good things which a steadily expanding economy will bring. How can any hon. Gentleman opposite in his heart maintain that that pledge is being honoured? Not merely are pensioners not sharing in any of these good things; they have had a higher tobacco tax laid on them this week at the same time as the tax on wine has been reduced, when last year the beer tax was cut, and when two years ago, the tobacco token was taken away. We regard this as inexcusable, and it is that complaint which I have heard expressed most commonly outside the House.

Let us, therefore, examine who, in the words of this manifesto, are "sharing in the good things which an expanding economy brings". During the last two years the movement towards a better distribution of incomes and property has been reversed by Tory policy, and inequality has been growing. In 1959, wages and salaries rose by 3½ per cent.; slower than either production or productivity. Gross profits of companies rose by 10 per cent. Dividends before tax rose by 13 per cent. Undistributed profits rose by 19 per cent. In January, 1960, actual dividends were 30 per cent. higher than in January the year before.

The Economic Secretary said yesterday that we ought to go back not one year, but two. Let us do that. If we do, we find that since the beginning of 1958 share prices have risen by over 100 per cent. and tax-free capital gains have exceeded £10,000 million. As there are only 1½ million owners of equity shares, it means that those gains have gone to a small minority. It is remarkable that in this so-called property-owning democracy there are more people on National Assistance even now than there are people owning equity shares of any kind. Indeed, the "Windfall State" is now becoming the "Unequal Society".

If the Economic Secretary does not like going back two years, let us go back seven years and consider the position throughout the years of Tory Government. We then find—as the Chancellor told me a fortnight ago—that between 1952 and January, 1960, wage rates rose by 42 per cent. and dividends by 78 per cent. I would ask the Chancellor whether this growth of inequality is the deliberate intention of the Government.

These figures are all of incomes before tax. The tax changes in the last few years have made things even worse. The hon. Member for Wolverhampton, South-West (Mr. Powell) correctly quoted some figures from The Times which I do not think the President of the Board of Trade will attempt to suggest are false. These show that the share of all personal incomes taken by direct taxation since 1955 has increased and not decreased. That is because falling money values have forced incomes into higher tax ranges.

The hon. Member for Wolverhampton, South-West, however, did not go on to say that since the tax reliefs in the last three years have given much bigger proportionate benefits to those high up in the income scale than to the others, it follows inescapably that the lower-paid wage earners have been paying a higher proportion of their incomes in direct taxes in the last two years. On top of that the Chancellor has raised another £200 million in the National Insurance contribution which falls as a flat poll tax crushingly upon those at the lowest end of the wage scale.

So there can be no doubt that in the past three years wage earners have received a smaller share of the national income before tax, and have also paid a larger share of what they got in direct taxation and insurance contribution together. On top of that, for months past both dividends and productivity have been rising faster than wages. In those circumstances, there is an overwhelming case for higher wages throughout the economy this year.

The Economic Secretary does not seem to understand that this is a matter of the distribution between wages and dividends. At present, the simple fact is that dividends are getting too much and wages too little. Therefore, no issue of rising prices is involved.

The Chancellor has done something to meet this case by his most important Socialist proposal—which so upset hon. Members below the Gangway opposite— to raise Profits Tax. But that is not enough. What he should have done was to restore the separate Profits Tax on dividends whose removal we can now see was a mistake.

The right hon. Gentleman has also done something by his other Socialist, but rather partial, attack on tax evasion and avoidance. It was remarkable to see how sensitive hon. Members opposite are about any sort of attack on tax evasion and avoidance. We welcome the conversion of the Chancellor, even if it is many years late, to our proposals over the "golden handshake", dividend fiddling, gentlemen farming and the rest, just as we welcome his conversion to our policies on distribution and of industry and other things.

But, here again, the Chancellor is too timid in his Socialism. There is another "golden handshake" which he has not touched, namely, the lump sums paid in "top hat" pension schemes. Why cannot he at least accept the proposals of the Royal Commission in this connection, and reduce the maximum tax-free sums from £40,000 to £10,000 for old schemes and £2,000 for new ones? Secondly, why does not he take the chance, this year, to remove the initial allowance from passenger cars allegedly used for business purposes? This, if not a scandal, is certainly a monstrous abuse, which is losing the Exchequer tens of millions of pounds each year, in the opinion of many experts. Surely this would have been an ideal point at which to do it, when we are being told that it is the motor car boom which is straining the economy at its most sensitive points and when, incidentally, more exports are more necessary than ever.

