Lords Sitting of 26 July 1937

Preamble
The House met at three of the clock, The LORD CHANCELLOR on the Woolsack.

LICENSING OF ADVERTISEMENTS (SCOTLAND) BILL. [H.L.]
THE MARQUESS OF ABERDEEN AND TEMAIR: My Lords, on behalf of my noble friend Lord Polwarth, I beg leave to introduce a Bill to provide for licensing of advertisements in Scotland, and to move that it be read a first time.
Moved, That the Bill be now read 1a.—(The Marquess of Aberdeen and Temair.)
On Question, Bill read 1a, and to be printed.

MATRIMONIAL CAUSES BILL FORMERLY MARRIAGE BILL.
Returned from the Commons, with the Amendments agreed to.
SUMMARY PROCEDURE (DOMESTIC PROCEEDINGS) BILL.
Returned from the Commons, with the Amendments agreed to.
CINEMATOGRAPH FILMS (ANIMALS) BILL.
Returned from the Commons, with the Amendments agreed to.
NORTH COTSWOLD RURAL DISTRICT COUNCIL BILL. [H.L.]
Returned from the Commons, agreed to, with Amendments: the said Amendments considered and agreed to.
SHOREHAM HARBOUR BILL. [H.L.]
Returned from the Commons, agreed to, with Amendments: the said Amendments considered and agreed to.

BRIGG GAS ORDER, 1937.
ORMSKIRK DISTRICT GAS ORDER, 1937.
WORKSOP GAS ORDER, 1937.
HEMSWORTH GRIMETHORPE AND DISTRICT GAS ORDER, 1937.
IRON BRIDGE AND DISTRICT GAS ORDER, 1937.
LORD TEMPLEMORE: My Lords, I beg to move, That the Special Orders, as reported from the Special Orders Committee on Thursday last, be approved.
Moved, That the Special Orders, as reported from the Special Orders Committee on Thursday last, be approved.—(Lord Templemore.)
On Question, Motion agreed to.

DUMFRIESSHIRE ELECTRICITY (EXTENSION) ORDER, 1937.
THE EARL OF ERNE: My Lords, I beg to move, That the Special Order, as reported from the Special Orders Committee on Thursday last, be approved.
Moved, That the Special Order, as reported from the Special Orders Committee on Thursday last, be approved.—(The Earl of Erne.)
On Question, Motion agreed to.

MINISTRY OF HEALTH PROVISIONAL ORDER (BIRMINGHAM TAME AND REA MAIN SEWERAGE DISTRICT) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
MINISTRY OF HEALTH PROVISIONAL ORDER (WISBECH WATER) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
MINISTRY OF HEALTH PROVISIONAL ORDER (YEADON WATER) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
MINISTRY OF HEALTH PROVISIONAL ORDER (CLEVEDON WATER) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
ABERDEEN CORPORATION (WATER GAS ELECTRICITY AND TRANSPORT) ORDER CONFIRMATION BILL.
Considered on Report (according to Order).
ELGIN AND LOSSIEMOUTH HARBOUR ORDER CONFIRMATION BILL.
Considered on Report (according to Order).
PAISLEY CORPORATION ORDER CONFIRMATION BILL.
Considered on Report (according to Order).

ISLE OF MAN (CUSTOMS) BILL.
Order of the Day for the Second Reading read.
LORD TEMPLEMORE: My Lords, this Bill is, as your Lordships are aware, passed annually in order to confirm the Customs regulations of the Manx Legislature and to make modifications in the law relating to Isle of Man Customs administration similar to those made in respect of United Kingdom Customs administration by Acts passed since the date of the last Isle of Man (Customs) Act. The Bill covers Resolutions of Tynwald passed in order to bring the Customs Duties in the Island into line with the United Kingdom duties. Clause I. confirms a Resolution relating to certain duties which in the Isle of Man are imposed from year to year, the corresponding United Kingdom duties being permanent. Clauses 2 and 3 apply to the Island the alterations of duty on Empire reed organs and Empire silk stockings and socks embodied in the recent United Kingdom-Canada Trade Agreement. Clause 4 confirms Resolutions of Tynwald by which certain duties imposed in the United Kingdom by Orders made under the Irish Free State (Special Duties) Act, 1932, are applied to imports from the Irish Free State into the Isle of Man. Clause 5 is the short title of the Bill. This Bill being what I might describe as a hardy annual, I think I need say no more about it but merely move that it be now read a second time.
Moved, That the Bill be now read 2a:.—(Lord Templemore).
On Question, Bill read 21: Committee negatived.

FINANCE BILL.
Order of the Day for the Second Reading read.
LORD TEMPLEMORE: My Lords, once more the date has come round on which the Finance Bill of the year is presented for the consideration of your Lordships. Your Lordships may remember that, when I introduced the Finance Bill of last year, rather over a year ago, I laid stress on the fact—which indeed had also been stressed by my right honourable friend the then Chancellor of the Exchequer, now Prime Minister—that the finance of the year was overshadowed by the necessity of our very heavy and speedy rearmament. It is, I am afraid, a regrettable fact but none the less true that our position is once more governed by the same factor. I do not think that anybody in your Lordships' House will venture to say that the necessity for rearmament has become any less in the interval. Following my action of last year, which I think was approved by your Lordships, I do not propose to enter into any detailed examination of the Finance Bill. That is more suitable for another place than for your Lordships' House. I shall, by leave of the House, content myself with a short review of the Bill, going into some more detail and laying special stress on the particular new feature of this Finance Bill when I come to it later on.
Your Lordships will remember the position when my right honourable friend the Prime Minister introduced the Budget into the House of Commons on April 20 last. The actual Budget deficit for the year before amounted to just over £5,500,000. As regards the Estimates for the year 1937–1938 your Lordships, may remember that my right honourable friend reckoned that his Expenditure would be round about—I use round figures—£863,000,000, while the receipts from all sources would total £848,000,000, which left him a deficit of £15,000,000. The question arose, as it always does, how was that deficit to be found. My right honourable friend made a few minor adjustments and alterations. I think I will

