PUBLIC EXPENDITURE.

HL Deb 22 June 1932 vol 85 cc67-126

LORD HUNSDON OF HUNSDON rose to move to resolve, That, having regard to the present scale of national and local taxation and its effect in restricting industrial enterprise and the burden it imposes on individual taxpayers, this House, while welcoming the economies which His Majesty's Government have already made, is of opinion that it is incumbent upon them to secure a further reduction of public expenditure and a corresponding reduction of taxation.

The noble Lord said: My Lords, in moving the Resolution which stands in my name, I would like to remind the House that in a debate which arose on a somewhat similar Resolution five years ago we urged on the Government and the country the necessity for economy. I am afraid we cannot claim that either the Government or the country paid very much attention to our advice, but at least we can claim this, that it was absolutely sound. Therefore it has occurred to some of us that if we repeated that advice on this occasion perhaps it might carry more weight. But the chief reason that we have for bringing this Resolution forward is that we think it would strengthen the hands of the Government in their desire for economy. In opening this debate I do not propose to enter into the details of when and how economies should be effected. All I propose to do is to try and show that as the cost—and consequently the amount—of our exports is adversely affected by our rates and taxes, and our expenditure, and as our imports now greatly exceed our exports, the maximum reduction possible in our expenditure is essential. We have balanced our Budget, and that, of course, is a good thing to have done; at all events we hope we have; hut it seems to me that in times like the present it is most unfortunate that the balance should have been accomplished by any increase in taxation, because, though an increase in taxation may balance the Government's Budget, it adversely affects what I call the nation's Budget—that is the balance of trade—which is of far greater importance than the Government Budget, which, after all, is an internal matter.

I have here the Board of Trade estimates of what is called the nation's Budget—that is to say, the amount of our exports and imports, visible and invisible, for the three years 1929 to 1931. Figures are very tiresome in a speech, but I do not see quite how we can do without them on this occasion. If we take first of all the two main invisible exports—namely, our income from shipping and our income from interest on overseas investments, our income from shipping fell by £50,000,000 in the three years (that is to say, from £130,000,000 to £80,000,000), and our income from the interest on overseas investments fell by £85,000,000 in the three years (that is, from £250,000,000 in 1929 to £165,000,000 in 1931). Sir Robert Kindersley deals with overseas investments in an article in the Economic Journal for this quarter, to which I would specially call your Lordships' attention, and he has elsewhere expressed the view that this fall of £85,000,000 in the interest on overseas investments may be increased in the current year by from £30,000,000 to £35,000,000 owing to further defaults in foreign Government bonds, and the decline in the income of British companies operating abroad. I should not think that that forecast is at all exaggerated because, owing to the continuous fall of prices, it has become more and more difficult for both public and private debtors to pay.

Without going into further detail, I would like to give your Lordships the estimated balances for 1929 and 1931 of the total of our exports and imports, visible and invisible, excluding bullion, and these are the most important figures that I have to put before you. In 1929 the excess of exports over imports was £103,000,000—that is to say, our income exceeded our expenditure by that amount—whereas in 1931 the excess of imports over exports was £110,000,000, so that in 1931 the nation was working at a loss of £110,000,000. I am perfectly certain that every sensible individual in similar circumstances would make the maximum possible reduction in his expenditure, and I cannot see why the collection of individuals which we call the State should not act in a similar manner. Taking into account the probable decrease in our invisible exports in the current year and allowing for the improved returns of visible imports and exports for the first five months of the year, I am of opinion that, in spite of the efforts of the Government to check imports by means of duties, the result of this year's working is not likely to be better than it was in 1931. It is obvious that we cannot pay our way without steadily consuming our capital if these conditions continue.

I see that the Chancellor of the Exchequer, on the Third Reading of the Finance Bill, gave figures to show that we were in a better position than other countries, but he left out the important fact that we are dependent, not for our comforts, or our standard of living, or our luxuries, but for our lives, on being able to pay for our imports of food. Therefore we are in a more precarious position than almost any other country. At the moment we are unable to pay for our imports except by selling foreign securities, and even in 1930 owing to such sales there was for the first time, anyhow in time of peace, for fifty years a net reduction of some £35,000,000 in our securities, as Sir Robert Kindersley points out in the article in the Economic Journal to which I have referred. Figures of sales of foreign securities in 1931 are not yet available but they must be very large and the loss of income from these securities is a very serious matter.

In the speech of the Chancellor of the Exchequer to which I have referred he intimated that apart from the Debt charge no substantial reductions of expenditure were possible except in matters of vital importance to the safety of the country or the standards of living of the people such as pensions, insurance and education. He added that if the Government saw that changes of this sort were necessary they would not flinch from telling the country. I am sure your Lordships agree with the Chancellor and would not wish the Government to take rash decisions in this matter, and that you would agree with the Chancellor that hard thinking is necessary before taking any action, but I think that in view of the figures of the balance of trade which I have put before you we may fairly ask what further reasons the Government require before they are convinced of the necessity of substantial reductions in expenditure. Of course, our present position is to a great extent due to the world crisis, but whatever the cause may be it is the effect with which we have to deal. Moreover, our present position is also undoubtedly due to the fact that ever since the War we have been living far beyond our means and notably in the matter of social services.

It is not only this country which suffers from our adverse balance of trade for it is to my mind one of the indirect causes of the continuance of the present world depression. Formerly, when we had a favourable balance of trade we returned this balance immediately to the world in the form of loans or foreign investments. That acted as a sort of fertilising stream on international trade, because it strengthened the position of the recipient countries and enabled them to purchase goods from us and others. Now international trade in some parts of the world has almost entirely ceased, not only because the credit of borrowing countries has been weakened, but because England has practically ceased to be a lending country and no other country has taken its place.

May I say one word about local taxation? I hope we may hear more on that subject from my noble friend Lord Jessel whose endeavours to check local expenditure are well known to your Lordships. In the matter of economy we cannot separate local from Imperial expenditure—both are charges on the productive power of the country—nor can you separate the National Debt from local indebtedness, for the first is a general charge on all our assets and the second is a particular charge on the same assets. As a member of the Public Works Loan Board I see something of this borrowing, and I suggest to the Government that it would conduce to economy if they would do more than they have done in the past to discourage the loans of local authorities. Much as we may deplore the excessive annual expenditure which is paid for at the time it seems to me to be even worse to shift the burden on to the shoulders of future generations. Your Lordships have no doubt seen from answers to questions in the House of Commons that the local yearly expenditure in England, Scotland and Wales has trebled since 1914 and, as your Lordships know, national expenditure has proceeded at much the same sort of rate. When you think that this increase comes after spending about £8,000,000,000 on the War it is difficult to find words to describe such action.

If your Lordships will bear with me a little longer there is just one suggestion that I should like to make with regard to economy. The most important economy, or perhaps I should say, though it is much the same thing, the best alleviation of the burden of Debt and of fixed charges for us and for the world would be effected by a rise in prices. As an instance of that I would like to quote the statistical summary for last month published by the Bank of England. In it there is a statement of our internal Debt from 1924 to 1932. The statement is both in sterling and in the commodity value of sterling on the basis of the prices in 1924. This statement shows that the National Debt in those eight years declined in sterling by £185,000,000, but that it had increased as measured in commodities by £1,093,000,000. If we could go back to the prices of 1924 I suppose your Lordships would call that an economy of £1,093,000,000. Sterling, of course, is nothing but a symbol for a certain amount of commodities, and commodities are the only things that matter, for it is in commodities that in the long run all debts are paid.

It is exactly a year since the Macmillan Committee reported that to raise the wholesale prices should be a prime object of international statesmanship, and the increase in the burden of internal War Debts owing to the fall in prices was one of the many forcible reasons with which they supported their view. Prices have continued to fall since this Report and the burden of all Debts and fixed charges have, therefore, continually increased; and, in the words of the Report, "serious disaster is threatened to all countries of the world alike." The Government agree as to the importance of a substantial rise in wholesale prices, but from what the Chancellor of the Exchequer and Mr. Baldwin have said they are certainly relying for this on an era of cheap and plentiful money. I think that anybody who passed through the Argentine crisis of 1890 and the years that followed would tell the Chancellor that cheap and plentiful money is a symptom of and not a remedy for falling prices. After 1890 we had a long era of cheap and plentiful money and money became almost unlendable at short notice. Now, according to the Chancellor of the Exchequer, this should have brought about a rise in prices. But it did not.

By the courtesy of the Board of Trade I have here the wholesale prices in the United Kingdom of forty-five principal articles during that period and these show that prices fell steadily from 107.4 in 1891 to 88.2 in 1896, and they only rose then owing to the application of the cyanide process to the Rand mines, which increased the production of gold and reduced its value as measured in com- modities. If your Lordships want to know why prices do not rise with an abundance of idle deposits in the banks, for that is what is meant by cheap money, I would refer you to an admirable letter signed "Perigrinus" in The Times of yesterday.

It is not surprising that the Government have not had time to study monetary questions. The marvel is that with Parliament and Conferences they have had time to study anything, and I would suggest that the Committee which I understand is being formed in the House of Commons should consider how prices should be raised and report to the Government, and that the Government should form a monetary policy with that end in view and should not allow things to drift—for that, I think, would be the most fatal policy of all when, as the Prime Minister has rightly said, the system under which we live is crumbling beneath our feet. The main evil from which the world is suffering is, of course, lack of confidence, but in my view it also suffers from a lack of leadership. This country has a great prestige and a great following, and I believe it would do much for real and true economy, and more than anything to restore confidence in the world, if this country would take the lead, formulate a monetary policy which would reduce the burden of Debt, and show the world how in its opinion we could get a move on out of this Slough of Despond. I beg to move.

Moved to resolve, That, having regard to the present scale of national and local taxation and its effect in restricting industrial enterprise and the burden it imposes on individual taxpayers, this House, while welcoming the economies which His Majesty's Government have already made, is of opinion that it is incumbent upon them to secure a further reduction of public expenditure and a corresponding reduction of taxation.— (Lord Hunsdon of Hunsdon.)

LORD MARLEY

My Lords, I am sure the House owes a debt of gratitude to the noble Lord for raising this subject of economy. His speech, if he will permit me to say so, though gloomy, was reasonable and from that point of view it will commend itself to many of your Lordships who are concerned with the question of economy. The fact that the noble Lord changed the terms of his Motion within the last few days will be significant because it may indicate that the Government is prepared to accept the suggestions of those unofficial members of another place who are studying this matter and urging their new remedies upon the Government. To us on this side of the House the Motion is of peculiar interest because it reveals clearly and fully the weakness of the present capitalist system—a system which (and the noble Lord mentioned this in his speech) is tottering throughout the world; a system which is leading to bankruptcies, to Debt repudiation, to the trade stagnation to which the noble Lord referred, to a falling revenue in many countries, to an increasing burden of Debts and to Budget deficits in many of the most important trading countries.

The remedies suggested for these conditions are almost pitiful in their futility. We have had moratoria for Debt payments. We have had the almost childish remedy of tariffs which can only, and must, result in further trade stagnation. We have loans by the wealthier countries to those countries who are most near to the brink of the financial and economic precipice. We have Conference after Conference, in the past and in the immediate future, from none of which most of your Lordships have any hope of an adequate and successful emergence. In The Times of to-day, on the main page, there was an interesting letter on the position in the United States. There the writer claims that the productive establishment was overbuilt, was over-equipped, was over-manned, was over-efficient and over-productive. My Lords, what a confession of failure of the capitalist system, with all this marvellous equipment, in the midst of a world where millions upon millions of people are starving or have an inadequate standard of life! My answer to that letter would be that in the face of this over-building, over-equipment, and over-efficiency, the peoples of the world are under-paid, under-nourished, under-clothed, under-fed, under-housed, undereducated, and under-leisured.