Thirdly, why has the Chancellor done nothing at all about the discrimination between Schedule D and Schedule E expenses? It is no use the President of the Board of Trade brushing all this aside. Let him listen to experts engaged in this new profession, or let him read the words of a learned judge, the other day, who said that the "pleasure of living nowadays depends upon the Schedule under which we live." I think that on the whole subject of evasion and avoidance the President of the Board of Trade was casual almost to the point of frivolity. He argued that only minor sums were at stake over the whole field. If that be so, I ask one question of him: how is is that the total yield of Surtax has risen so little for years past, and the yield from death duties has hardly risen at all? Until this year the yield from death duties has hardly risen over the last ten or fifteen years.

Mr. Nabarro

The doctors are keeping us alive longer.

Mr. Jay

I see that the hon. Member for Kidderminster is again in disagreement with the President of the Board of Trade.

Mr. Nabarro

I said that the doctors are keeping us alive longer and, therefore, there are not so many deaths of rich people—but they will die in due time.

Mr. Jay

So far, the figures do not reinforce what the hon. Gentleman has said.

To me, the most frightening thing about this whole debate so far has been that so few hon. Members have mentioned the balance of payments. Even the Chancellor—though, of course, he said something on the subject—seemed to me to be making light of the situation. He never mentioned the fact that in the last three months of last year, indeed at the time of polling day at the last General Election, we were already in a balance of payments deficit. On 8th October, the balance of payments were not having it good at all, although the public was not told this until March of this year. So far as I can see from the visible trade figures, we have probably still been "in the red" since January.

Our gold reserve is lower than a year ago. Sterling balances are higher. The terms of trade, as was rightly said by the hon. Member for Louth may easily get worse. We are at the beginning of the awkward time of the year for sterling. With that background is the Chancellor really sure that he has done enough to forestall trouble this autumn? This summer he may have to face some even more harsh realities than the hon. Member for Kidderminster. The total deflationary effect of the Budget is only £13 million, as I think the right hon. Gentleman would agree.

It is not necessarily by fiscal measures alone that the Chancellor might have resisted this new slide into deficit. Was it really necessary, as the gold reserve dwindled last year, to make repeated unilateral concessions to dollar imports without getting any relief in return, for instance, on the wool tariff quota which the right hon. Gentleman knows very well? Though, heaven knows, we needed the expansion last year, was it really necessary for so much of the expansion to come by the wild inflation of bank advances of £700 million, going largely to enable people to spend beyond their earnings and, to some extent, to buy equity shares on the Stock Exchange? It is mainly the selling of gilt-edged by the banks to finance these loans which has forced up interest rates and made it difficult for local councils to build more houses.

The Chancellor said that this had been an annus mirabilis for the saver. It has not been an annus mirabilis for the holders of gilt-edged, as I think he will agree. The Chancellor should have checked this inflation earlier by direct requests to the banks and not by hints, nods, winks, nudges, and so on, which produce so little effect.

What really was the point of his mysterious Delphic warning last Tuesday about possible credit restraint which, so far, has had no effect other than to push gilt-edged prices down even further? If it turns out later this summer that credit and import policies are inadequate to check this slide into deficit, I should be prepared, rather than to face an autumn crisis, to accept a higher Profits Tax— I am saying this to the President of the Board of Trade, in particular—a capital gains tax, more drastic measures against evasion, and a complete withdrawal of the initial allowance on cars. Surely, to mention one point, there is this merit in a capital gains tax, that it brings in the biggest revenue in years of boom, when we want to exercise restraint and obviously lower revenue in the years of recession.

The Chancellor may argue that everything is all right because production is rising. Certainly, the 10 per cent. rise in the last year is better than the three years of stagnation we had after the Home Secretary's declaration that he was going to double the standard of living in twenty-five years, and the one year of outright decline after the Budget speech of the right hon. Member for Monmouth, which he introduced with the words, "Our theme is expansion." All the same, it is not the least bit impressive, if we look back a few years, and if we look abroad outside this country.