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only refer to one of them, and that happens to be in the nature of a remission. I refer to it because in former years, I remember—when I first came into the House and a few years after—it was a source of some interest to your Lordships, and I think questions were often raised here with reference to the duty on male servants. I remember that my noble friend Lord Arnold answered for the Treasury and that some of my noble friends on that side once or twice wanted to have the duty remitted, but nothing could be done. I hope your Lordships will take it as an act of grace on the part of the Prime Minister that he has now done away with the male servant duty, which really was out of date and did militate against certain men finding employment.
Apart from minor adjustments and alterations, my right honourable friend found the money he required for meeting the deficit by two main taxes. In the first place he increased the Income Tax by 3d., making it 5s. in the pound, by which means he proposed to raise £13,000,000 out of the £15,000,000, and secondly, he introduced an entirely new tax, called the National Defence Contribution, by which he proposed this year to raise a sum of £2,000,000 and in a full year the large sum of £25,000,000 a year. Noble Lords may like me to go into a certain amount of detail with regard to this National Defence Contribution. As I have said, it is a new tax, I think—anyhow in time of peace—to be imposed by the Chancellor of the Exchequer. If your Lordships will look at the Bill you will see that the clauses dealing with this new tax are Clauses 19 to 25 inclusive. In Clause 19 you will see that the tax will be imposed for a period of five years, commencing on April 1 of this year and ending on March 31, 1942. It will thus run for the same period as borrowing is authorised under the Defence Loans Act of this year. The tax will be charged by reference to an accounting period, generally twelve months, of a trade or business; that is, the period for which the accounts of the trade or business are made up. In any cases where an accounting period falls partly within and partly without the five-year period, the tax will be charged only for such part of the accounting period as falls within the five years.
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As regards the rate of tax, the rate will be 5 per cent. in the case of a trade or business carried on by a company or other body corporate, and 4 per cent. in the case of a trade or business carried on by an individual or firm. As regards the scope of the tax, it will apply to all trades and businesses carried on in the United Kingdom, and also to those carried on abroad by persons ordinarily resident in the United Kingdom which make profits in excess of £2,000. It will be comprehensive in its scope, and will include, for instance, agricultural and agency businesses. Businesses, consisting of the holding of investments or other property, carried on by an incorporated body, are specifically included. The tax will not apply to professions, offices or employments. As in the case of the Income Tax, each trade or business will be separately dealt with and separately assessed. Where a parent company operates through the medium of one or more companies, each of the companies will be treated ordinarily as a separate entity for the purposes of the National Defence Contribution.
If your Lordships will turn to Clause 20, you will see that, subject to necessary adaptations, profits will be determined on the same lines as for the purposes of Income Tax. The most important modifications will be the deduction in computing profits of interest on borrowed money and other annual payments, and the inclusion in profits of the annual value of the premises owned and occupied for the purposes of the business. In the Fourth Schedule there are rules laid down in respect of losses and wear and tear in the assessment of the tax. Allowance for current wear and tear of machinery or plant will be given on similar lines to that given for Income Tax, and a current loss arising during a period of liability will be available for set-off, as in the case of Income Tax, against profits in subsequent accounting periods. Also in the Fourth Schedule appear rules regarding the remuneration of directors. In the case of companies in which directors hold a controlling interest a limitation is imposed upon the amount to be deducted from profits in respect of the directors' remuneration, so as to prevent an avoidance of liability by means of the payment of profits in the form of remuneration. This limitation will not apply to the remuneration of

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whole-time service directors, which will be allowable as a deduction from the profits in the ordinary way.
In Clause 21 your Lordships will see that the relief for small businesses is dealt with. Tax will not be chargeable where the profits for a chargeable accounting period of twelve months do not exceed £2,000, and an abatement will be allowed in the case of concerns whose profits in any chargeable accounting period of twelve months fall between £12,000 and £12,000. The abatement will be one-fifth of the amount by which the profits fall short of £12,000. If I may give illustrations, a concern which makes a profit of £3,000 will obtain an abatement of one-fifth of £12,000 less £3,000, leaving £9,000, so that the abatement will be £1,800. A concern which makes a profit of £4,000 will obtain an abatement on £12,000 less £4,000, equals £8,000, and thus the abatement is £1,600. The abatement diminishes as the profit increases and ceases altogether when profits reach £12,000. Provision is also made for the remission of tax in Special Areas where the Commissioners certify that it is expedient for the purpose of assisting industrial undertakings in those areas that relief from the tax should be given.
The tax will be deducted as an expense in computing the profits of the trade or business for the purposes of Income Tax. As regards exemptions, which are also included in Clause 19, subsection 5, exemption from the tax will be given to public utility undertakings carried on by local or public authorities or by other persons if they are subject to statutory restrictions in regard to the prices they can charge or the dividends they can pay. The most important of such undertakings are gas, water, electricity, railway and tramway undertakings. Holding companies which control public utility companies will be entitled to exclude from the computation of their profits any income received from such subsidiary companies. Exemption will also be given to the British Broadcasting Corporation. Friendly societies and similar bodies and charities will be exempt in respect of their trading profits, in so far as those profits are already exempt from Income Tax. As I think I said earlier, the estimated yield of the tax is £2,000,000 in the current financial year, and £25,000,000 in a full year. I have
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gone into detail at some length on the clauses dealing with this tax because I thought that your Lordships would probably prefer that I should do so.
Heavy as this taxation is, your Lordships will no doubt realise the somewhat unpleasant fact, if you like to put it that way, that further heavy taxation has only been avoided by borrowing. The House will remember that under the Defence Loans Act, which I had the honour of piloting through this House some months ago, power has been taken to borrow £400,000,000 in five years, and provision has been made in the Estimates to borrow £80,000,000 of this amount during the current year. It will be said by some people—in fact I am sure that the noble Lord, Lord Arnold, is going to say so, because he always does in every speech that he makes on a Budget in this House—that the Budget is not balanced because we are making special arrangements to borrow for our rearmament programme. I deny that altogether and for this reason: To begin with we are paying for far the greater amount of our vast rearmament expenditure out of our current income; and borrowing is only authorised for five years at the average rate of £80,000,000 per annum. Interest is to be met until 1941, and after 1941 both interest and sinking fund will be met out of current revenue, and the whole amount of the borrowed money will be repaid by 1971.
As I said last year, it was then and it is now a bitter disappointment to my right honourable friend the Prime Minister that in these his last two Budgets he has been forced to increase taxation instead, as he had hoped, of being able to make remissions. But fortunately, as I am sure your Lordships will agree, the necessity of this vast expenditure on rearmament has arisen at a time when the Revenue is rising and therefore taxes are coming in well. It is a tribute to the country and, as I think, to His Majesty's Government, that this huge expenditure on rearmament and armaments has been able to be met without in any way cutting down or denuding the social services, on which indeed we are spending a good deal more than the Government of noble Lords opposite were when they went out of office in 1931. There may be those who see in this current expenditure an uncontrolled desire on the part