What is the remedy that is proposed? Further economies, resulting in a lowering of the standard of life and the social services of the people. The world is suffering not from over-production but under-consumption. The capitalist system has failed to distribute the wealth which it is capable of producing. De- benture holders, rent receivers, and the rentier class, are receiving an ever-increasing share of the national wealth, in the face of a falling revenue. The noble Lord drew attention to the fall in our invisible exports. Great Britain is peculiarly affected because of our falling receipts from overseas and from our shipping, and our falling interests from abroad. Both are dwindling, and economy is the only solution put forward by the noble Lord.

To Socialists it would be interesting to watch with a detached view the crumbling of the capitalist system, but unfortunately we cannot be entirely detached, because we are affected in the common smash, both individually and by the suffering which it will cause to the workers of this and other countries. If, in fact, the difficulty of the system of private capitalism is how to consume the goods which the system is able to produce, then, I think, and I venture to put this forward, that the greatest danger to the world from the system under which so many countries are suffering is the danger that the only means of consuming these goods to an adequate extent is by another world war. That is the only way that you can really destroy sufficient of the products of this system to ensure that the system can function adequately. That is why we in the Socialist Party are opposed to the capitalist system, and are determined to sweep it away and substitute a system of Socialism, as soon as we can persuade the people.

The noble Lord on my right mentioned Russia. We all know that in your Lordships' House the subject of Russia is one which destroys the balance of thought among many noble Lords. Yet it is a fact that while you have unemployment amounting in this country to nearly 3,000,000, in France to 3,000,000, in Germany to 6,000,000, and in the United States to 12,000,000 or 13,000,000, in Russia, to-day, there is no unemployment, and Russia is a country with growing wealth, whose people are looking forward year by year to the gradual increase in the standard of life which they are actually receiving, and they have a constructive plan giving hope and belief to millions—a hope and belief which is completely absent from the minds of the masses of the workers of Great Britain and other countries to-day. If by these economies the standard of life of the workers is still further reduced, if unemployment continues to increase, as inevitably it must, it must ultimately dawn upon the people that they have no need to tolerate a continuance of a system under which they continue to suffer at an increasing rate, in order that a few people may remain to benefit from a system which brings misery to many and independence to the few.

The alternative is the Socialist policy in which we believe, but while it is impossible to apply that system in this country at the present moment, we must try to make the present system at least as tolerable as we can to the workers. The noble Lord merely advocated less public spending, and therefore more private spending, and he emphasised that point by the change in his Motion, in which he said that the burden is imposed on individual taxpayers, and he demanded a corresponding reduction in taxation. To me, and I believe to those associated with me, it seems to be quite intolerable that a reduction of taxation of the better-off section of our community should be rendered possible by lowering the standard of life of the workers, and if those representatives of the Church who are here to-day speak on this subject, it will be interesting to have their views as to whether the social services should be cut in order that the wealthy may be wealthier.

The noble Lord made but a very slender reference to the possibility of cutting down expenditure for purposes of economy —to the possibility of a reduction in the services of the National Debt. The Macmillan Committee drew attention to the increasing burden of the internal War Debts which has resulted from this fall in prices, and may I remind your Lordships that the payment for War Debts on a diminishing revenue has in itself not diminished at all, but has increased by more than twice as much. In 1920 the War Debt payments were 24 per cent. of the national revenue; to-day the War Debt payments are 43 per cent. of the national revenue, so that the percentage is now almost double. It is no wonder that it was pointed out in another place that the main cause of high taxation was the burden of interest on the National Debt. Sir Robert Horne, speaking in the House of Commons on April 20, said "the Debt is twice as large as when the money was borrowed."

We hear talk of a conversion loan. This conversion loan is always just beyond the horizon of what is possible. We have been talking about it for a year—a conversion loan to reduce the interest on the £2,000,000,000, which is the greatest portion of the National Debt, which is burdening the country at the present moment. I believe that if economy could be effected by reducing the interests on the National Debt by 2 or 2½per cent. that would be a genuine step towards helping the survival of the system at the present moment. We have not heard a great deal about the Defence Services this afternoon. I do not think the noble Lord mentioned them. Yet we have to-day a Disarmament Conference to which the Government have given lip-service but at which they have given no lead whatever in the direction of quantitative reduction of armaments. And the opinion is growing in the minds of, I believe, most members of your Lordships' House that the Disarmament Conference at the present moment is nothing but a farce.

SEVERAL NOBLE LORDS

Oh!

LORD MARLEY

Well, I am very glad to hear that questioned, and I should like to see something come out of it in the direction I have named, not only to relieve the burden of the national expenditure, but because it is probable that one of the difficulties in connection with the abolition of international Debt payments resulting from the War, particularly as regards our relationship with the United States, is the fact that the United States are not prepared to agree to a cancellation of the Debt services between the United States and Europe as long as they see that money being spent on increased armaments in Europe.

Economies have been concentrated upon the social services. The noble Marquess, Lord Londonderry, speaking in your Lordships' House last week, said that "true economy means wise spending rather than a reduction in expenditure where spending is productive." In housing £60,000,000 has been saved within the last few months by the cutting down of housing proposals. That £60,000,000 of work abandoned has resulted in an increase in unemployment Among building trade operatives till the figure now stands at 330,000 unemployed. That is over 100,000 more, than a year ago. Surely that is an instance of false economy. In education salaries have been cut and classes are becoming larger. We cannot afford an uneducated democracy. That is another example of false economy. The salaries of police and civil servants have been cut, resulting in lower spending power, and therefore more unemployment. Wage cuts have reached the colossal total of £700,000,000 a year as compared with the aggregate wage paid ten or eleven years ago to the workers.

The last Budget was characterised by a very famous economist as replete with folly and injustice because it increased unemployment and diminished revenue. Both those prophecies have been borne out by the facts. Economies in roads and bridges are also false economies. I see that the Roads Improvement Association, at their meeting last December, said that delay in road work, particularly renewals and maintenance repairs, is costly. They reported that there is progressive deterioration, and that the cost of doing the work two or three years later would be much higher than if the work were done at that time. Public works, again, have resulted in false economy. I see that the Westminster Bank Review, dealing with this subject said: Economy in the execution of public works has diminished the volume of orders, for example, in the electrical manufacturing industry. Reduced purchasing power is beginning to leave its mark on retail trade, and still more on retail prices. In the health services, again, economies have been applied. Surely economy in the health services is false economy. In unemployment benefit there have been heavy cuts. We were told a few months ago that the whole financial position of this country was being imperilled because of our unemployment insurance system. We are now told by leading bankers and financiers in America that the whole financial position of the United States is being imperilled because they have not got an unemployment insurance system. Which are we to believe? The result of these cuts in unemployment benefit is that poor relief, according to the Ministry of Health, has now risen until we have the colossal total of 1,188,000 able-bodied persons on poor relief—an increase of 159,000 since March.

We have seen the same thing applied to rural housing and to afforestation. The noble Duke, the Duke of Montrose, in this House a few days ago pointed to the bad feeling which had been caused between this country and Canada by reason of the economies in afforestation, which had resulted in the cancellation of the orders for seed which had been placed with the Canadian Forestry Department, and for which the Canadian Government has to pay. Another false economy was referred to by the noble Lord, Lord Banbury, speaking in your Lordships' House on April 20. He said that export credits for exports from this country were "utterly futile and foolish." It is true that these exports credits have been cut down early this year and have resulted in the loss of a great number of orders to our export industry. In particular we have an example of an order from Russia for 300,000 tons of iron and steel products which was offered to this country, but which our manufacturers could not take because the credit terms that they were able to offer had been cut down by the Export Credits Department. The result was that the whole of that order went to Germany. Those 300,000 tons of iron and steel products would have been 15½ per cent. of our total export of such products for the whole of last year. I may say that a further 200,000 tons order for iron and steel was lost to this country because of the false economy of cutting down our credits to foreign countries.

LORD BANBURY OF SOUTHAM

Paper, not money.

LORD MARLEY

The orders are very real orders, and bring very real money to the steel workers in the industry. The read cause of the present Motion is, as the noble Lord, Lord Hunsdon, said, that the Government has no plan for dealing with the present situation. Industrial development is left without help to private enterprise. Monetary policy appears to be left to the Bank of England, with no Treasury control. Trade policy is left —heaven knows to whom trade policy is left. All we have is the tariffs, which are a constant and increasing barrier to the extension of the trade of this country. As Mr. Amery said in the House of Commons on the 16th of this month, just a week ago: Why should we leave all the good ideas to Russia? Why should not we adopt, from what she is able to teach, at least such ideas as the planning of national industry in the national interest? All we get from the present Government is tariffs which stagnate trade and have been, surely, the most abject failure of any major policy that this country can have seen for nearly one hundred years. We get economies which have lowered the purchasing power of the people, and resulted in an increase in unemployment in this country of 180,000 in the last eight weeks, and I am told that the returns for June—I hope I am wrong—will show another increase in the number of unemployed in this country. If that were all we might not be too depressed, hoping that it is only a temporary slump; but, in addition to that, we have over 180,000 hidden unemployed, men who have been taken off the register of unemployment by reason of the fact that their benefit has been taken away, and, therefore, they no longer register at the exchanges.

This proposal is nothing but a class proposal, and a proposal to hit still further the workers and the poorest people in this country. The Government cannot even pursue the remedies which would enable them to prop up the rotten system which it is pledged to support. There is no sign of the Government controlling the Bank of England and using monetary policy as a system to assist industry and put it on its feet. There is no sign of the Government doing what the noble Lord referred to in his speech—moving towards raising the price level and securing an extension of credit sufficient to put industry on its feet. What is the good of the noble and learned Viscount who leads the House saying, as he did a few days ago, "We are all hoping for a rise in the level of prices," when the Government are taking no steps to ensure that we have such a rise. It is almost pitiful that you leave to the group of people in charge of the present Government the management of a country demanding planning, demanding an understanding of the great problems of industry, and without, apparently, a single idea in any of their heads.

The Midland Bank Review in its last number asked the question: Can half a policy pay?…Strict economy will fail unless coupled with determined steps to raise the level of British prices.…Economy, with its grave deprivations, is useless unless there is a business recovery. The plain inference from the events of the past seven months is that our authorities have no clearly defined monetary policy. Deflation, which had brought us to the breaking point, has been carried on with renewed intensity, when there was no longer the slightest excuse for it. The Review goes on to say: The sacrifices of the Budget, the imposition of tariffs (of whatever kind), the call for economy—all will be fruitless unless a monetary policy is adopted causing a rise in the price level. This is entirely and absolutely under the control of the Bank of England, except to the somewhat nebulous, indeterminate extent to which the shaping and execution of it are shared by the Treasury. All we have to look forward to is further attacks on the standard of life of the people of this country. The only refuge of a Government destitute in ideas for constructive rebuilding is to continue to attack the social services and the standards of our people, because the Government are too ignorant, or too obstinate, to learn the lessons which are being constantly preached by economists, industrialists, leaders of all kinds, and a noble Lord I hear murmurs "Socialists."

Capitalism has failed. Capitalism has not provided what it ought to have provided for the people of this country. Sir Arthur Salter, in his book, has pointed out that: The defects of the capitalist system have been increasingly robbing it of its benefits. They are now threatening its very existence.…We have, indeed, before us only the alternatives of collective leadership, collective control or chaos. Only the system of Socialism can provide US with a collective leadership. The system of private capitalism is leading inevitably to the chaos of which we are seeing the results at the present moment.

THE MARQUESS OF READING

My Lords. I desire at the outset to express my thanks to the noble Lord who moved this Resolution for placing it on the Paper, and for giving this House the opportunity of debating one of the most important questions before the country at the present time. I would also wish to express to him my pleasure at the fact that the wording of the Motion has been changed, and in its present aspect so far as I am concerned I am prepared to give it every support. May I also add that if this were anything in the nature of a Vote of Censure upon the Government I should find myself in a much greater difficulty because I desire to give every support in my power to the Government of the day? But I gather from what has been said by the noble Lord who opened the discussion that there is nothing of that nature in his mind, and indeed the terms of his Motion seem to me to indicate that. I cannot see any reason why the Government should find itself unable to accept the Motion and I hope that as a result we may be able to pass the Motion in this House without a Division and in a manner that will at least emphasise the opinion of your Lordships' House.