The incredible truth is that our industrial production is only 10 per cent. higher now than it was at the end of 1955, a rise of only 2 per cent. per year since then. If it is really true that demand is now pressing against capacity after a rise of only 10 per cent. production in five years, there must be something seriously wrong with the development of British economy in the last eight years of Tory rule.

If we look abroad, as my hon. Friend the Member for Grimsby (Mr. Crosland) did yesterday, the figures are even more shattering. I give a few in addition to those he gave. Since 1953, industrial production in the United Kingdom is up by 27 per cent., but Western Germany's industrial production is up by 72 per cent.; that of France by 70 per cent.; and Italy's by 68 per cent. That in itself is an interesting comment on our lack of success in negotiations over the Common Market. Certainly, we shall not remain a great Power for long if that goes on.

We must ask ourselves: what is the cause of our failure? First, of course, it is the lack of investment; and, secondly, it is the deliberate deflation of demand in the home market, which has held back production and investment for so many recent years. Indeed, it is that very deflationary policy which the right hon. Member for Monmouth and the hon. Member for Wolverhampton, South-West practised, and even now still preach, which has done most of the damage. The trouble about right hon. and hon. Gentlemen is that they are so obsessed with money and finance that they hardly look at the realities of production and employment at all.

I wonder, also, how many hon. Members realise that the volume of exports from this country last year was only 10 per cent. higher than in 1950. The volume of imports, at the same time, was 30 per cent. higher? As the hon. Member for Louth rightly said in the debate, it is only the remarkably favourable terms of trade which are saving us today. The terms of trade are actually today nearly 25 per cent. more favourable than they were in 1951. Indeed, if we had the present volume of imports and exports, with the prices of 1951, we would be £1,000 million in deficit at the present moment.

So, although we welcome the Chancellor's few pink-and-white Socialist proposals, I do not think that he has a great deal to be complacent about. He has presided over a year in which profits and dividends have steadily gained at the expense of wages, in which gilt-edged prices have fallen to the lowest levels ever, in which the gold reserve has fallen and sterling balances risen, and in which we have slid into a balance of payment crisis with the most favourable terms of trade ever known. That does not seem to be an annus mirabilis, even by Tory standards. Once again, we have learned that under this Tory freedom system, with all its capital gains and never-never booms, we cannot have expansion and full employment without getting into a crisis within twelve months.

I have one more direct question to ask the Chancellor, who is to rise to speak within half-a-minute. The Economic Secretary said yesterday, talking about old-age pensions, that performance is better than promise. The Tory election manifesto, in a passage which I have read tonight, gave a direct promise that the pensioners would be assisted. Will the Chancellor tell us tonight when that pledge will be honoured?

9.26 p.m.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

I should like at the outset to associate myself with what my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) said about the heavy loss Which we in the House have suffered through the sad death of Christopher Holland-Martin. He was respected and greatly beloved by all who knew him.

I will not refer at the beginning of my speech to the rather querulous lucubrations of the right hon. Member for Battersea, North (Mr. Jay). We have enjoyed the benefit of hearing five excellent maiden speeches from my hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley), Belfast, North (Mr. Stratton Mills), Pudsey (Mr. Hiley), Clitheroe (Mr. F. Pearson) and Keighley (Mr. Worsley). Speaking as Chancellor and realising what a formidable quintet of debating talent they represent, I was well satisfied that on this occasion the sharp edges of their swords were somewhat blunted by the tradition of the absence of controversiality which surrounds maiden speeches. I shall not get off so lightly on another occasion.

During the debate I have come under fire from a number of directions. That in itself has not surprised me, nor has it unduly perturbed me. I expected that this might be a controversial Budget. I knew that it could not be a popular one. Indeed, if it had been agreeable and popular it is rather doubtful whether it could have fulfilled its purpose. While, naturally, I do not like to disappoint my friends and colleagues, the only questions which made a deep impression upon me were whether my proposals are appropriate to our national economic situation, whether they are, taken together, fair, and whether they are likely to prove effective in giving that slight touch of the brake to our rate of expansion which I am sure is called for.

Let me repeat what the objectives of the Budget are. First and foremost its aim is to ward off the risks of a return of inflation, to safeguard our balance of payments and to reinforce that price stability which we have been enjoying for the past two years or so. It is true that the nation has never had it so good, and I am doing my best to see that the nation shall have it still better from now on. I am asking people to pay a small price, when our prosperity is moving fast ahead, to ensure that it shall last and shall increase further in the future. Of all the benefits of prosperity, I believe that people generally value price stability most.