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of this country to engage in an armament race, but I think that fair-minded people regard the present situation rather as a determination of the country to be so armed that her counsels may bear the weight which they used to carry in past days in world affairs. The people of this country have never shrunk from sacrifices, financial or otherwise, when these have been shown to be necessary, and it is in the firm belief that they consider this Finance Bill to be simply a dire necessity as well as a fair and equitable adjustment of burdens that I ask your Lordships to give it a Second Reading to-day. I beg to move.
Moved, That the Bill be now read 2a.—(Lord Templemore.)
LORD ARNOLD: My Lords, the noble Lord who speaks for the Government on financial and cognate subjects is a skilful controversialist, and he has a great capacity for ignoring the weaknesses of his case. I shall feel it my duty to put before your Lordships some counter considerations about the Finance Bill and the financial position of the country, which will I think put these matters in a truer perspective. The noble Lord at the end of his speech observed that I should charge the Government once more with not balancing its Budget, and he is quite right. I do charge them with not balancing the Budget, not only for the reason which he gave, which is that they are borrowing £80,000,000 for armaments, but because the Budget has no Sinking Fund. As a matter of fact the National Government has never balanced any one of its Budgets, because the National Government has never had a Sinking Fund since it came into office, and no Budget can properly be regarded as balanced which is without a Sinking Fund. I am quite prepared at the present time to concede that it may be a matter of argument whether there should or should not be a Sinking Fund, but the country ought to realise what is being done, or rather what is not being done. Not only so, but the National Debt is almost at the highest point it has ever touched, and now, with these £400,000,000 to be borrowed under the Defence Loans Act, it will of course be higher still.
That is the prospect which faces us. But even so there is still no Sinking
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Fund, and not even—and this I do rather complain of—an apology for there not being a Sinking Fund. In fact, the Sinking Fund is treated with a total lack of respect. It is not even mentioned in these days from the Government Bench. Taxation is already high, and we are faced with this National Debt, now approximating to £8,000,000,000. In these circumstances what would happen if another war came with its tremendous financial strain and further gigantic borrowings. That is the problem which outstrips the gloomiest financial imagination. There would, of course, have to be conscription of wealth—that is, assuming that after a few weeks intensive air warfare there was any wealth left to conscript. Contrast the position in regard to the National Debt and the Sinking Fund with 1914, which unhappily turned out to be the eve of the last War. It was the very antithesis of this position. At that time the National Debt was down to the lowest point which it had touched for fifty years: it was only £650,000,000. On the other hand, the Sinking Fund was at the highest point it had reached for over fifty years; and it may well be that it was this sound state of things which enabled the country to stand in the marvellous way it did the appalling financial strain of the last War.
Before proceeding to discuss the Bill on general grounds, I desire to make some observations about a few of the taxes in it, and I will begin with that tax about which the noble Lord himself has spoken at some length, the National Defence Contribution. I wish at once in discussing that tax to make an apology to the Prime Minister. I do not Hatter myself that my apology will ever reach him, or that he knows, or ever has known, anything about the matter, but the truth is that I have in past years more than once charged the present Prime Minister, when he was Chancellor of the Exchequer, with being devoid of financial imagination, with always proceeding on the most orthodox lines. I said we always knew exactly what he would do, because he would never depart from the strictest canons of Conservative finance. In introducing this Budget he upset all preconceived notions and calculations with this new tax, which he called the National Defence Contribution. I myself am not going to discuss this tax for more than a minute or two, either in

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its revised form or in its original form. I suppose nearly every possible permutation and combination of thought in regard to this tax has already received expression in Parliament, but the tax is in the Bill and we cannot alter it in your Lordships' House.
In my opinion far too much time has been taken up in discussing this one tax, and far too little attention has been paid to the serious financial position into which the country is drifting. Let me say a few words, however, about this tax. It was an astonishing tax for the present Prime Minister to introduce, because it is so at variance with some of the accepted principles of Conservative finance. It has been our duty from time to time on this side of the House to combat arguments put forward by noble Lords opposite against a high Income Tax and against a tax on profits. We have had to point out that it is vital to remember that the In-corm: Tax is not a charge against profits, but is an appropriation of profits that have been made. I have always felt, though, that there is something in the contention that a high Income Tax does take something out of business, some of which, if left in the business, would have been available for reserves, extensions, and so forth. That argument is one of some weight against the National Defence Contribution, whether in its original form or in its revised form. Indeed, it is one of the reasons why I suggest that there is a good deal to be said, as an alternative to the National Defence Contribution, for a straight increase of a few pence in the Income Tax. If that had been clone the burden would have been spread over all the Income Taxpayers, less money would have been taken out of business, and more money would have remained in business for reserves and extensions. I shall not argue this matter at any length, and I am not saying that a straight increase of a few pence in the Income Tax should have been made by the Chancellor of the Exchequer. What I am putting forward is that, as an alternative to the National Defence Contribution, there is probably more to be said for a few pence on the Income Tax than has been admitted. It is undeniable that, apart from other considerations, one substantial objection to an increase in the Income Tax is that if you raise the rate above 5s. that may become a strong psychological
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deterrent factor to those engaged in business and in regard to new enterprises.
So much for this National Defence Contribution. I want to say a word about Death Duties, which this year have practically reached the very high estimate put in by the Chancellor of the Exchequer last year of £89,000,000. That was very nearly attained. So at last, as it happens, though this year the estimate was not quite attained, the unfortunate record which has only been broken twice since the war of under-estimating the Death Duties, has been broken. The Chancellor of the Exchequer again puts the estimate as high as £89,000,000, and it is interesting to note that fifty years ago the whole expenditure of the country was less than the £89,000,000 which we expect to get from this one tax of the Death Duties this year. As a matter of fact, in 1897—forty years ago, and only two or three years after the Death Duties came into operation—the yield was, in round figures, £15,500,000. Let me also say a word about the Tobacco Duty, which now realises the enormous total of nearly £80,000,000 a year. The actual figure was £79,749,000. That is a figure which is nearly equal to the whole expenditure of the country about sixty years ago. Forty years ago the yield of the Tobacco Duty, instead of being practically £80,000,000 as it is to-day, was only £11,676,000.
I now leave these details and come to the Finance Bill in general. Here at once I join issue with the noble Lord. My main submission in regard to this Bill is that more of the armaments expenditure ought to have been raised from revenue. In fact I do not think it is going too far to say that the whole of the £80,000,000 which is being borrowed in the current year should, and could, have been raised from revenue. If that had been done, the burden of taxation would not have been too heavy. It would only have been in accordance with precedent at a certain period of our history, and therefore it would be no rejoinder for the noble Lord to say that it could not be done because, as a matter of fact, it has been done in the sense that the proportionate burden, looking at the total national income of the country, has previously been heavier. At the low point of the economic depression in 1932–1933 the taxation raised by the Finance Bill took