Although we have little, if any, power as regards finance we do, nevertheless, possess in this House a number of members who have had long and wide experience of banking, business and finance in every aspect and whose views must have their effect on the country. One observation fell from the noble Lord who opened the debate to which I would draw attention for a moment because it troubled me a little. He laid great stress on the alleviation which he thought must come—and in one sense could only come—from a rise in wholesale prices. I do not suppose that any one of your Lordships would dispute that. But you must add something to it—at least, that is my view. I have seen it stated over and over again—I have read speeches in another place, I have read letters in which the policy which seems to be put forward, or at any rate one aspect of it —that by lowering the value of sterling you will raise wholesale prices and that that will be to the advantage of this country. I do not know what the Government's policy is in this respect, but I most earnestly hope that it is not going to endorse that. The reduction of the value of sterling is a matter into which I cannot go at this moment, because it is far too wide a subject and is not directly relevant to this debate; but the rise in wholesale prices to which reference has been made commands from me full support.

It must, however, be dependent upon one thing which in my view is essential. Before you can get the benefit of the effect of a rise in wholesale prices you must have agreement among many of the countries of the world. This country alone cannot do it. It is no use talking about your Exchange Equalisation Fund, as some do—not the Chancellor of the Exchequer, and not any member of the Government as far as I have heard—as if that £150,000,000 could be used for the purpose of reducing the value of sterling, increasing the value of dollars, and consequently, as it is thought by some outside, of raising wholesale prices. Again I must check myself from entering into that subject although I feel strongly upon it. I do, however, desire to say that, provided you can get the assent of at least a number of the largest producing countries throughout the world, you may be able to effect by agreement a rise in wholesale prices which may be of benefit by consequently producing greater purchasing power which will help to restore the prosperity of the world. I must apologise for having taken so much time over that part of the subject, but the noble Lord speaks with so much experience and I have so much regard for his opinion on the subject that I felt bound to express this view.

I listened to what was said by the noble Lord, Lord Marley. I confess that at one time I rather wondered whether his speech was an indication to us that he was tired not only of us—that I can easily understand—but tired also of this country, and that he proposed to migrate to Russia, to that wonderful Elysium where, so far as I could judge, the worker has such an excellent time, where indeed, as I understood him, everything goes so well. He had talked a little while before in criticism of the want of leisure by working people in this country, of their under-feeding, under-clothing, under-housing. I would ask him, when he says that, contrasting this country with Russia, if he has in mind the difference between this country and Russia. If he has, how can he stand at this table in your Lordships' House—

LORD MARLEY

If the noble and learned Marquess will forgive me I will deal with that at once. I had very much in view the comparison between the two countries and I had the remembrance that whereas the standard of life in this country has been far higher than in Russia and is falling, the standard of living in Russia has been far lower and is rising. I would remind him that in this country we have a movement for an increase in hours of work, despite the fact there are millions and millions of unemployed, while in Russia the hours of work are being reduced and now stand at an average of seven hours per day.

THE MARQUESS OF READING

I must not be drawn into further discussion with the noble Lord, but he must permit me to say that I question some of the facts which he has stated—not, of course, his belief in them. What authority is there for the statement that the hours of work in Russia have been reduced to seven? What authority is there for saying that nowadays there is less leisure here? Have we not all the trouble in the world in ascertaining what is happening in Russia? If the information that has come to me is correct then I would say that in this country the standard of living to which he has referred is an example to which we may hope Russia in time—but heaven knows when—may conform. My final remark in regard to it is that I am inclined now to agree with many observations that he made upon the reduction of the standard of living, and I will give utterance to that in the proper sequence of argument, but I confess that as I listened to him I found it difficult to believe that I could agree with anything that was being said, because of all countries with which to contrast this country he took the example of Russia.

I do not believe the general statement that he made. No doubt he has some authority for it, but I must at least claim that I have as good authority for my statement. I do not believe the statement that people here are being under-fed and under-clothed and are suffering in every way. I do not dispute for a moment that there are unemployed and that there is destitution—of course there is—but we are seeking by every means in our power to meet that situation. I take the view myself that one of the most wise things that we did was to institute the unemployment scheme, which gave rise in the end to what has been called the "dole." I am firmly convinced that it is that "dole"—apart altogether from its abuses with which we have to deal—which has enabled this country to pursue its path tranquilly with the good will of all the people, as was shown not only at the Election but when it came to the payment of taxes at the beginning of this year. I desire to say with regard to that, that my own experience would lead me to the opposite conclusion as a general observation.

I know perfectly well, and it is only his remarks that lead me to make this reflection, that I was impressed when I came home from India in going through the London streets in contrasting what I saw with what had been the case a number of years ago, and I confess that after seeing what appeared to me to be the great progress that was being made, the better appearance of the population, showing that they were better fed, better cared for, even better housed, and undoubtedly better clothed, it is a little distracting, when your Lordships and those who think with you and are not Socialists have taken their part in building up this standard of living, to be confronted with a speech holding up Russia as the example that we should follow.

I propose now to address myself to the Motion and I apologise to your Lordships for having digressed because of what was said by the previous speaker. In my view the substance of this Motion is one that cannot admit of dispute—that is, that expenditure should be reduced, and equally that if expenditure is reduced reduction of taxation should follow. The one is a necessary consequence of the other, but the difficulty is how to do it. I was a little disappointed when the noble Lord who opened this debate, and had evidently given much time and thought to the subject, told us that he was not going to indicate how the economies could be made—because presumably we all agree that economies must be made and the difficulty is to know how and where to make them. I trust we may have some more light thrown on this subject as we proceed. That expenditure has risen out of all proportion to the increase of wealth as compared with pre-War expenditure is beyond dispute. I have read recently that the expenditure this year, even after all that has happened, is £56,000,000 more per annum than in 1924.

Expenditure undoubtedly has been increased, but what I would desire to bring to the attention of your Lordships is that of course there have been changes in the opinion not only of your Lordships, but, generally speaking, of the country. Last year, when we were confronted with a very serious crisis and when we had to make economies which are, I understand, recognised in the Motion, there was an undoubted first attempt to reduce expenditure—an attempt which I certainly must not attempt to laud as I had a part in it with my noble friend opposite, Lord Snowden, who was then Chancellor of the Exchequer. At that time we did realise, I think—he, perhaps, better than I because he had more to do with it—how difficult it was to make economies. Nevertheless we came to certain conclusions. There had been a Commission which had reported and made a number of recommendations on economy. The recommendations could not be carried out as they were given. A number were, but not to the full extent because it was found that the moment you began to economise—for example, in teachers' salaries—there were difficulties. In the pay of the Navy there were also difficulties, and so it went on. But in the end we did succeed in making very serious economies and without really any very serious difficulty as a consequence.

Now I want to draw attention to one or two matters before making some general observations in conclusion. I think it is impossible to discuss the question of the reduction of armaments at the present moment. That is a subject which is being discussed at Geneva and which is every day becoming more and more inter-dependent with Lausanne, as it has always seemed to me it inevitably must. Therefore I do not pause to consider reductions which might be made save to observe that again and again I have read, and myself examined, what is called the redundancy of the Services—of three men who are employed where one was employed before the War, and that with a reduced personnel in the Navy or the Army, as the case may be. One knows the difficulties. The Minister is naturally anxious, while paying due regard to the interests of the country, to protect the Service for which he is responsible, and it is always a most serious matter to make these reductions. I do not intend to-day to make any observations upon them save to say that if it can be found that economies of this character would be justified—and I believe from all I have read they can be made, though I doubt whether they would amount to any very large figure—they are worth making.

Assuming as I do that there is complete agreement that reduction should be made, the real problem which confronts us at every stage and which your Lordships must have noted again and again when either you think out the subject or discuss it with friends, is how to effect it. It is interesting to know that there is every day an increasing interest in the necessity for economy. I gather that in another place there are Committees being formed. I do not know what effect they may have, but at least that House is the custodian of our finances and taxation. Therefore it is most satisfactory to find members awakening to a real interest in this subject, and I hope the debate in your Lordships' House may help.

Another subject which cannot be discussed to-day but which nevertheless has a bearing on the whole matter is that of Reparations and War Debts. Here again I do not propose to say anything in view of the Conference now proceeding at Lausanne, but we must bear in mind that in the ordinary national expenditure of this country, which was given in the Budget statement for 1932–33 and which represented £733,000,000 per annum without taking account of the Sinking Fund of £32,500,000, there is no provision made for the payment of our War Debt. I make no comment on that. I think the Chancellor of the Exchequer was perfectly right in not doing it. The only reason I make the observation is that we cannot leave it out of account when considering what is to happen in the future. We cannot treat it as a non-existing Debt. It is there and what is going to happen we cannot prophesy. The reason I make this observation is that there is a very grave loss in exchange at present, and what at one time was a matter of paying £33,000,000 or £34,000,000 per annum becomes at the present rate nearly £50,000,000. It is consequently a matter of serious concern. There I leave it, merely observing that when we are taking note of the future we must not leave out of consideration that there is a liability with which we shall have to deal, in what form, to what extent and for how long I do not attempt to say, but one which we cannot fail to acknowledge.

That being so it brings me down to the two points only upon which I shall trouble your Lordships. Observations upon the revenue of the country at the present moment are perhaps not very helpful, save that they indicate that it may not be quite true that the Budget will balance without some supplementary estimate. I am not prophesying, for I do not know. The Chancellor of the Exchequer told us quite recently, in the second speech he made, that he was not proposing anything of that character at this moment, but no one can tell what may happen as the months go by. The only thing I would say, looking at the Estimates, is that unless the Government can find reductions and economies to make during the course of the year, on the Estimates which they presented to Parliament for this year's Budget, 1932–33, I utterly fail to see how it will be possible under present conditions for the Budget Estimates as they were presented to be justified.

I make that observation not in the slightest degree as a gloomy prognostication. Quite the opposite. For myself I much prefer to face the facts as they are. It is the great strength of this country that we do that, and although we may see that things are gloomy, and although we may find a somewhat depressing effect from all we read, nevertheless we do not allow it to interfere too much with our lives, but we carry on, and apply ourselves to the best remedies we can suggest. What I would say to your Lordships is that there are a few figures which trouble me very much from the estimates of revenue. I admit, of course, that the Government are in far better position to form an estimate of revenue than arty one of us can be, however good our information may be, and mine is not criticism of those estimates, but I am merely pointing out that the estimates, however justified at the moment when they were presented, may not turn out correct, not through any fault of the Government but because of the condition of the world.

When I find, for example, that there is an estimated receipt from Income Tax and Surtax of £326,000,000—£260,000,000 for Income Tax and £66,000,000 for Surtax —I want to leave it with this observation only to your Lordships, who are quite as capable as I am of forming an opinion, that with the decreased profits of concerns which are apparent from the daily information with which we are all familiar—even to the extent that we are told there is almost heard the noise of the passing of dividends—how is it possible that that estimate will be realised? It is right that I should state that an allowance is made for some £27,000,000, but my only observation upon it is that we should keep these figures in mind when we come to the necessity for a reduction of expenditure, in order not merely to reduce taxation but also to keep a balanced Budget.