It is not my object to halt expansion, far less to put it into reverse. My object is to ensure that the pace at which we move forward shall be one which is consistent with our national resources. As my hon. Friend the Financial Secretary put it this afternoon, I want to see that there will be room for further expansion. The situation calls, I am sure, for a slightly restraining influence. Past experience shows that moderate action in time saves the need for more extreme and far more unpleasant action later. That is why we raised the Bank Rate in January, at a time when many commentators thought it a bit premature. I make no apology for taking further action in the same direction now.

I want to deal with two points made by the right hon. Member for Huyton (Mr. H. Wilson). He poured a certain amount of scorn on the fact that this Budget is a very different one from that of last year. He then, by implication, acknowledged that the state of the economy was different, too. He and his friends did not oppose the general shape of the Budget last year, or the total amount of tax reductions made. Would he. in the different economic circumstances, have supported a similar kind of Budget this year? He knows very well that just as the scope and purpose of the Budget was right last year, so the scope and purpose of the Budget this year is right, too.

Mr. H. Wilson

We have made clear a number of times this week that we thought that last year's tax remissions were right in the situation that the right hon. Gentleman had allowed to develop. We felt that he was wrong in having allowed unemployment to develop as it did, that he should have expanded earlier. It is because he had to pull out all the stops last year that the boom is in danger of getting out of hand.

Mr. Amory

The right hon. Gentleman also produced a very fallacious argument about increases in revenue and public expenditure. He reminded my hon. Friends and me that during the election we had criticised the rash and flamboyant promises of the Opposition that they would increase public expenditure by £1,000 million or so—it was rather difficult to cost their promises, and they may well have added up to far more than that—without increasing taxation.

Mr. Wilson

Over five years.

Mr. Amory

Over the next Parliament. He went on to say that this year I had provided for an increase in Supply expenditure of about £320 million and that the increase has been covered by buoyant revenue. He claimed that this £1,000 million of extra expenditure could easily have been covered in the same way. What he forgot was that in addition to the wild promises of new expenditure, his party had also committed itself to maintaining and expanding all the main existing objectives of expenditure and that, at best, a substantial part of the normal growth in the revenue is absorbed by such current commitments. For good measure, he and his colleagues threw in what seemed to us to be an enormous increase in public expenditure as well. I do not think that their election promises add up any better now or make any more sense now than they did at the time of the Election.

Mr. Jay

Does not the Chancellor realise that if the revenue increased by the figure which he has given us this year —a natural increase of £320 million over five years—that would give an increase of £1,600 million, which is far more than any programme that we propose?

Mr. Amory

I was just coming to that point and saying that my own main criticism was that the promises which the party opposite made were firm assurances before it could possibly tell what the increase in revenue over the five year period was to be. I thought that was a very irresponsible attitude to take.

The right hon. Gentleman asked whether we were always to expect a stimulating Budget before an election and a restraining one after a Conservative victory. One of our embarrassments is that when the nation thinks that there is any imminent chance of a return of a Socialist Government it seems to require a dose of tonic. When a Conservative Government victory has been assured, the surge forward in confidence and exhilaration is such as to call for a slight sedative.

It was a great comfort to me that the right hon. Gentleman the Leader of the Opposition has said that he thinks this is a thoroughly bad Budget. I can understand that it well may be from his point of view because it eschews the kinds of control and the fiscal principles in which his party believe. A number of my hon. Friends have criticised me for the net increase in taxation which I have made, amounting to £22 million this year, rising to £60 million next year. I agree with them entirely in their view that taxation as a whole and taxation of earnings in particular is still too high and that every sound opportunity should be taken to reduce it. The record of the Government since 1951 is not a bad one in this respect. My own record is not a bad one either. In my two previous Budgets I made very substantial reductions, and did so with enthusiasm. I doubt whether any Chancellor of the Exchequer has made bigger ones. I did this in both cases because the reductions were justified, both by the budgetary and the economic situation. Therefore. I do not think I can be fairly thought of as one who drags his feet when the opportunity for tax reductions arises.