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an appreciably higher proportion of the total national income of the country than this present Finance Bill will take of the present national income of the country.
Let me give some figures to support what I am saying. Budget receipts from what is known as ordinary Revenue in 1932–1933 were practically £700,000,000, but there has been a substantial increase in the total national income of the country since then. We were then at a period of great depression, and we are now at a period of great world prosperity. According to certain figures, it seems likely that the total national income of the country since 1932 has been increased by over 30 per cent. If the view is taken that that estimate errs on the high side, there is good ground for the belief that the increase has certainly not been less than somewhere about 27½ per cent. In this connection I may quote some figures given by Sir Josiah Stamp in a letter which appeared in The Times on Thursday morning of last week. He pointed out that since 1932 the return on industrial capital, including debentures and so forth, has been increased, taking income index figures, from 74 in 1932 to 120 in 1936. That is a provisional figure, but it is probably correct. That is a very great increase. It is an increase of nearly 60 per cent. Sir Josiah Stamp also points out that if you take the return on ordinary capital and equities, the increase in index numbers has been from 71 to 136, which is actually about 91 per cent. In certain sections of the national income the increase since 1932 has been very much greater than 27½ per cent., which is the figure I propose to take. On the other hand, it is only fair to say that there are certain sections—and very important sections—where the increase has been much less. For instance, in the case of wages—a very big factor in estimating the total national income of the country—it would seem that the increase since 1932 to the present time has probably only been about 20 per cent.
Still, summing it all up, I think it is probably cautious to take the figure of increase in the total national income since 1932 till the present time, which is the middle of 1937—because the income is higher this year than last year—at 27½ per cent. That is what I propose to do. I have already told your Lordships that the
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amount obtained through the Budget from ordinary Revenue in 1932–33 was almost exactly £700,000,000, and if that be increased by 27½ per cent., we arrive at a total of £892,500,000. To that you must add the Budget receipts, other than those from ordinary Revenue, which are estimated in the present Budget at about £62,500,000. If the £62,500,000 be added to the £892,500,000, you arrive at a total Revenue of £955,000,000. On the other hand, looking at the Expenditure side of the account, as the noble Lord has said, the estimated Expenditure in the present Budget is £863,000,000, and if you add to that—this is my argument—the £80,000,000 which is being borrowed under the Defence Loans Act you arrive at a total of £943,000,000. On the figures I have been given, you would have a total Expenditure of £943,000,000 and a total Revenue of £955,000,000 which would give a surplus of about £12,000,000.
It is not my function to construct a Budget in detail, and to say in detail how the additional taxation to bring the proportionate burden up to the figure of 1932–33 should be levied, but I make two or three observations about the matter. In the first place I say again that it is no use saying it cannot be done, because it was done proportionately in 1932–33 and those who are interested can look at what was done then. Moreover, I would point out that there is practically nothing in the current Estimates of the Budget to come from the National Defence Contribution—only £2,000,000 as the noble Lord said, whereas next year perhaps £20,000,000 may be expected from this source. The gross amount is £25,000,000 but the gross is reduced owing to the fact that National Defence Contribution can be placed against Income Tax. The net amount will probably be about £20,000,000. If that is right we shall get a further £20,000,000 of revenue from this tax next year.
There are two or three other small taxes which next year will yield more because the increase levied in the Budget will be fully operative. It may probably be that somewhere about £55,000,000 will be the amount required to be levied in taxes not already enforced by the Chancellor of the Exchequer to bring the revenue up to the figure of which I have been speaking, so that the whole of the £80,000,000 will be obtained from revenue. Even so, I must