I will not spend further time upon that. There are only two other items to which I will make reference, and that merely a passing reference. They are Estate Duties and Stamps. The estimate represents an increase for Estate Duties of £11,000,000 over last year, and in the case of Stamp Duties an increase of £6,000,000 over last year. I have myself puzzled why that is put in. Will those figures be justified? It is there any reason why we should expect £11,000,000 more from Estate Duties this year? It is always a chance whether a rich man dies within the year or the estate pays duty within the year, but taking one year with another there is an average. All I will observe is that those two figures, it seems to me, are very doubtful of realisation during this year, and if you do not get that increase of £17,000,000, or if you get something short of that increase, then you remain with something more required to balance the Budget. That is why I lay such strong emphasis upon the necessity for a reduction of expenditure—not merely because I want to see the possibility of a reduction of taxation but because I want to see a Budget which can be balanced and will not require such steps as have had to be taken in the past.

That is the position as regards revenue. One item, and one item only, I propose to deal with in regard to expenditure, and it is interest and maintenance of the National Debt. It stands at £276,000,000 a year. It is a very large item, and of course we always have to remember in the criticisms which we make of this or any Government that that is almost entirely a product of the War. No Government is responsible for it, but it is there and we have to meet it. It represents about £6,300,000,000 of National Debt. If we do manage to make the conversion which is now under discussion, and of which we have read so much, of the 5 per cent. War Loan, it would mean a reduction of £20,000,000 sterling per annum, if you reduce the interest to 4 per cent., but you must make allowance for a certain loss on reduced taxation, and it seems to me a fair estimate to say that by the reduction from 5 per cent. to 4 per cent. you would really benefit to the extent of £15,000,000 or £16,000,000 per annum. Assume that that takes place. I am not jeering about it, as the noble Lord was inclined to do. In the late Government there was a desire on the part of the Chancellor of the Exchequer to make the conversion, but, of course, he had to be extremely careful. I quite realise that no Government can attempt to convert a loan of £2,000,000,000 without being sure that they can carry it out, and it must either be able to give a sufficient inducement to make the conversion acceptable to the large majority, or it must be prepared to find currency, if possible, or at least to find money in order to pay for whatever is left.

Obviously, every Chancellor of the Exchequer would be most careful before he launches his conversion scheme. Here you have now a yield of Government security which one may take at 4 per cent. or even a little less. Say the moment has come. I will assume that the necessary notices are given, that there is a favourable response and that the conversion takes place. I ask myself again and again: In the condition in which we stand at present is that sufficient? Can the Government rest merely upon the conversion of that 5 per cent. War Loan which became redeemable in 1929? It may very well be that, as time proceeds, we shall find it necessary to take some other steps with regard to the remaining £4,300,000,000 of National War Debt in order that we may save more interest, and that this figure of £276,000,000 may be reduced not merely by £16,000,000, bringing it to £260,000,000 but by a still further amount. Everything must depend, of course, on what happens in the future. I can conceive circumstances in which we might find it necessary to take very strong measures. I hope they will not arise. But, if they did, I believe that in this country there would be a response just as willing as there was to the demand for extra taxation last year.

I am not going to spend time in comparing the value of commodities and the value of sterling to-day. It has been done already by the noble Lord who opened the debate. I will only say that you may take it roughly that if you measure your value of sterling to-day with the commodity value, as taken from the Board of Trade index of the cost of living, which brought down the figure from 100 per cent. in 1924 to something like 85 per cent. by the latest return—if you compare those figures, if you apply that comparison to sterling as it was, then the result is that you make a difference of something like 19 or 20 per cent. in favour of the holder of the loan. All these are facts which will have to be considered, which really do require very grave consideration, but I leave to your Lordships those observations and content myself with saying this. Let us hope that it will not be necessary to do anything further; but, if it is, I cannot doubt that this country would respond to any conversion that was required, in order to enable us to have a balanced Budget and to present, as we always try to do and have done, a picture to the world of a country that is not afraid to face the situation whatever it may be.

After all, really the security behind your National Debt is the national wealth of the country. That is expressed year by year by the national taxation. It is really your only security. There is nothing else. And the national taxation must in itself always depend upon the prosperity of trade and industry. If you reduce expenditure and reduce taxation you will help industry, you will help to a certain extent—it may not be much in these conditions—to re-create enterprise, which is so much lacking at this moment. You will in the same way be assisting the country, and I hope that in assisting this country you will be giving a lead to the world, as the noble Lord said in opening this debate. I am in complete agreement with that, provided also that you get the agreement of the great countries of the world with you. Without it we are unable to achieve what we desire. In my view this Resolution can be accepted by the Government. It does not in the slightest degree interfere with the policy which I have always understood they have been pursuing—searching always for economy, although necessarily, by reason of the enormous amount of work placed upon Ministers, they have probably not been able to devote as much attention to it hitherto as they would have liked, though we are confident that they will as soon as they have the opportunity.

EARL PEEL

My Lords, I am sure we are all very much indebted to my noble friend Lord Hunsdon, not only for putting down this Motion, but also for the very lucid address in which he opened the subject before us and explained the present position of foreign trade. I am bound to say I rather preferred the earlier form of the Motion to the later one: it had a directness and sharpness which would have expressed the position even more clearly and forcibly. The noble Marquess who has just spoken has also saved me some trouble, because he dealt very severely with the noble Lord opposite for the curious panegyric which he passed upon Russia and for his general assault upon the capitalist system. I do not therefore find it necessary to follow him in that direction. I only want to ask two or three questions, which perhaps one of his supoprters may answer later in the debate.

We were told how admirable was the planning system in Russia. Of course, when you plan you sometimes have to carry out your plans, and it is rather remarkable that it has come recently to my knowledge in connection with some other activities that that great country, with its wonderful plans, had only a few months ago to import a large amount of wheat for its people, although, as we know, it is the greatest granary and has the largest capacity for wheat growing in the world. The other question I would like to ask him is this. Does he really suggest that we should try to deal with the unemployment problem in this country by introducing a system of compulsory or slave or prison labour, such as they have in Russia? Is that the curious medicine that he would give to this country? Does it occur to him that the people of this country, however misguided they may be, and in spite of what he no doubt would think an unfortunate attachment to the capitalist system, still, even in the old age of this country, have a strange passion for personal liberty?

In the few words that I shall address to your Lordships to-night I want to deal solely with the question of economy and very largely with its bearing in connection with the taxation upon industry. I do not wish to go into some of the questions relating to the Budget which have been dealt with by the noble Marquess, because I think he has already dealt with them fully and effectively. I am quite aware that, unlike a divine philosophy, economy is harsh and crabbed, and it is to that grim subject that I address myself this evening. What I would like is that the debate in your Lordships' House should not so much centre on particular points of economy or reduction, but should do its best to spread throughout the country the feeling that really at this time—and certain virtues are uppermost at certain times—public economy is a great and necessary virtue. I know that it is rather a difficult task for Ministers, because Ministers who do not spend are treated so often in the Press as sluggards who do not do their duty, whereas Ministers of a more free-handed sort are praised for their beneficent activities. I know what a tremendous task the Chancellor of the Exchequer always has in keeping down the tides of expenditure, and I would like to do what we can in your Lordships' House, where we speak with the greater freedom that comes from less direct responsibility for the details of finance, to strengthen his hands, possibly even against some of his colleagues if they show any tendency to increase their Estimates.

Looking at the whole question, I agree that Parliament is no doubt an admirably devised instrument for bringing forward grievances and for discussing general problems, but, though it has now the sole guardianship of our finances, I do not think anybody will say that the Parliamentary system employed in this country is well devised for keeping a close control, anyhow, over the details of expenditure. I am very glad to see that certain Members of Parliament, and not official Members of Parliament, are joining together to try, I will not say to lift this reproach, but to see that the House of Commons itself is in a real sense the protector and guardian of our finances. It is often said, though I think with very little truth, that one Parliament cannot bind another or its successors, but, unfortunately, it can. We have had too many instances in the last few years of expenses which are fixed upon the country by successive Parliaments and which we are told that in truth and honour and good faith we must meet. In that sense one Parliament does bind its successors. Unfortunately, when you come to the subject of the reduction of expenditure and the enforcement of economy, Parliament does not bind its successors, because it very often happens that a Government which has gone through the cheerless habit of saving expenditure is only piling up substantial reserves that may be squandered by its less scrupulous successors.

Then, a great many worthy citizens, full of public zeal and inspired by admirable motives, protest with passion, and even sometimes threaten us with revolution when the particular service in which they are interested is curtailed. It is true, too, that one member of the Party opposite, whom we heard speak to-night, has actually raised expenditure into a virtue, and I am quite certain that any economy that is brought forward by the present Government would, be described as false economy by his supporters, and that Party, utterly undismayed as it apparently is by defeat at the polls, would seek to deprive our industry of incentive to activity by distributing freely the earnings which it has made. Thus, I think, the dice are very heavily loaded against the economist. The spenders are much more persistent than the savers. Though your Lordships do not control finance, I think it is essential that the weight of your collective voices should, if possible, be given in order that we may steer clear of some of these financial dangers.

I am not going to describe, because they are so familiar to all your minds, the difficulties in which we find ourselves —the general slackening of trade and enterprise in industry, the want of prosperity all over the world, the shattering effect on our trade of the frozen exchanges, the low price of materials, and the peculiar pranks of gold. May I stop for a moment to refer to what was said by the noble Lord, Lord Hunsdon, about a rise in prices? I trust that no rise will be made in prices in this country alone, without other countries doing the same. That would merely, I am afraid, handicap our exporters and increase our own prices in foreign markets. These general causes, pressing as they do upon us from every quarter, do not, I think, absolve us from doing what we can in our own country to steady our own financial house. Unfortunately we can only offer advice; we cannot impose our will on these international Conferences. What I am glad of is this—and I hope I do not take too serious a view of the situation—that if we do not impose large reductions ourselves, these large reductions will be forced upon us by the falling yields of our taxes, whose effects become more cumulative as industry and enterprise decay. It is quite impossible for us to live at this full. financial stretch for ever, and there is a limit to those sacrifices which our countrymen to-day are bearing so bravely and so uncomplainingly.

The broad fact is that the whole scale of our national expenditure is out of step with our present industrial and financial position. I will only inflict one figure upon your Lordships, and it is a terrible and sinister figure. As is now, I think, generally admitted, rates and taxes draw from us no less than one third of our national income. Those immense fixed charges alone constitute a stupendous handicap upon the improvement of our industry. If you examine these charges you will find they are hard, rigid and unyielding, while the income upon which they are levied and out of which they are paid is, unfortunately, only too flexible and variable. We have at present scraped our financial cupboard pretty bare. We have, unfortunately, no more reserves for times of trouble. These heavy charges are not calculated with any reference to the percentage that they bear to our national earning power. Estimates are given of expenditure—sometimes they are not given—but they are not really related to our earning power or our national productivity. The sources from which taxation spring grow less and the burden becomes cumulatively heavy. As we know, immense blocks of capital are dispersed at death, and those great legacies from more prosperous times are not, unfortunately, renewable, and the surpluses of our citizens, capable of being used for investment, become smaller and smaller under the heavier weight of taxation.

I think it is very difficult to exaggerate the tremendously depressing effect on industry of these charges, and, much more, on the minds of those who are engaged in industry and various enterprises in this country. They are fighting amid all the ordinary difficulties of industrial life and strife against these tremendous financial odds. If we try to survey the direction in which the world is now moving, I am afraid we have to say that we are not likely to increase our export trade with the magnificent aggressiveness of the past. All countries, East and West, seem to be animated by the same ambition. They all want to pursue the path of economic nationalism and aim at that type of civilisation which comes from the most widely diversified industries. There are to-day very few indigenous industries. You can make anything anywhere without regard to temperament or climate or indigenous national resources. You may talk of complementary industries and of one country supplying those things which are most easily made in that country, but unfortunately national ambitions refuse to bow before the yoke of economics or economic advisers.