Some of my hon. Friends seemed to me to be saying that never in any circumstances can any increase in taxation be justified. That is where, reluctantly, I have to part company with them. I wish I could agree with them. It would be a comforting article of faith to hold. The economic pre-requisite for tax reductions is not stagnation or a heavily unemployed economy. It is stability in the price level and the prospect of continuing price stability.

If we courageously take the right action now, I am confident that the prospect of continuing price stability will remain a good one. If that is so, the prospects of further reductions in taxation will also be good. We are at present enjoying a high degree of prosperity, and the future is what matters now.

One of my hon. Friends asked me yesterday whether I no longer agreed that tax reductions were an incentive to effort. I do very much agree with that, particularly in regard to direct tax on earnings. That is why I am so desperately keen to keep the economy in a state where our record for reducing the burden of taxation can be continued over the years.

I come now to the measures to protect the Revenue. I feel sure that everyone will agree with the objects here, namely, to ensure that tax due is, as far as possible, collected. This must be done in the interests of taxpayers generally. If a minority manages to evade its fair share, the rest will have to pay more than their due. But I am as anxious as anyone in the Committee to see that this is done with scrupulous justice to the taxpayers concerned.

There are some provisions that deal, not with tax dodging, but with cases where the law as it stands goes wider than we believe Parliament ever intended. Hobby farming is one. Those who are taking advantage of the provisions of the law as it stands are entirely within their rights. What I propose is that the law shall be brought into line with what I believe was intended, namely, that farming for this purpose should be practised on reasonably commercial lines. When hon. Gentlemen see the words we propose to put in the Bill, I think they will be satisfied that we are not proposing anything which is not entirely fair and reasonable.

I am not out to make life more difficult for decent, reasonable, people, but only for people who carry these devices to extreme lengths. The fiddling and dodging cases with which others of these measures deal are practised only by a minority, I am glad to say. But the loss of revenue could well become substantial, running into many millions if we take no action to check it.

Mr. H. Wilson

I am sorry to interrupt the Chancellor of the Exchequer again. He has now admitted what many of us have said, that the loss of revenue is a matter of millions. [Interruption.] It could be and has been, as previous Chancellors of the Exchequer have admitted. How, then, does he justify the statement of the Prime Minister in October that the total yields from this would by only a quarter of a million pounds?

Mr. Amory

If the right hon. Gentleman had listened carefully, he would have noted that I said that the loss of revenue could well become substantial, running into many millions, if we took no action to check it. Here, for tax avoidance, people are deliberately twisting and distorting the law out of all recognition, and I cannot stand by and allow these practices to continue and grow without taking every reasonable action to stop them. Specific provisions having failed to keep pace with these new devices, I have had to propose a rather more general power, subject to appeal.

I should like to say a word or two about the general scope of this power. In past years, we have tried to deal with these devices by introducing specific safeguards in the law. We had valuable help in this respect from the Council of the Stock Exchange, which deplores these practices and has itself tried to check some of them by altering its rules. We are now satisfied—and the Stock Exchange authorities, who have been consulted informally, agree with us in this judgment—that we can no longer hope to deal effectively with the problem by this means, but that we must seek some kind of general power. It is quite clear from the cases that have come to our notice that the power must be general if it is to be effective for the purpose of stopping these blatant devices, but I do not want it to go an inch wider than is necessary for that purpose.

I shall not attempt tonight to describe in detail the language in which the proposed power will be put—that is a matter for the Finance Bill. I can say that, broadly, two main classes will be covered. First, there will be the cases of all those types based on the central idea of what has been called dividend stripping; that is, getting profits or reserves or assets out of companies in such a way that, in the end, the Revenue would lose the tax that has been paid, or would fail to collect tax that ought to be paid. Secondly, there will be the cases of those types that are known as bond-washing. The power will be directed specifically, as far as we can, to covering those two kinds of cases.

The Whitworth Park Coal Company case, where validating action is proposed, is a different kind of case altogether. Here, there is no question of deliberate tax dodging. It is a case of the law having been found not to be what everyone, including the taxpayers, believed it all the time to be. This came to light almost by chance, and not as a direct result of an appeal by a taxpayer having a grievance on this point. The object is to ensure that the taxpayers and the Revenue shall be confirmed as having been in the position in which they thought they were, and were intended to be.