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make it clear that if all that had been done, in a year or two there would still be a gap between Revenue and Expenditure, because it seems very probable that next year or the year after—certainly next year—the armaments expenditure will be distinctly greater than it is in the current year. Still I am not dealing with that to-day. I am urging on the basis of the present finance that the whole of the £80,000,000 to be borrowed could be obtained from revenue.
That is looking only at the Revenue side of the account. I must remind your Lordships that there are two sides to the national account. There is the Revenue sale and the Expenditure side. I think that the Chancellor of the Exchequer, with a little persistence and a little ingenuity, could, in order to aid him in his difficulties, get same help by cutting down in certain respects the Expenditure of the country. I give two possibilities. The total Expenditure at the present time on subsidies of one kind or another is no less than £37,000,000 a year. I cannot help thinking, in a review of those subsidies, that some pruning is possible there. Again, I think that several million pounds a year could be obtained by a readjustment of the derating scheme. It was a matter of surprise, and of some protest, when derating was first brought into operation, that the relief was given to all firms whether they were prosperous or not. In point of fact huge presents of money from the National Exchequer were given to some very prosperous firms. I think a readjustment there, if it was made, would be of material assistance to the Chancellor of the Exchequer. I do not think, in view of what I have said, that I have exhausted the possibilities of reduction in Expenditure, but I will not pursue the problem further this afternoon, though I think other economies could be made.
One final consideration I should like to put before the House in support of my view is that more revenue could be obtained from taxation now. World trade will not always be as good as it is now, and if Great Britain is again faced with a period of depression the same revenue will not be forthcoming from the existing taxes. Revenue from the existing taxes will be less. It is almost certain, in the event of depression, that revenue from our present taxes will decline. Summing it all up, there is
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surely a formidable array of reasons why financial propriety and common prudence dictate that a larger proportion of our Expenditure should be obtained from Revenue now. More money should be got from taxation now when circumstances are favourable and when additional burdens could be imposed without any undue hardship. I feel that if the facts are fairly fixed the main supporters of the Government must, in their secret thoughts and their better moments, have serious misgivings about the outlook in national finance. The simple truth is that, whatever else can be said in favour of this Finance Bill, it is not based on sound principles, and my final word would be to remind the Government that without sound finance no sound government is possible.
VISCOUNT HORNE OF SLAMANNAN: My Lords, I confess that one feels that it is a very difficult matter, perhaps now it is an impossible one, to address your Lordships on a matter of finance. One is rather hampered by the feeling that one is playing the part of the Greek chorus which only comments upon events after they are over and without having any serious effect upon them. If, indeed, that were our only function I should be inclined to address my right honourable friend the Chancellor of the Exchequer, if my words could reach him down the corridor, in the language of the Euripidean Chorus:
It is possible, however, that what we have to say in this House to-day may have some effect upon the minds of the financial authorities before the next Budget is framed. It is from that point of view that I venture to make a few comments upon what has happened.
I congratulate the noble Lord, Lord Templemore, upon the clarity and the brevity with which he explained the main features of the present Budget. I am not inclined to differ from the noble Lord who has just sat down in many of the things he said, but I do disagree when he depreciates the results of the efforts of this country in regard to Debt. I do not think the noble Lord takes into account in connection with our Debt burden that we have immensely reduced the annual interest which we have to pay upon it. The noble Lord seemed to be looking solely at the capital figures with-

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out regard to the extent to which the Debt has been converted into a much lower form of interest. From that point of view the country is profiting by what has been done in recent years. I do not agree with him, either, that in the present year, as he suggests, nothing has been done in the way of meeting the Sinking Fund. In fact, as your Lordships may very well know, £13,000,000 was devoted out of last year's Revenue to meeting the statutory Sinking Fund, although the Chancellor of the Exchequer had got the consent of another place to remitting the Sinking Fund for the year if that was necessary to be done. On these two matters I would venture to quarrel with the noble Lord.
Everyone will agree, as the noble Lord, Lord Templemore, clearly indicated, that the real issue in the present Finance Bill is the question of the National Defence Contribution. I disagree entirely with the noble Lord, Lord Arnold, that the whole amount of the loan which is connected with National Defence should be defrayed from current taxation. The noble Lord himself said that if the Income Tax were raised to a figure over 5s. it would have a serious psychological effect upon the country, and in my judgment, looking at our financial situation, it would be quite impossible to meet out of current Revenue the load of debt involved in providing for the Defence of the country without very seriously increasing the Income Tax. I am quite sure that the present Treasury officials have investigated every method of raising revenue, and while some of the noble Lord's ideas are ingenious I do not think many of them are practicable. The National Defence Contribution in its original form was, as described by a very high economist, a tax upon youth and enterprise and progress as such. It was something which I think, so far as the business world was concerned, startled them into an attitude of such opposition as is seldom seen with regard to the serious proposals of the Chancellor of the Exchequer.
Luckily that form of National Defence Contribution, seeing how disastrous it would have been in the minds of those people, has been got rid of, but the abandonment of that form of taxation has had two very curious results. In the minds of the public, the relief which they
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felt at getting rid of the prospect of an intolerable form of taxation had the result of making them somewhat acquiescent in any form of alternative. So far as the Government are concerned, they were so proud of their virtue in withdrawing an intolerable tax that they seemed to believe that any alternative should be accepted without complaint. Indeed, after having been persuaded to avoid drowning us in the flood of Charybdis they seemed to think that no one ought to take umbrage at having the ship piled up on the rocks of Scylla. I agree that the later scheme put forward is very much better than the original form of Contribution. This tax, like the old Corporations Profits Tax, certainly spreads the burden over industry in a much fairer way. It puts upon people much better able to bear the impost the duty of sharing the burden of those who would have gone to disaster under the weight of the original tax. But any tax upon profits as such, without regard to the pockets into which they go or the volume in which they go, must necessarily be an unfair tax. From that point of view I think many people would agree with the noble Lord that an Income Tax would have been very much fairer. On the other hand I agree with him that the psychological effect of raising the Income Tax too high might very greatly have discouraged the country. One had to choose between the two, and the Government chose the idea of the profits tax.
There is another way in which the National Defence Contribution, as originally framed, has been mitigated. Let me give an illustration, and the best illustration I can give is one with which I am personally connected. I happen to be Chairman of a company which produces lead and zinc, a great mining company in Australia. It is domiciled here. It conducts its business here, and it pays Income Tax here. Alongside that mine of which I am Chairman, there are, literally within a stone's throw, two other great mines. They are producing the same commodities. They are domiciled in Australia. Their boards are situated in Melbourne, and they pay Income Tax in Australia. The National Defence Contribution, as originally intended, would have mulcted the mine with which I am connected in such a large sum that, I tell your Lordships with complete sincerity, it would have been impossible to