Then again, if you look at the tremendous changes and chances and risks that are run by even the most prosperous countries, could you have had a more stupendous reversal of fortune than has been seen in the United States? There was a country moving until quite recently—in spite, of course, of the capitalistic system—on an incredibly steep plane of prosperity, confident and even arrogant of prosperity in the future. Yet, in a few months, the whole structure is shaken and everything swept into a gigantic abyss. Unemployed are numbered by millions and for the time being the people are in despair. We have, of course, recently taken in this country the great step of introducing tariffs and safeguards for our industries, but I think it is quite clear that the value of all these great new opportunities must be neutralised by the weight of old and the prospect of new burdens. Again, the system of exchanges and foreign investments and in fact the whole working of our external trade is built up on the general observance of contracts and good faith. Unfortunately, we seem nowadays to be running into an evil period when, partly from the pressure of necessity and partly from the results of subversive doctrines, these great anchors of a trading nation begin to drag. All these increasing hazards in the industrial world not only invite but insist upon caution in our national finances.

It may be—no one yet can say—that we are moving on to a lower level of living and prosperity. Let us hope, indeed, that some of our troubles may be temporary. As regards more permanent matters, the instability of currencies and our monetary problems, they can only be dealt with as the result of International Conferences and we may have to wait for years perhaps for those results. Our economic doctors, though they may diagnose the symptoms, are certainly not agreed as yet on the remedies to be employed. I hope, too, that we shall not cherish the illusion, apparently held by noble Lords opposite, that more spending by the State will create new and real wealth. After all, that expenditure, or distribution, by the State only lasts for a moment and, by the fact of its being so heavy a burden upon our industries and checking production, that distribution can only be effected once. I believe that if it were possible suddenly to reduce, or rapidly to reduce, expenditure by, we will say, one-third, or any large fraction of the present amount, every one would be astounded at the tremendous rush in industrial development which I am sure would very soon fill up the gap in national income.

We have to try and persuade the electors, bewildered as they may be by the rival attractions of financial doctrines, that in a large measure they hold in their own hands their own destiny, and that if we are going to survive we must practise in public economy the more frugal virtues. We must do our best to teach them that spending is the enemy and that a deadly pestilence is often less destructive of national health than wasteful expenditure. It is for that habit of mind in the nation that we must struggle in order to secure economy rather than by setting our minds upon more formal and set economies. It is not the first time in history that democracies have been destroyed because of expenditure. I understand that recent historians hold the view that Imperial Rome itself suffered not so much from the large estates of the magnates as from the terrific taxation which crushed liberty and enterprise in the Provinces.

I agree—and I think most noble Lords on this side agree—that the present Government have made a most effective contribution towards the restoration of our national finances. They have balanced the Budget, although I am bound to say that a few years ago we should not have regarded that as a very astonishing phenomenon, but in these less expectant days let us be thankful in that matter for what we can get. They have also done much to check excessive imports and have re-established our credit in really an astonishingly short number of months. They have given fresh opportunities to our industries and I hope will give more. But I believe the task before them is even more tremendous than those labours which they have already performed. Coalitions historically have many drawbacks, but they ought to have at least this one virtue, that they can take upon their broader backs unpleasant duties from which mere Party Govern-merits might often shrink. This readjustment of the whole financial machine to the new world in which we are living may be at first an unpopular task, but I am sure that if they pursue it with resolute will they will attract the admiration of millions of our people and that in a new and genuine prosperity they will reap a rich reward.

THE LORD BISHOP OF DURHAM

My Lords, I would apologise to the House for intervening in this discussion at this time. If, indeed, the matters which are before your Lordships were mainly concerned with finance and economy I should be the last person to think that it was fitting that a member of this Bench should address you, but as I see the matter the problem which is before. us this afternoon is in the truest and fullest sense of the word, not a merely financial and economic problem, but a social problem of the deepest interest to the people of this country. The noble Lord opposite allowed himself something like an appeal to the Bishops as though he assumed it must be almost inevitable that we should be the advocates of extravagant expenditure. He called himself a Socialist. Something more than a generation has passed since Sir William Harcourt said that we are all Socialists now and Socialism is a blessed word—the whole force and value of it depends on your definition of it. I was painfully concerned when the noble Lord proceeded, not obscurely, to indicate that his definition of it was fully expressed in the proceedings in Russia. Does the noble Lord expect Bishops to be enthusiastic for Russia?

I venture to intrude in this debate, because I am persuaded that the poor and the poorest sections of our people stand to lose most by public extravagance. I believe, and it is forced on my notice every day of my life in the County of Durham, that public extravagance both national and local is telling directly and most disastrously on the conditions of life of the poor people of this country. I would like to associate myself fully with Lord Hunsdon's Motion, and I want to add such little contribu- tion as I may be able to make to such friendly pressure as your Lordships' House can bring upon the Government to induce them not to underrate the importance of the economies to which they are publicly pledged, but to persist and not to slacken until they have effected real and considerable economy in the expenditure of this country. Since the dramatic events of last autumn we have heard much talk about economy, but I see many signs of growing impatience in the public mind at the widening chasm which seems to be opening between this talk and the actual practical effect that it is having. I am tempted to borrow and apply some words, which I have ventured slightly to amend, of my most famous predecessor Bishop Butler, the immortal author of the Analogy. The words are—Going over the theory of economy in the mind, and drawing fine pictures of it, so far from leading to the habit of economy in the man who so engages himself, is even likely to harden him in the opposite direction and lead to a habit of reckless extravagance.

I want particularly to secure your Lordships' attention to the local aspect of this matter. Upon the larger national question I will say nothing, but remember that alongside our national expenditure there is proceeding all over the country local expenditure, and alongside our National Debt there is rapidly growing a great local debt. I am therefore happy to see that local expenditure is associated with national in the Motion. I desire to address myself especially to the local aspect of the subject as it is presented in the great industrial districts. Your Lordships will remember that the industrial districts are really the main problem and I will indicate the reasons which appear to me to cause that to be the case. In the first place, it is in these great industrial districts, particularly in a time of grave depression such as that through which we are passing, that the justifications for all kinds of expenditure appear to be most numerous and most plausible. Again, it is in these districts that there is normally an absence of informed and effective criticism of the estimates of expenditure presented by local governing bodies. Why? Because in these districts the population is composed almost entirely of wage earners—people who are not accustomed to handling a large sum of public money and who are apt to be completely misled by the apparent facility with which vast expenditure can be undertaken and met.

These are the last people in the world who really ought to be asked to accept the difficult and delicate task of appreciating the precise bearing of this kind of expenditure which they so readily adopt. The great industrial communities are very young. The population of the County of Durham in one century multiplied tenfold. These great communities have therefore no tradition of ordered life with all the variety of interests and of experience which are able to produce individuals who are competent for financial management. Lord Bacon said that a crowd is not company. He might have said with even greater truth that a crowd is not a community, and it is crowds that we are dealing with in these great industrial districts. A pit is sunk, people gather to work there, and in a single generation there may be the population of a city and the resources of a hamlet. With these untrained communities do you wonder that we are seeing a recklessness in expenditure which is menacing the whole community?

Let me ask your Lordships to consider for a moment the result of this lavish expenditure. To begin with it tells directly on the people's interests in swollen rates. They do not see it because they do not pay their rates directly, and I think the wage-earning people pay a larger proportion than they ought because they pay in that way. Anyhow, there is this effect of the rates. In many places in Durham there are rates exceeding 20s. in the pound. They even go up to 30s. I have observed that when the rates in any district reach or approximate to 20s. in the pound the prosperity in that community is affected, and when they go approximately to 30s. people begin to move away, industries are closed, and there are all the signs of the decay of society that we are seeing in Durham. Moreover, great houses are dismantled and their households withdrawn. The local shopkeepers suffer. There is a general flight of industry in the County of Durham. Industries like shipbuilding and export mining are stricken, and it is vital that we should invite new industries into the County, but no new industries will come into a community rated upon such a scale. So it is that working people are prejudiced most seriously.

I must not pursue the matter further, but. I want to emphasise that I do think the Central Government ought to be exercising upon the local authorities a restraint on extravagance instead of, as is too often the case, stimulating and encouraging expenditure. I know that the Great War deranged all our perspective and disturbed all our imaginations, and the habit of reckless expenditure then formed is hard to abandon, for new expenditure incurred tends to take shape as a new vested interest. in which human lives have been bound. Then, when the question of anything like economy is raised, at once you have a series of equitable claims from individuals, who ask why they should have their means of livelihood withdrawn. So, as the Government know too well, the task of effecting economies is extraordinarily difficult, because it is bound up with equitable claims of individuals at every point. So cautions therefore must we be in embarking upon new expenditure and encouraging the growth of these new vested interests.

Lavish capital expenditure, moreover, often has a habit of leaving behind it consequences of increased burdens and continuing charges. I would take one instance. Take the immense expenditure upon our roads. The County of Durham is now equipped with roads far beyond its necessity. The State is in the position of a man with an estate with a house sufficient for it. He pulls down his house and builds another, and, builds a thing far too big for the estate to maintain. That is what we have come to in this country. How are our great roads to be maintained? I will mention, in the hope that that mention will carry to the County to which it refers, the direct road between Lanchester and Durham. It is a country road, where there is practically no traffic at all. Trees have been cut down on either side, and one of the most beautiful parts of a county which is not too rich in beauty, has been absolutely wrecked, and we have now a road which would be worthy of one of the main tracks out of London. This has been done merely to make a road, and it has got to be kept up. So it is not only extravagance in expenditure, but it is the continuing burden of maintaining the result of extravagant expenditure, which has to be considered.

I think the original sin of our whole system of local government is its assumption that mere numbers indicate a capacity for autonomy. The lavish grants from central funds are operating as a stimulus to local extravagance. If history delivers one lesson more clearly than another it is this, that the ruin of great empires comes from financial mismanagement. Moral corruption, no doubt, played its part, but we now see that the reason why the great empires failed was the extravagant and overwhelming mismanagement of their finances, so that the local populations were unable to bear their burdens. I certainly associate myself with what Lord Hunsdon said. This Motion is not unfriendly to the Government. It is intended to strengthen the hands of the Government, and I, for one, look to the National Government to lift our country out of the formidable difficulties in which it is immersed.

LORD PLENDER

My Lords, this is the first occasion on which I have ventured to address your Lordships' House, and it is with trepidation, therefore, that I intervene in the debate. I do so not for the purpose of condemning the Government, but to urge them, without undue delay, to put into operation the principle which they have accepted—namely, that the question of economy is paramount. The remarks which I had intended to make were of a general character, and the ground which I had hoped to cover has already been somewhat freely trodden by noble Lords who have already spoken. I hope, therefore, you will forgive me if I repeat to some extent the substance of what has been said, although perhaps in other language and perhaps from other angles.

I had the honour last year of serving on the National Expenditure Committee, and in the Report many recommendations were made whereby we thought that a sum approaching £100,000,000 a year might be saved, without any impairment of efficiency in the Departments affected or in the services rendered, or injustice being done to individuals. But that sum, large though it be, is insufficient. Much has been done and I gratefully pay my acknowledgments to the Government for what they have done, but I venture to think there is a great deal more still to be done. I am not unconscious of the difficulties. A mere cutting down of expenditure may in itself do more harm than good. It is little use saying that there shall be a reduction of tens of millions more a year without taking into consideration the reactions which might flow from such a course. The Government may consider that even reductions on so large a scale are inadequate in view of Budget necessities and, to use the Chancellor of the Exchequer's words, there may have to be changes in national policy going far beyond anything that has been contemplated. The measures to be taken rest with the Government, and the country will, I believe, support them in any steps which are shown to be necessary to relieve the burdens of taxation which afflict the trade and commerce of the nation and which have to no small extent brought about so much unemployment. No better way of lessening unemployment is there than in reviving and accelerating trade by freeing businesses from heavy taxation burdens and so giving more hope and confidence to those whose capital is at risk.