I should like to say something about Government expenditure, and the interesting speech made by my right hon. Friend the Member for Monmouth (Mr. Thorneycroft). If I might, I would correct one of his figures. The adjusted comparison of the defence expenditure with previous years shows an increase, not of £100 million but of £75 million this year.

My right hon. Friend and I, having both held the same office, share, I think, some fellow feelings on the practical problems involved in the control of public expenditure. We know, for instance, that the final figure that emerges is the outcome of many stern battles fought with Departments over the year. I imagine that no Chancellor of the Exchequer ever accepts intact the financial proposals of his colleagues, and the final figure—after an exhausting process of hammering away, and attrition, a process found sometimes almost unbearable by Ministers—comes out very substantially lower, and many of the Minister's most treasured hopes are disappointed.

My right hon. Friend will agree, too, that expenditure flowing from a policy decision develops gradually over succeeding years and could not be changed substantially, if at all, except by changing that decision. It would be wrong to assume that any wide range of new commitments has caused the present increase, or that any such wide range of new commitments has been accepted by the Government during the past two or three years.

Some new commitments indeed there have been—improvements in pensions and National Assistance, a deliberate expansion of the school and hospital building programmes, assistance towards the reorganisation and modernisation of the cotton industry, aid to areas of relatively high unemployment and the steady development of the road programme. But by far the bigger part of the current increase in the Estimates stems from the steady, and I think prudent, development of policies approved and embarked upon very much earlier, dating, indeed, from the time when my right hon. Friend was a Member of the Government.

The major policies from which nearly all of our expenditure flows have never been seriously challenged or criticised by our colleagues on this side of the Committee. On the contrary, great efforts have been expended by many of my hon. Friends to persuade us to extend or accelerate further their development, and my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens), in an excellent speech, made a humorous reference to this point. Two elections have been contested on these policies, and on both occasions they have received the approbation of the nation. I thought this point: was well brought out in the interesting speech of my hon. Friend the Member for Louth (Mr. C. Osborne) yesterday, and in a letter from him in the Daily Telegraph today.

My right hon. Friend the Member for Monmouth stressed the importance of projecting the estimated cost of commitments over a period of some years ahead. I entirely agree with him on that point. It is quite essential. My right hon. Friend did not, I think, make it very clear in what particular directions he would find his major economies. I should like to ask those of my hon. Friends who criticise the existing level of Government expenditure which of our present policies they would wish us to reverse. I do not think it is an unfair question to ask them.

Mr. Nabarro

I am sure that my right hon. Friend has not discarded from his mind the possibility that I would answer his question. I want his policies drastically revised with regard to the control and accountability of the huge sums which he is providing in the Finance Bill for capital investment in the nationalised industries. I have said that over and over again to my right hon. Friend and have voted against the Government on that issue.

Mr. Amory

I will take note of my hon. Friend's observations.

As my right hon. Friend the Member for Monmouth said, it is the responsibility of the Government to lead. I entirely agree; of course, it is. We are pursuing our present policies because we still think they are the right policies, and these policies have been confirmed and approved by our party on numerous occasions.

Many of my hon. Friends have been displaying considerable interest lately in the degree of control exercised by Parliament over public expenditure. Many of them feel that, whatever the theoretical opportunities, they are in practice insufficient. I personally have a good deal of sympathy for this view. I doubt whether we have got our present arrangements right, and I am glad that the problem is to be looked into.

I should like to refer to the very impressive speech of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). My hon. Friend is a fearless critic, who does not pull his punches, but on this occasion I can say that I find myself in agreement with almost every one of the points he made so clearly. I agree with him that it would have been a bad mistake had I budgeted for a bigger sum to be met by borrowing this year than I have, and that was one of the major assumptions on which this Budget was constructed. I think my hon. Friend took too depressing a view about the prospects for Government borrowing. Last year was exceptionally difficult, largely, if not wholly, because of the large amount of selling by the banks. That is unlikely to recur on that scale.

My hon. Friend is, I am sure, correct that the percentage of the gross national product taken by public expenditure is one of the key figures to which we must pay the greatest possible attention. Over the years ahead we must continue the process of bringing that percentage down. Our record to date, as my hon. Friend the Member for Cheadle (Mr. Shepherd) reminded us, is a good one. Since 1952 the proportion of the gross national product taken in taxation has come down from 31 per cent. to 25 per cent. and the proportion of the gross national product taken by the expenditure of the central Government has come down from 32.4 per cent. to 27.5 per cent., and that, I think, is the answer to the right hon. Gentleman the Member for Battersea, North.