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insist on maintaining the company here. A very large number of the shareholders are Australians, and the whole of our employees are Australians, except those who conduct the office in London. The contrast between the burden the Englishmen's mine would have had to bear as against the Australian men's mine would have been so sharp that it would have been impossible to persuade the Australian shareholders or employees that it would be to the benefit of the company that it should be conducted in England. Other awkward consequences would have followed. We buy everything in this country that we possibly can buy here. There is no question that orders for machinery and plant would have gone elsewhere if there had been a transfer of that company from a domicile in London to another domicile. That situation has been greatly mitigated by the second edition of the National Defence Contribution, but, of course, there still remains a disparity in the tax which this mine pays compared with others. However, all these things are a matter of degree. You can support a situation with one particular set of burdens which you could not if those burdens were too greatly increased.
In the course of the discussions in another place it was also made clear that some arrangements had to be made in connection with Dominion Income Tax. Upon these, I am glad to think, the Chancellor of the Exchequer has agreed, and now the situation is infinitely better than it was. I should, however, like to present to your Lordships a case in connection with the National Defence Contribution as it now remains. The burden of that tax, since it falls upon profits, falls entirely upon the ordinary shareholder. The man who has a debenture upon a plant or art enterprise gets his interest upon his debenture without paying anything towards the National Defence Contribution; the preference shareholder gets the dividend upon his preference share before any profits go to the ordinary shareholder. The result is that the whole burden comes upon the equity of the company, on the man who has put his money at risk; and the man who escapes is the man who has played for safety and who is not engaged in that active enterprise in which the equity shareholder takes a part. The effects of that method of Contribution might
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easily, in certain circumstances, become disastrous.
At any rate, I should like to point out to the House that in connection with the Corporation Profits Tax of 1920, I think it was, that situation was understood, and it was provided that the equity shareholder should not be mulcted by the tax in more than 10 per cent. of the amount that was available for distribution among the ordinary shareholders. That is a provision which ought to have been made in the present form of the National Defence Contribution. This, after all, is a national burden. It is a duty upon every citizen to support the Defence of the country. The ordinary shareholder agrees to allow the preference shareholder to take his share of dividends before the ordinary shareholder begins to enjoy anything. The ordinary shareholder does not, however, agree by his contract to provide defence for the preference shareholder against bombing aeroplanes, and it is quite obvious that there is a duty upon the preference shareholder and the debenture holder as great as that upon any ordinary shareholder to defend the country. The burden which results from the present method of tax is an inequity which ought at least to be mitigated in the way I have described. It would have been only right that the Government should follow the course which was pursued in imposing the previous Corporations Profits Tax, and limit the amount which the equity shareholder could be compelled to pay for this Defence programme. I hope that before the year is over it may be possible to convince the Chancellor of the Exchequer that that course should be followed, especially as I imagine that the proceeds of this tax may easily turn out to be greater than has been estimated by the Treasury officials up to now. The fact that the Chancellor was very unwilling to limit the total amount which was to be taken from the taxpayer in connection with this duty seems to me to show that the Treasury have hopes of a larger yield than has been set out in their Schedule.
One other matter to which I should like to refer is that of the insurance companies. As your Lordships perhaps know, the interest derived from the investments of trading companies is exempted from the National Defence Contribution. For example, take a great company like the Shell Oil Company, or

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a great textile industry like Courtaulds, Ltd. Both those companies have immense reserves, which, of course, are invested, and they pay no Contribution upon the interest which they derive from these investments. It is not added into the profits which they make from their business for the purpose of assessing the amount subject to the National Defence Contribution. On the other hand, investment companies pay tax, under the National Defence Contribution, upon the interest which they get from their investments. The Chancellor of the Exchequer has decided to make the insurance companies pay a tax upon the interest from their investments. If the House will bear with me for a moment I should like to indicate how the matter stands with the insurance companies.
I think it is quite fair for the Chancellor of the Exchequer to impose this tax on the interest from the investments in so far as the life business of insurance companies is concerned, and for this reason. Life insurance at the present time really consists in a great system of provision for the savings of people. The policy-holder practically gets back in the course of time all that he has paid in respect of his premium. It is a vast investing arrangement, and all that the insurance companies take out of it from the point of view of their ordinary business is what it costs them to run the system and, on the other hand, a very small measure of profits for their shareholders. That, I think, it is quite proper that the Chancellor of the Exchequer should deal with, for this reason. He says that you should be taxed in respect of your interest upon investments if your business is solely or mainly that of investment. Life insurance has really come to be mainly a matter of investment. The same is true of capital redemption funds and annuity funds. The ordinary business of insurance companies is, however, totally different—the insurances, to wit, which they conduct against fire, accident and marine risks. In that case the business of the insurance companies is not one of investment but is a business of underwriting risks. From my point of view, and I think from every reasonable point of view, the reserves which the insurance companies hold for these purposes are exactly the same as the reserves
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which the ordinary business holds for purposes of development and extension and for meeting depressions in years of difficulty. For the life of me I cannot see how any difference can be suggested.
The insurance companies, however, made an offer to the Chancellor of the Exchequer which I think was a generous one. They offered to allow to be included for the purposes of the National Defence Contribution interest upon investments in so far as these investments were made with regard to outstanding claims and unexpired liabilities. I think, as I say, that that was a generous offer to make, and it certainly ought to have been accepted. But the Chancellor of the Exchequer refused that friendly hand, and the insurance companies to-day are suffering under a great sense both of grievance and of injustice. I say of grievance, because of the way in which their claim made to the Chancellor was dealt with. They met the Chancellor one afternoon and he agreed to consider their offer and meet them at a future date. The very next morning, however, there appeared what seemed to be an authoritative statement in The Times newspaper to the effect that the Chancellor of the Exchequer was going to reject the insurance companies' suggestion; and, in spite of the fact that certain interviews took place thereafter, there is a suspicion on the part of the insurance companies that their claim was never properly listened to nor attended to. So far as I am concerned, I do not take that attitude. I was sufficiently long at the Exchequer to know the attention given to matters there; but it is possible, and I think very likely, that in the stress of the time the considerations I have mentioned were overlooked, not from any desire to be neglectful but simply from pressure of work and lack of time. That is another matter which I hope the Chancellor of the Exchequer will be able to deal with before he comes to his next year's Budget. The insurance companies of this country have stood behind the Government at every time of financial trouble. I should not think there are any institutions which have been more serviceable to this country than have our great insurance organisations. They deserve well, and I hope that the grievance they have put forward in this matter will be one which will be listened to before we arrive at another year's Budget.
With regard to the Budget as a whole, I do not think there is anything very different in it from that which one expected. The addition of 3d. on the Income Tax, bringing it up to 5s., I think everyone must have anticipated as part of the measures by which to meet the liabilities for National Defence. For the rest I think we can congratulate ourselves upon the position in which we stand to-day. Lord Arnold referred to the period between 1931 and 1933, and to the amount of taxation which was raised at that time. At the present juncture I am clearly of the view that industrial establishments require so much money for the development of their businesses that it would be a great mistake to impose any more serious burdens than they are bearing at the present time. But I admit that we have had a period of great success. Certainly no other country in the world can rival the advances which we have made. I do not wish to detail the improvements that have occurred, and I particularly do not wish to get into any argument about the causes of the progress that has taken place. I had some clash with my noble friend Lord Samuel the other day upon the sources from which our success had been derived, and any clash with what I might describe as my Coronation Twin is very distressing to me.
So, without in any way making comment on what has occurred, I would like simply to mention the circumstances in which we stand at the present time. The total number employed in this country since 1931 has increased by over 2,000,000. The number of unemployed has decreased by well over 1,000,000. The production of the country has increased to a record which we have never seen before. The number of people employed is very nearly a million more than we have ever employed in our country. We were talking last week about the fact that our exports had not yet reached the figure of 1929, but as these record figures of employment would indicate, if you acid our internal trade to our external trade—so greatly has the increase in our internal trade outrun the deficit of the export trade—the internal trade and the export trade, taken together, are far above the combined internal and external trade of 1929. Taking the combined internal and external figure at 100 in 1929, that figure has now
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been exceeded in 1937 by 12 per cent. We have got up to 112. This is the figure which indicates the progress of the country, and is a symbol of the extra employment we have given and of the immense new production which we have achieved.
Lord Arnold referred to wages, and, suggested that the wages figure had increased by 20 per cent. I do not quarrel with that figure. So far as savings are concerned, it is a very remarkable thing that the savings of the humble people—not savings put into company shares and great banks, but into Savings Banks, Post Office Savings Bank, Savings Certificates and so on—have now reached £3,000,000,000, indicating something like £300 per household. That is the very remarkable advance we have made. I do not know whether it is permissible to give them in this debate, but it induces some reflections in one's mind. It is very commonly said that the capitalist system as it exists is inimical to progress; that it stands in its way and only makes the rich richer and the poor poorer. I venture to believe that those figures prove the contrary. I read a very convincing article the other day by a leading Scottish Socialist, in a leading Scottish Socialist newspaper, in which it was pointed out what an immense advance had taken place in the hundred years since Queen Victoria ascended the throne. I should think this would be very obvious to anybody, but I ask your Lordships to consider what an immense advance has been made within our own time. In the boyhood of most of us in this House there was no free education, no free books for children, no free conveyance of children to school, no old age pensions, no widows' and orphans' pensions, no compensation for workmen to tide them over the period after an accident, and no unemployment benefit. If you add up what is now distributed in connection with our social services it amounts to something like £500,000,000. At the time when most of us were boys the amount was probably not more than £10,000,000. Socialists are very anxious for the redistribution of wealth. Can your Lordships imagine a redistribution of wealth conducted so smoothly and harmoniously, without upheaval or upset of arty kind. The paradox of Socialism is that if you attempt to lay