The time has come, nay it is past, when the Government must reject doing the things that are desirable and only spend on the things which are absolutely essential. The rise in public expenditure during the last few years was largely unjustified, and the creation of a parental State which makes life easy—not always for the deserving; and almost impossible for those who do work and venture their capital in the effort—can only lead to disaster. If I am asked what further economies can justly be made, how additional revenue can be raised, and what changes should be made in national policy, I can only answer that I have not that task to undertake. It is the Government's duty; but there is no one capable of assisting in the task who would not be most willing to give his services if asked for.

This Motion, apparently, does not contemplate the effects of changes in international policy, which might have in many ways a highly beneficial effect on our expenditure and on our trade, both internal and external. I feel certain, however, that whatever we as a nation may do, our efforts will prove unavailing and ineffective in their completeness without co-operative effort on the part of all nations in the old world and in the new in relation to the immediate revision of the Debt and Reparation liabilities, and, as soon as is practicable, a much more drastic treatment than revision, and also in relation to the lowering of tariff barriers between countries, which are not a protection but a restriction to the trade of every nation and the cause of constant irritation; and not least in relation to the vital subject of disarmament. I rejoice to see that certain of the European nations are already revising their tariffs in a downward direction, and I hope that example will be followed by other nations as they come to realise that freedom to circulate goods is a necessity to every country whose production exceeds its own power of consumption.

And in this connection some regulation of production extending beyond our own borders must be necessary. These subjects, it is true, form part of a world problem, but they cannot be divorced from the solution of national questions affecting every country, and we ask the Government to push forward with no delay their inquiries and efforts, and to let us see in what way and to what extent they will effect economies in the national expenditure which are long overdue, and also what their considered policy is in the international situation.

In addition to the curtailment of national expenditure, some means must be devised much more stringent than exist now of controlling local expenditure, which automatically attracts grants in aid. Its rise in recent years, in education, housing, and town-planning, highways, public health, etc. is appalling, and the burden of rates is overpowering. Expenditure in recent years has been lavish, and a large part of it is unproductive and non-revenue producing. This is now happily largely checked, but the harm has been done, and it must be stopped for the future. There has been a complete indifference in recent years to the effect of expenditure on a future generation that has purported to relieve unemployment for the moment, and too little consideration given to the right class of expenditure. When one-third of the whole product of industry disappears in taxation, as the noble Earl, Lord Peel, has stated, it is time to take stock and see whither the nation is drifting.

Comparative figures of expenditure with those of nineteen, ten or three years ago are not now needed. No statistics require to be compiled to show that our liabilities have grown to stupendous dimensions, and that our rates and taxes are crushing industry, nor is it necessary to illustrate by examples their effect on individual business enterprises, which I could give by the score. They are only too well known, and the facts are admitted universally. Apart from Departmental savings in national expenditure there is the interest on the National Debt, which a conversion scheme should materially reduce, and the time seems nigh when it may be practicable to proceed. And there is also the monetary policy of the country which, surrounded by difficulties though it is and the subject of sharp differences of opinion, at any rate deserves very serious consideration by the Government, in relation, for example, to the fall in world prices of primary products which this country alone cannot regulate. I believe that the Government are fully alive to these grave issues. I believe they are not only anxious but determined to relieve taxation, and if, in addition to easing our burdens at home they can by their advice and example help to rehabilitate a stricken Europe and bring in as a contributor to the solution the great nation across the Atlantic, they will earn the gratitude and admiration of their country and of the whole civilised world.

THE MARQUESS OF LINLITHGOW

My Lords, the House will desire me to congratulate the noble Lord who has just sat down on what is his maiden speech in this House, and to express the hope that he may very often take an active part in our debates. The very special skill which he possesses in the subject which is before the House to-day will give him, I am quite certain, many opportunities of partaking in the discussions in this House to very great purpose and point.

It is really of little use on this occasion to attempt anything in the nature of a criticism of any previous Government. Everybody knows perfectly well the history of Parties in this matter, and no Party in my judgment is entitled to claim exemption from criticism, because all are in some measure responsible. The Motion before the House deals with a topic which is by no means new. In recommending the appointment of the May Committee the House of Commons passed this Resolution: That this House considers that, having regard to the present burden of taxation in restricting industry and employment, the Government should at once appoint a small and independent Committee to make recommendations to the Chancellor of the Exchequer for effecting forthwith all practicable and legitimate reduction in the national expenditure consistent with the efficiency of the Services. So the House of Commons at least is committed to a direct relating of the incidence of taxation to trade depression.

Before I cite any figures I think it appropriate to remind the House of the profound difference between the budgetary position as it was during a period of rising prices and general inflation of values and as it now presents itself at a time of low commodity value and general world deflation. I shall attempt this by giving the House two quite short examples. The first is from this country and the second from the United States. The gold value of the internal Debt in this country between March, 1922, and the same month in 1932, that is to say, aften ten years, fell from £5,905,700,000 to £4,908,200,000. Its commodity value for the same period rose from £6,244,500,000 in 1922 to £7,608,100,000 in March last. That gives an indication of the increase in the Debt load measured in terms of commodities. And, of course, the same argument applies to interest as to principal.

But the position is far more serious than appears on the surface of those figures. In point of fact there is no good reason in economic theory why a fall in commodity values of the order of that experienced and over the period of time that has elapsed since the fall began, should have led to conditions of trade as disastrous as those which the world has witnessed. What then is the reason for the commercial collapse so far as it has been due to the fall in prices? Beyond doubt it lies in the fact that primary produce has lost value to a far greater extent than have secondary products, with the consequent effacement of the purchasing power of all producers of primary produce the world over.

Your Lordships may care to hear the facts as these have obtained in the United States of America. In that country, since last August, commodity prices have fallen at the rate of no more than half of 1 per cent. per month, but while in January, 1931, the general index of the price level was 78.2 and that for farm produce was 73.1; in April, 1932, the general index had fallen to 65.5, while that for farm produce stood at the extraordinarily low level of 49.2. That is why the American farmer cannot buy American manufactured goods; that is why the American factories languish, and that is why, since profits have largely ceased to be earned, the Federal and other revenues have declined, and reduced expenditure by all public bodies in that country becomes a permanent necessity. The same thing applies to all countries, and when you reflect upon the substance of the two examples which I have given the House and recall the immense purchasing power in normal times of the aggregate of the world's agricultural population, and the extent to which that purchasing power has now disappeared, you will appreciate the profoundly important effect of these particular factors in the complex of causes that has led to the world collapse of trade, and you will appreciate in all its dire consequences the relation between the fall in commodity values and the national budgetary position.

There are further repercussions of the process of deflation, and to these I shall venture to refer in a moment or two. But it must be again said that no figures of revenue and expenditure can be adequately appreciated unless all these reactions are kept constantly in view. Loose language in relation to finance is really of no help or use, and I think it is worth while to state quite shortly the fashion in which the several forms of taxation bear upon the issue before the House. I will deal first with Income Tax. With the important exception of the taxes under Schedule A which in their incidence upon industry are analogous to local rates, Income Tax is a tax on profits, and as such is not an addition to costs. I do not myself attach overmuch weight to the argument that direct taxes are prejudicial to trade because their effect is to reduce the purchasing power of the individual. Where there is a waste of resources the case is plainly good. But as to that part of our expenditure which comes under the general head of social services, it would be unreasonable, I submit, to assume that those who enjoy, directly or indirectly, an increase in their purchasing power as a consequence of a transference of purchasing power from the pocket of the taxpayer to that of the recipient of State aid, are any worse spenders than the taxpayer would have been had the money been left in his pocket. I think economically that would be an unreasonable assumption to make and I do not propose to make it. The effect of such schemes is mainly to transfer business from one class of trade to another and different class of trade.

Income Tax, it is true, has this further bearing upon industry. It diminishes saving and, therefore, the resources from which new capital, whether for new purposes or for the refreshing of capital in going concerns, must be drawn. It tends, too, to raise the burden on costs represented by salaries and fees because of the natural tendency of the overtaxed receivers of such emoluments to endeavour to offset in some measure the heavy imposts by claiming higher remuneration. Again, Income Tax, since it is assessed on the profits of the preceding year, may, and often in practice does, as I have lately learned, in times of declining trade such as those in which we now find ourselves, represent in effect an increase in costs. That I think is beyond dispute. But most important of all, very high taxation does unquestionably sap business initiative and destroy individual resilience. It is really no use pretending that a business man who finds himself, for instance, debarred by reason of his Income Tax from maintaining the insurance policy upon which in the event of his death the future of his wife and children must depend, will be as prudently bold or as tenacious of purpose as he ought to be, or as he would be if he were allowed to remain solvent within the reasonable standards of his state of life and social position.

I am very well aware that these considerations make no very strong appeal to noble Lords opposite, who are the advocates of a very different set of theories, but I venture to say with great respect that they and their friends would be very well advised to soften a little, at least in practice, the rather harsh theories to which they subscribe and to some of which we have listened to-day from the Bench opposite. Our generation and at least a, few generations yet to come will have to live under some system of industry and finance not very different from that which now exists. It is quite true that we are on the march and that none of us know where we are going. That is of the essence of all life, but though we march we must have our meals. The Labour Party tells us that it sees, dim and distant, the spires of a promised city where each individual will find plenty and contentment. I think that in the main those towers and those spires are a mirage, but even if I thought them real and substantial I should refuse to march towards them with the Labour Party as at present constituted, for I think it would fail to provide an adequate commissariat and I might starve on the way before I reached the goal.

For my part, I believe that with the initiative and efficiency of the higher ranks of service and leadership in trade and commerce is bound up the commercial recovery of this country and our future prosperity. I think there are good reasons, into which I will not go to-day, to question the possibility of restoring to their pristine scale and vigour many of those great industries upon which both the individual citizen and the public purse have thrived and prospered in the past. Those industries grew to the scale on which we once saw them thrive in circumstances of a virtual monopoly of world trade such as we are unlikely to enjoy again. But happily we have other resources. In specialised manufacture by units of moderate dimensions our resources are unmatched both in terms of skilled labour and of skilled and experienced designing. But if you would prosper in ventures of that nature you have to be very quick on your feet. Men who are overtaxed and in a constant state of private difficulty for which they are in no way responsible, if not indeed actually distressed, are not those to be quick on their feet. I think it is difficult to overstress, in the real interests of the working classes of this country as much as of any other class in the community, the importance of that consideration. So much for Income Tax.

I turn now for a moment to local rates. Local rates in their incidence are very different from Income Tax, for they represent a positive increase in the cost of production. I appreciate the theoretical basis of the noble Viscount, Lord Snowden's, famous dictum in another place that rates as such are no burden upon industry, because I understand, almost as well as he does, the theory of differential rates according to which, as your Lordships well know, the difference between actual rates and those levied on premises of so-called marginal utility tend in the course of time to be represented by deductions from rent and therefore do not operate as a charge on costs. But theory on this occasion, as the Balfour Committee—which I think was the last to point to this particular phase of rates—may for practical purposes be disregarded. Rates assessed upon the annual value of industrial premises do constitute an addition to the cost of production, and unhappily their effect in this regard is in inverse ratio to the volume of output. That, is to say, as output declines, rates remaining constant, the rates represent a constantly rising proportion of any one unit of production.

It will serve to throw the importance of rates in their relation to productive industry at this moment into proper proportion if I give a few facts and figures of local government expenditure. The figures which I shall give your Lordships I believe are accurate. I have spared no pains to make them so. They are for the year ending March 31, 1932. The receipts from rates for the year ending, as I say, March 31, 1932, are estimated at approximately £165,000,000. Final figures for receipts from Exchequer grants for the year ending March 31, 1932, are not yet available, but the total, including grants from the Road Fund, is estimated to be approximately £153,000,000. The aggregate expenditure—I shall draw the appropriate deduction from these figures in a moment—of local authorities for the same period is estimated at approximately £318,000,000. The average amount of rates collected per head of the estimated population for the same period was £3 14s. 1d. while the loan debt outstanding was £1,175,000,000.