About the speech of my noble Friend the Member for Dorset, South, I should like only to say this: I have very great respect and affection for my noble Friend; I am very sorry that I cannot subscribe to his economic views.

Several hon. Gentlemen referred to the problem of European trade. My hon. Friend the Economic Secretary gave the Committee some up to date information about the economic situation in his speech yesterday. It is a most important subject, but a very complicated one. There are just one or two things I should like to say, but I am afraid that I cannot develop these points in the time at my disposal. The first is that we have on a number of occasions made it absolutely clear that we welcome the forward move in political cooperation represented by the Common Market. We wish it well. We have no wish or intention to frustrate it in any way. The Franco-German rapprochement, which is such a notable achievement of recent years, as the hon. Gentleman the Member for Birmingham, Stechford (Mr. Roy Jenkins) pointed out, is something which cannot fail to be of fundamental benefit to the future of Europe.

The Committee is well aware of the obstacles which have prevented us from joining the Common Market on the terms of the Treaty of Rome, in particular our Commonwealth responsibilities, and these obstacles remain today, even were we invited to join. When we participated in forming the E.F.T.A. there was complete agreement between us and our partners that our aim must be to seek every possible opportunity of reaching some form of understanding and association with the European Economic Community. We decided to be and have tried to be and are trying to be outward-looking in every way, and friendly to that other group. We have pursued that aim assiduously ever since.

My hon. Friend the Economic Secretary reminded the Committee yesterday that there is an E.F.T.A. proposal now before the Six, designed to prevent increasing discrimination over the next eighteen months. We have as yet had no reply on that from the Six.

The hon. Gentleman the Member for Stechford asked me what I thought of the chances of the proposed acceleration of the proposals of the Six taking place. I cannot say more than that I hope very much that they will not take place, because we think that if they do the area of difference will become greater and the problem of finding a basis for some kind of association more difficult. The E.F.T.A. proposal would give us a breathing space for eighteen months during which we should hope that a solution could be worked out with good will on all sides.

An increase in the degree of discrimination would undoubtedly affect us adversely, because we should face discrimination in the markets of the lower-tariff countries of the Six, Germany and Benelux, where an important part of our trade lies. Perhaps even more important than the immediate loss of exports would be the tendency of people inside and outside the Six to start reorientating their trade arrangements.

Lastly, a word about the E.F.T.A. This Association offers us and all the other members real advantages of very important increases in our trade. The Scandinavian countries have very high purchasing power, a very high rate of imports, and we and our partners in the E.F.T.A. are determined to spare no efforts to make this Association the outstanding success it promises to be.

Before I sit down I must say this on pensions. Once again I must remind the Committee that it has not been usual to deal with pensions at the time of the Budget. It requires special legislation. They were on one notable occasion dealt with in the Budget when in 1951 the right hon. Gentleman concerned sought to reduce the Exchequer contribution from one-quarter of that of the other contributors to one-seventeenth. I do not know whether hon. Members opposite regard that as an encouraging precedent, but the Government intend to keep their pledge about retirement pensions.

Our election pledge was perfectly clear. We said that we would ensure that pensioners would continue to share in the rising prosperity of the nation. Our record on pensions is a good one, as the electorate realised, and we can be trusted to see that that record is maintained. In the meantime, it cannot be too often remembered that one of the best services of all that we can render to those living on small fixed incomes is to see that the cost of living is kept stable.

In this Budget I have had to disappoint many people. I have no apologies if the Budget is a dull, uninspiring or even an unpopular one. The reverse virtues, though attractive, ought not necessarily to be high, far less dominating, priorities in deciding a Budget's content. The most important thing of all is that it should be in line with the requirements of the current and prospective economic situation, to safeguard the economy against a return of inflation. That is what I believe it to be, and believing that it would have been cowardly of me to have put forward any other proposals out of consideration of passing popularity. My proposals represent the best judgment I have been able to make, and I am very ready to stand on that judgment.

Question put and agreed to.

Resolution to be reported.

Report to be received Tomorrow; Committee to sit again Tomorrow.