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grasping hands on the wealth of the country, that is the way to make it disappear. It is exactly like the old classical story of Tantalus who, having stolen nectar from the gods, was placed in a shallow lake where the sun beat on his head and made him thirsty, and every time he stooped his head to enjoy a drink the waters receded. That is exactly what would happen to wealth if by any chance people tried too violently to grasp it.
There is one other matter which I would venture to mention before I sit down. There are many people who to-day are very anxious about the price level. They see prices rising, and because of such an anxiety we read that in America the other day they took action in this matter which was greatly to the detriment of the markets, not only of their own country but of many others. What is the issue on the matter of prices? Prices are those elements out of which you pay all the costs of production and hope to have a margin of profit over. Most of the costs of production remain harshly rigid. Your debt burden, if you have a mortgage or debenture, is a thing that you have to meet. And wages tend to be very inelastic. They tend rather to go up than to go down. What you find is that periods of depression, when prices are low, create immense troubles for the producer, which if they become too severe make the producer bankrupt. That is exactly what happened during the time of the depression, especially among the producers of primary products.
The farmers of America suffered perhaps as badly as anybody, and in the same circumstances the farmers of Australia and New Zealand and other countries endured the same misfortunes. The trouble was that they had to meet the burden of their debts based on money borrowed at a time when prices were high. Now when prices were low the farmer who, when he borrowed his money, had to produce one bushel of wheat to meet his obligation of debt, had to produce three bushels in the time of the depression. He attempted to do it, with the result that he glutted the market with produce, which only made prices fall still further.
In these circumstances, the Macmillan Committee declared in a very careful
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Report that the first object of the financial and economic policy of this country must be to raise prices at least to the 1929 level and attempt to maintain them there. Now, prices in this country are not yet even at the 1929 level. They are represented by a figure of 97 as against 100. If you take the case of America, the figures are now 92 as against 100 in 1929. Therefore there is no reason for anybody yet to be apprehensive about the rise in prices, and nothing could be more detrimental to the economic welfare of the world than the artificial attempt to reduce prices. You can see what happened in America the other day when, because of the rise in prices, it was suggested that the President was going to reduce the price of gold. It immediately had the effect of reducing the commodity prices in every part of the world, greatly to the detriment of everybody.
So far as the future is concerned, I wish to say for myself that I feel no immediate apprehensions. I have no anticipations of evil with regard to our condition at the present time, or for some years to come. I think that this country will be easily able to handle the difficulties with which we are confronted and to sustain the increased burden of debt which is to be imposed upon us because of the rearmament programme. Nobody need be pessimistic about the great expenditure which we are incurring at the present time, so long as it is carefully watched and scrutinised. Nobody wishes for wasteful expenditure, but we need not be unduly worried about the amount now contemplated. Subject to the criticisms which I have already made in regard to the Finance Bill and the burdens which it imposes, I shall heartily support it.
LORD STRABOLGI: My Lords, I am sure the speech we have just listened to will impress once more on your Lordships what an acquisition we have in the noble Viscount, with his great knowledge and experience of finance and economics. Nevertheless, I am not going to be so bold as to follow him. The noble Viscount threw a number of very attractive flies, which I am tempted to rise at, but may I content myself by venturing this observation? When he speaks about our export trade not having recovered—it is of course the weak spot in the present situation—might I suggest to him that he might use his great influence to advocate