The rateable value of industrial hereditaments in force on April 1, 1931, was £8,840,541. That is about one-fourth of the normal rateable value of those premises owing to the effect of the Derating Act. The average rate in the pound in 1931–32 was about 12s. and a rough calculation shows that local rates borne by industry to-day, taking into consideration the Derating Act, approximates to £5,300,000. The net output of productive industry in 1924 amounted to £1,743,490,000. On this basis you will see that the average proportion of the value of the net product of industries attributable to local rates is in the neighbourhood of.3 per cent. When one reflects that had the Derating Act not been passed into law by the last Conservative Government this rateable value of industrial hereditaments would be four times the sum mentioned, and that the same proportionate increase would apply to the rates levied as these fall as a charge upon industrial production, one is driven to the conclusion that the Derating Act represents one of the legislative masterstrokes of our day. One shudders to think of the position of industry in this country to-day if that measure had not been put upon the Statute Book by the last Conservative Administration.

I turn now to the various charges laid upon employers, and so upon productive industry, by the State in connection with their workers, because they are even more important—as you will see in a moment—than rates. These charges amount approximately for health insurance and pensions to £25,000,000, for unemployment insurance £19,300,000 and for insurance premiums necessarily paid against risks incurred by employers as a result of Acts of the Imperial Parliament, £5,500,000. The total of all those figures which I have given your Lordships for health insurance and pensions, for unemployment insurance and for the insurance premiums against risks under the Workmen's Compensation Act amount to £49,800,000. That is 2.85 per cent. of the total industrial output, the value of which I gave to your Lordships just now as £1,743,490,000. I ought to add that the figures I have given are for employers' contributions only and do not include contributions from workmen. Adding the figure of 2.85 per cent, for health insurance and pensions, unemployment and workmen's compensation to that for local rates, namely,.3 per cent., your Lordships will see that the demands of the State and the local authorities, without taking into account Income Tax, together amount to an increase in costs of production of no less than 3.15 per cent. But for the Derating Act that charge or increase would be no less than 4.05 per cent.

To those of your Lordships who have experience of the intensity of world competition to-day those figures will appear most formidable. It is not necessary in this House to recall the fact that upon the capacity of this country to maintain her hold upon her export business must depend the sustenance of the 45,000,000 souls who inhabit this small island. When some of us rise in our places to question the expediency of further public expenditure under Bills of the order of the Town and Country Planning Bill, we but do our plain duty to the public. It is indeed vital that local authorities should be constantly reminded of the imperative necessity of curtailing their expenditure. I shall venture in a moment to say a word or two about detailed opportunities for economy that seem to me to present themselves, but upon the general question, as it touches the so-called social services, I would say that upon broad grounds of policy and of human nature it would in my judgment be dangerous folly, having regard to the existing level of commodity values, to attempt to curtail the spending power, from whatever source derived, of the wage earner unless at the same time you curtail the interest to the rentier accruing to him as the result of his lending funds to the State. I am no Socialist, but I believe the more you examine the case with a desire to see what is practical the more you will feel the weight of that consideration. You cannot hope to correct the disharmony between revenue resources and national expenditure unless you also, and proportionately, scale down the income of the rentier and the nominal value of the Debt.

The obvious alternative, which was recommended so strongly on the Cross Benches and that to which the nations—for we alone cannot attempt it—must strive is to raise the value of commodities; that is, to adopt a policy international as well as national which will result in the cheapening of gold. To that end the statesmen of the world must bend their minds and we must pray that they may succeed in time. That is not to say that the national Budget ought not to be reduced. I am convinced that further and substantial economies are within the reach of the National Government. The position is indeed serious. The present sterling level is approximately that of 1913. There is no reason to suppose that the national income will not in turn be reduced to a figure not much exceeding that obtaining in 1913. But national expenditure has risen by no less than 300 per cent. since 1913 until it now absorbs one-third of the national income, and if deflation continues much further the proportion will soon rise to something like a half.

As to particular economies, and omitting any to be expected from a successful conversion scheme or from disarmament as a consequence of successful international arrangements, I am convinced that many Departments of State ought to be called upon to make their adequate contribution towards the relief of the taxpayer. Let me put it this way. I feel certain that any attempt to bring down the cost of the home Civil Service presupposes, if it is to be successful, the willingness of Parliament to ask for much less information on matters of detail. An examination of one week's Order Paper in another place will show how numerous questions are, the number that are concerned with matters of detail and the immense amount of documentation that the public offices must undertake if they are to be in a position to supply at Short notice the mass of information asked for. The willingness of the public to accept a rather less luxurious service must also be presupposed. At this moment it is the duty of Departments to reply with a 1½d. stamp by return of post to any communication, however unhelpful or unnecessary.

In addition to reductions that can be achieved by cutting down the work necessitated by demands from Parliament and the public there ought to be a, most searching investigation into the growth of staff since pre-War days, and in saying that I have clearly before my mind such inquiries as have already been carried out. I am inclined to think from my little experience in Departments that this is really not the appropriate job for a Committee. I would rather see an individual, who should be given a free hand, made responsible with a Committee to advise him, and I would give the individual what would amount virtually to executive power. I think the War Office, the Admiralty and the Ministries of Health and Labour would have a good deal to explain to an individual so equipped and advised, even after making allowances for the increased supervision necessitated by the mechanisation of the Fighting Services and by the many extra duties that social legislation of a sketchy character has left the Civil Service to work out. Your Lordships will have seen Lord Hewart's "Blank cheque for our new bureaucracy."

In considering how the fruits of this social legislation are to be thinned, temporarily at least, the Government must make up its mind as to what it wants. Much of the elementary education in this country is, I submit, more or less ineffectual. I would not attack exactly the same elements in our educational curriculum as many others would do. I would retain most of the children's health services. I like them. For instance, I would retain those services connected with dental treatment, eyesight and tonsils' investigation, and I would also say a good word for free or cheap milk. But I would cut out, or very carefully consider the possibility of doing so, all learning except the three R's and I would cut out much of the domestic science taught to girls. What is the use of spending public funds in teaching girls up to fourteen or so fairly elaborate cookery when they will not cook at all for another six years, by which time they will have forgotten everything they were taught? A matter of that sort looks well as a subject, but it is really pretty useless. Inspecting staffs of all kinds—Home Office, Ministry of Health, Ministry of Transport—ought in my judgment to be curtailed and I would leave night clubs and public morals within reason to find their own level and look after themselves.

Even if all reductions possible were effected there would, it is true, be no sensational financial result, but if only expansion by Departments could be checked that would be a very great achievement. Quite apart from the money you would save you would impress the Department with the fact that public economy in this country is essential and indirectly, if not directly, you would tend to deflect the policy of the Department from extravagance towards economy. Most of the reductions would be in low-paid staffs which, however, are generally speaking pensionable. Probably it would not be very economical to pension off prematurely those whose services you proposed to dispense with. The better way would perhaps be to cease to recruit for a period and to redistribute as far as such a policy can be reconciled with the accepted basis of scientific recruitment. I think by judicious redistribution you could do a good deal. I entirely agree that in the field of expenditure under grants in aid it ought to be possible to save a good deal by contenting ourselves with the very ample supply of roads which is now enjoyed, and I am inclined to think that not a few of the roads recently created, if my experience in the North is any guide to the general position, might very well not be further maintained.

I would say to the Government, with great respect, "Stick to it! Do not despise what Mr. Gladstone called 'Candle-end' economies." Let it be made plain to the Civil Service that if there are discovered those within its higher ranks who do not mean to play the game, then they will be asked to make way for others who can be relied upon to do their duty to the public, whose servants they are. There is no other way, and I venture to say to the Government that if at the end of their period of office they find themselves still popular in all quarters, they may be sure that they will have failed their country in the hour of her overwhelming difficulties, and that they have failed, too, to carry out the specific and vital task which was entrusted to their hands by one of the most remarkable manifestations of instinctive political sagacity that the long story of popular government in this or any other country can show. I am much obliged to your Lordships for having listened patiently to remarks which have been far too long.

LORD DARYNGTON

My Lords, I was very much interested in the speech of the noble Marquess. When he began he said he was not going to refer to many subjects mentioned this afternoon, but it is rather difficult for anyone not to mention a subject which has not been mentioned. I would like to take this opportunity of mentioning two subjects. One is the question of Death Duties. The noble Marquess opposite said we ought to face the facts, and I do not think the majority of people in this country realise the position in which we stand. I recently wrote to the Secretary of the Treasury and asked him to let me know the amount of the Sinking Fund paid into the Exchequer in the last ten years and the total amount of Death Duties received. I was informed that the amount of the Sinking Fund in the last ten years amounted to £464,000,000, and that the amount of Death Duties paid in the last ten years was £674,000,000. If any one of your Lordships were to base his own household accounts on the same lines, he would soon realise how unfortunate it would be. I do believe it is fundamentally unsound, and that we ought to realise that there is this great discrepancy between the Sinking Fund and the amount received in Death Duties. Everyone realises that the Death Duties are not ordinary revenue and ought not to be treated as such.

My other point is the question of the railways. It may be said that perhaps this is not germane to the question of Lord Hunsdon's Motion, but I think it is because everyone will realise the position in which the railways are placed to-day, and it shows that the Treasury are losing a very large amount of money in many ways, particularly in the matter of Income Tax, which is not paid on account of the absence of dividend. The point which I wish to make is this. During the last few years we have spent no less than £500,000,000 on the roads in this country. That is a very serious statement to make. What has been the effect of it? It has provided a speedway which has many times been the means of preventing the railways from making that money which they felt they were justified in making after they had received the charter from the Government after the War. The nominal value of the railways in this country, to-day, is £1,250,000,000, and the Stock Exchange value is only £450,000,000. That leaves an enormous margin. I do not think it is fully realised what a large part railways constitute of the national assets. I think it is no exaggeration to say that the nominal value of one of the railways in this country is greater than the value of all the shipping of this country, taken at £10 per ton.

Anyone who looks at the newspapers and sees the prices of debentures and guaranteed stocks will realise the importance of this matter. I believe it would be to the interest of the railway companies if their deferred shares were £1 shares, instead of £100 stock. An ordinary deferred share of the London and North Eastern Railway, on a £1 basis, could be bought for ninepence, and a similar share in the Southern Railway, on a £1 basis, could be bought, to-day, for one shilling. I think, considering the charter which was given to the railways after the War, the Government have a very great responsibility in regard to them. I do not think that anyone ought to look at this question of the railways on the same basis as he would look at any other industrial concern, and I will state my reasons. The conditions on the railways are totally different from the conditions on the roads. Last week I went in two chars-a-bancs. In each case I asked the man how many hours he worked and he said twelve hours. Such conditions are not allowed on the railways. Again, if we turn to many other statutory conditions which exist on the railways, we realise that they are absolutely different from those which exist on the roads.

I know it is of no use declaiming, but we want to know what can be done about it. I do not pretend to be an expert, but I will make one or two suggestions. I want to point out this, that the amount of trust money in our railways is no less than £800,000,000 at the present time, and I know an individual who has left his money entirely to the Public Trustee to invest for him. I think your Lordships will agree that it is not unreasonable for him to think that there is some little responsibility from the point of view of the Public Trustee with regard to that money which has been invested by him. In your Lordships' House not many years ago, you will remember the elaborate procedure which took place at the instance of Lord Redesdale in order to protect the capital of the railways, or rather of those people who were going to become shareholders of the railways, and you also remember the charter which I have already referred to, which really did cause the Government to be to a great extent responsible.

I should like to point out that the railways have no right to charge what they will. They cannot choose their customers, whereas the hauliers on the roads have a right to choose and to say whether they will accept a freight or not. One other condition is remarkable, and that is the condition which is placed on the motor hauliers as to the amount of tonnage they are allowed to carry. Everyone knows that there are no weighing machines on the roads, and therefore a very large amount of tonnage is carried which is excessive in weight. I have known cases when the limit was 22 tons but no less than 50 tons was carried on the road. I think it shows great lack of foresight on the part of the Government, to put it mildly, that the present position exists.

The question I want to put to your Lordships this evening is this: Can the two horses, private adventure and State ownership, run together in double harness? Private enterprise must be dealt with by the Government in the spirit of the utmost good faith, and the two agencies must be put on a parity and under such financial conditions as will eliminate rivalry. The suggestions I want to put before your Lordships are these:—A joint board to be formed, made up of authorities of the railways and authorities of the roads; the business of the board to be to provide finance for the maintenance, road staffing and extension of both the railways and the arterial roads; a fund to be formed to cover expenditure under these heads; the fund to be fed, first, from the existing levies made upon road traffic, which it is understood are sufficient to cover the maintenance and other provisions required for the roads, and, secondly, a contribution to be paid in by the railways out of their gross revenues, after deducting the costs of maintenance of the permanent way and buildings and staffing. The first charge on the fund would be for the service of the capital expended by the railways on the permanent way and buildings. This first charge would be some compensation to the railways for the injury which was done to them by the expenditure of £500,000,000 of public money on the roads and the consequent deprival of traffic which they suffered thereby. The next charge would be for the maintenance of the roads; and third in rank would be a provision for such extensions of railways and roads alike as may be determined on by the central board.

I put those suggestions forward very tentatively, but I want to mention the fact that there are a very large number of people prominent in the motor world who are in favour of them and think it is absolutely essential that there should be co-ordination of some kind. What will be said in reply to that is: Why not go the whole hog and have nationalisation? I have had a little experience of Government offices—I was Postmaster-General for about seven years—and I know something about the industries in the North of England, and I personally do not believe, as far as the railways are concerned that nationalisation would be more favourably received here than it is in Australia. We have a great example in Australia. Everybody is glad to see the gradual improvement in the Australian position; it is one of the few gratifying features of the economic position. These are the latest figures which emphasise the great handicap of the State ownership of railways in Australia. The amount invested in these undertakings is £336,000,000 and two-thirds of the total deficiency in 1930–31 were losses on railways. They have succeeded in preventing competition from the roads and have done the worst service possible to their railway assets and contributed in no small measure to the financial difficulties of the Dominion. I do not think it is possible to drive the motor car off the roads but I want to see the two services working together.

I should like to state the justification of the first charge given to a portion of the railway capital. The security formerly existing for railway capital has been jeopardised by the creation of the arterial road system. The capital represented by this system has been provided by the State or local authorities on the strength of a public guarantee. The corresponding portion of the railway capital ought perhaps not to have a Government guarantee, but at all events a first charge on the traffic developed by the arterial system so as to neutralise the jeopardy. The question which I have raised is one of very considerable importance, and I hope that the Government may find some way of co-ordinating the two systems.

VISCOUNT LEVERHULME

My Lords, I would like at the outset to say that I am sure that the whole industrial and commercial community will be grateful to the noble Lord, Lord Hunsdon, for bringing forward this Motion to-day. At the beginning of his speech the noble Lord referred to a debate which took place in your Lordships' House a little over five years ago, and I well remember that in that debate at least one speaker advanced the view that, whereas rates were a burden upon industry, taxes were not, since they were levied on the profits of industry after they were made. It would have been very surprising after our experiences of the last five years if we had heard that view seriously advanced to-day as an argument for opposing this Motion. We have, however, heard the view advanced that this demand for economy is a sign that the capitalist system is breaking down, and those who hold that view are constantly telling us that, whereas the capitalist system did succeed in solving the problem of production, it is failing to solve the problem of distribution.

With regard to that, at any rate let us remind ourselves that when engaged in the task of solving the problem of production the capitalist system did not have round its neck the heavy mill-stone of taxation, which it now has to bear when it is attempting to solve the problem of distribution. Not only are the dividends paid by industry liable to Income Tax, but I would remind your Lordships that the amount of profit placed to reserve is taxed as well, and in this way a sum which was estimated last year by a former Chancellor of the Exchequer, Sir Robert Horne, at over £600,000,000, has been taken by the State during the last twelve years, instead of being left in industry for its future maintenance and development. Surely this is a burden upon industry, leaving out of account the taxes and surtaxes levied on dividends, which, however they may be spent, must at any rate reduce the purchasing power of those who pay these taxes. It is generally admitted that the prudent course for a private citizen is to live within his income, to spend less than he earns, to put by for a rainy day, and, as Adam Smith so truly observed, "what is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." But, of course, to say that the State or a local authority must live within its income, begs the question, What is that income? The income of a local authority is, of course, its revenue from local rates and taxes. The income of the State is the revenue from the taxes and duties levied by Parliament.

But have not Governments been far too prone in the past to think of expenditure first and taxation afterwards, to make extravagant promises and then to squeeze out of the taxpayer the wherewithal to fulfil them? Before the War the State took one-eighth of the national income; now it takes one-third. Up to a point taxation is a spur to increased effort; beyond a certain point it is a discouragement of individual initiative and enterprise. Somewhere between these two points lies the figure which can prudently be called the income of the State, and upon which the State must base the expenditure it can afford. I know that there are those who claim that we have not reached the limits of our taxable capacity. Let us for a moment consider the limits we have already reached. Take Income Tax and Surtax. Income Tax is now levied on incomes as low as £125 a year (subject to modifications and exemptions which I need not enter into in detail) and taxation rises until it reaches a figure between 13s. and 14s. in the pound—about eightpence out of every shilling, or twopence out of every threepenny bit. It has been pointed out on many occasions that if a man liable to this taxation desires to insure for the provision of Death Duties his income actually becomes a minus quantity.

I do not wish for a moment to question the perfectly sound principle that all should contribute according to their means. But should not those who think that taxation according to our present methods can be expanded, tell us how much further in either or both directions they would propose to go, so that we may know the worst, and also what compensating benefits the expenditure of this further taxation will bring to industry when the public is left with so much less to spend upon the products which industry makes? I think that all speakers who have supported this Motion must feel that as far as the general principle of economy is concerned they are preaching to the converted. What we want to assure the Government is that they will have public opinion behind them in tackling this problem. No measure of economy can be popular with everyone, but we have a national Government, and one of the main causes which brought it into being was the recognition that expenditure had to be reduced, and that this could best be done by political Parties acting together.

There are very many industrial undertakings to-day which could not have survived had not the most rigid economies been introduced. If businesses have had to ration their spending departments, is not the same policy worthy of considera- tion for the spending Departments of a Government or of a municipal corporation? There are to-day nineteen Ministries compared with fifteen before the War. In the Government Departments covered by these Ministries (excluding the Defence Services) there were, in the fiscal year 1930–31, approximately 43,000 people employed, compared with 11,000 in 1913–14. The total expenditure of these Departments was £250,000,000, compared with £45,000,000. The total expenditure on administration in these Departments was £22,000,000, compared with £6,000,000, the expenditure on salaries, wages and allowances being £13,000,000, compared with £2,500,000. If rationalisation has justified itself in industry could it not be applied—at any rate to some extent—to the business of government?

We frequently hear the War blamed for our present high expenditure. While it cannot be denied that the War has placed a tremendous burden upon us, I would like to point out that if one deducts from our present total expenditure the cost of War pensions, the interest on the National Debt, and the cost of the Defence Services, one is left with the figure of nearly £304,000,000 compared with a total Budget in the last pre-War fiscal year of £197,000,000. Are we really satisfied that no further economies are possible in education? Should our policy for several years to come not be to see how we can adapt our educational equipment to the needs of the scholar's future occupations—to industry in particular—rather than increase our volume of higher education? Ought we not to turn our attention to the quality of higher education rather than to its quantity? We are spending approximately £100,000,000 a year on education. In this vast sum surely we can plan to economise as well as to spend. The phrase "planning" is constantly on the lips of politicians at the present time, but it is a phrase which can surely be applied to economy as well as to expenditure, and in this enormous total of £100,000,000 surely we can look ahead and plan for economy as well as expenditure?

I come in conclusion to one field for economy which offers perhaps the greatest scope of all. I refer to Debt conversion. The point I would make in connection with this matter is that further measures of general economy should precede a loan conversion scheme rather than follow it, because the success of such a scheme largely depends on Government economy. Let me once more turn to industry to illustrate what I mean. How is it that one concern can offer say 7 per cent. preference shares and have the issue oversubscribed, and another concern offer a return of, say, 8 per cent. or 10 per cent., on its preference shares and find the issue under-subscribed? How is it that one company can successfully issue debentures at a lower rate of interest than another concern can? Very largely because in the one case the public has confidence in the administration of the undertaking, believing it to be prudent and sound, and in the other case its confidence is not so great. The psychology of the public mind plays an enormous part in these matters, and nothing could do more to strike the right note of confidence and prepare the way for a successful conversion scheme than a real measure of proof on the part of His Majesty's Government that it accepted the principles enunciated in the Motion which is before your Lordships' House, and which I have the privilege of supporting.

LORD LAMINGTON

My Lords, as I shall not be here when this debate is resumed I should like to say a few words now with reference to one particular subject and that is local expenditure. I believe that nothing has been more fruitful of extravagance in local expenditure than the system of making proportional grants to local authorities. Parliament, when imposing new duties on local authorities, no doubt thought it would do the thing cheaply by only paying a certain part of the required expenditure, while local authorities, when taking up those duties, thought they were getting something cheap because the Government were paying 50 per cent. or 75 per cent of the costs. The result is that schemes have been indulged in which should never have been started. I know of one particular instance where thousands of pounds are being spent upon a hill road which is only used for four months in the year at most. There is a sharp bend over the railway, not really dangerous and only requiring ordinary care in going round. I do not know what the total cost will be, but simply for tourist traffic lasting, as I say, at most for four months of the year, there is to be a new road bridge put over the railway.

Then there is the expenditure on housing. Your Lordships must know many instances of houses put up at a cost which would make the economic rent £60 or £70 but which are let at only £20 or £24. They are not occupied by working class people but by people of the middle classes who could well afford to pay the economic rent of the house they want. There is nothing more mischievous, to my mind, than the vast expenditure on housing that has been allowed in the past. If private enterprise had taken it up housing needs would have been adequately supplied all over the country, and houses of the type really required would have been put up to meet the demands of all those who wanted to occupy them. I know of one instance of a district council being asked to put up 127 houses in one locality. A question was asked as to who was going to occupy them and when inquiry was made it was found that only sixteen people really deserved those houses. Row many instances of that kind there are where no close inquiry was made I do not know, but I think there can be no doubt that extravagance in housing has been going on all over the country.

Another instance can be found in the reconditioning of rural cottages. That does not concern local authorities, but two thirds of the expenditure is borne by the State and one third by the landlord. It is not a question of dealing with cottages which are insanitary. They are reconditioned in some cases simply for the purpose of putting in hot and cold water supplies and other conveniences. That will result in a burden on the landlords, because we all know that with hot water systems pipes get out of order, and so the landlord will have to pay the cost of maintenance of these modern conveniences which have been introduced, not to remove defects which might be injurious to health, but solely for the purpose of bringing houses up to date.

I have mentioned these particular instances because I do think that the fact of the Government contributing as much as 75 per cent. has led to great extravagance. I deprecate nationalisation as a principle, but now that our roads are national highways I think it might perhaps be better for a Government Department to deal with them, leaving local administration in the hands of some composite body formed, as in the case of Territorial Associations, of people in terested in that particular subject. I believe that would be far better than having two parties playing into each others hands, like the Central Government and the local authority.

LORD JESSEL

My Lords, on behalf of my noble friend the Marquess of Salisbury, I beg to move that this debate be now adjourned till Wednesday, June 29 next.

Moved, That the debate be now adjourned till Wednesday June 29.—(Lord Jessel.)

On Question Motion agreed to, and debate adjourned accordingly.