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to the Government, and through them to the Treasury and the banking system, that we should resume foreign lending? For some time past in my small way I have ventured to say that we should return to our practice of lending abroad freely, especially in the lesser developed countries, and that is a very fine way of sending out our exports in the form of manufactured goods. The other observation I venture to make is that when great authorities like the noble Viscount and the Chancellor of the Exchequer and the noble Lord, Lord Templemore, speak of the prosperity of the country, if that is true I would suggest that the time has come when we should again make an exploration with the United States with regard to the Debt. The noble Viscount knows as well as all of us that that is still a very sore subject in the United States, and myself think that the time has surely come when there should be some rearrangement there.
May I apologise to the noble Lord, Lord Templemore, for having missed his speech? I was unavoidably detained I regret to say, but I stall read his opening speech with great pleasure and profit tomorrow. I apologise to my noble friend, Lord Arnold, for the same reason. I only rise to return to one matter which I brought up on the Finance Bill last year. I am sorry to say my prophecies then have been only too well justified. In the Finance Bill last year there was an extraordinary clause which put into the hands of a private association of iron and steel users the power to decide how much iron and steel was to be brought into the country in collaboration and confederation with a foreign cartel of iron and steel manufacturers. I pointed out then to your Lordships that this was an unprecedented state of affairs, whereby taxation was put in the hands of a private irresponsible body. I pointed out also that we were threatened with a steel shortage—this was a year ago—and I drew attention to the case of Jarrow and regretted that the Jarrow scheme had not been gone on with, for reasons that we all know. Now the situation is that the steel shortage has become acute, and ordinary users of steel—builders and ordinary persons not engaged in munition making—are seriously hampered in their business. I want to know what the Government are going to do about this.
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We are having a great drive for scrap iron. People as a patriotic duty are being requested to send in their old scrap iron, and it is calculated that there is lying about the country about half a million tons of scrap which could be brought into use. But I am told that the needs of the next twelve months in finished steel are something of the order of 12,000,000 tons, and half a million tons of scrap is not going to help us very much there. I believe eleven tons of scrap produce about nine tons of steel. And in the meatime there is an increasing shortage of steel, which is hampering many industries. Indeed, three very large re-rolling mills in Scotland closed down last June because of shortage of supply, and their skilled workers and labourers were thrown out of employment. The tinplate industry is hampered, the shipbuilding industry is hampered. We already see a rise in the price of motor vehicles, both commercial vehicles and private motorcars, and I am not so sure that the rearmament programme is not also being at any rate delayed. I dare say that the Government have taken steps to see that enough metal goes to the actual makers of munitions, but I am advised there is a danger of shortage even there.
What are the Government going to do about this? I took it upon myself to give notice to the noble Lord that I was going to raise this matter, which affects a vast range of industries in this country. We have another complication in that the war in Spain is hampering the supply of high-class ore which normally came from Bilbao. For all these reasons, I submit, the situation demands the closest attention of His Majesty's Government. I should have thought that that particular clause would have been repealed. If we had been in a position to amend the Finance Bill I would have put down a special Amendment in your Lordships' House and invited your Lordships to repeal this particular clause in last year's Act. But that is outside our privilege, as we know, and the time has come for the Government to take action in the matter. This tariff ought to come off altogether. This present system under which supplies which are rationed pay a lower duty and the ordinary importer has to pay the full 33⅓ per cent. is mischievous. I have been a free trader myself, but this is a sort of inverted protection that no one dreamt of in the great

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controversies between protectionists and free traders in the past. We expected a straight honest tariff which everyone knew about, and not a tariff manipulated and arranged by the people who benefited most from it. Even the protectionists would admit they never expected such a thing. To do them justice, they never thought such a scandal could arise. This system is making our export trade more difficult, it is preventing more people being employed, it-may have very serious results, and I hope the noble Lord will be able to give us some comfort in the matter.
LORD BROCKET: My Lords, I feel reluctant to say a few words on this subject in view of the fact that, as stated by my noble friend on the Front Bench, we are pot in a position to do anything about the Finance Bill. I feel even more reluctant because I am speaking very shortly after one former Chancellor of the Exchequer who, when he spoke, said his remarks would probably reach the other end of the passage in time for next year's Budget. My remarks have the advantage of reaching the present Chancellor of the Exchequer at closer range. Before I deal with the subject I intend to raise I cannot help expressing one or two opinions on the speech of the noble Lord, Lord Arnold. It is rather curious that I have with me the figures of the Sinking Fund since 1929. Since that year £219,103,000 have been paid into the Sinking Fund. During the last four years just under £46,000,000 have been paid into the Sinking Fund. The noble Lord said that during recent years nothing had been given to the Sinking Fund.
LORD ARNOLD: I stated there was no Sinking Fund, and in the ordinary acceptation of the term that is perfectly true. There is no Sinking Fund in the sense that it operates over a long term of years. There may be a surplus, and there is the small statutory fund to which the noble Viscount referred, but even that can be borrowed. It is substantially true to say there is no Sinking Fund under the National Government.
LORD BROCKET: Then I do not know where this £46,000,000 has gone in the last few years. Admittedly it has found its way somewhere. Perhaps we had better leave it at that. This year, the noble Lord said, £80,000,000 is being
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borrowed for rearmament. In the other place I have occasionally tried to persuade the then Chancellor of the Exchequer to issue a balance sheet as well as a profit and loss account. If we inquired where this £80,000,000 has gone, we should probably find that there is a large amount of capital expenditure being undertaken in our rearmament programme. It is quite possible one could allocate that £80,000,000 of expenditure to capital and therefore, in so far as it is borrowed, it may be quite right to borrow it.
The real subject I wish to mention is the large amounts which are got from taxpayers in the shape of Death Duties. The noble Lord, Lord Arnold, mentioned that subject, but he did not express any very great opinion about Death Duties. He rather suggested, in regard to the amount of capital which was raised each year, that it was a pity it was spent as income. This subject of Death Duties has now reached very serious proportions. Since the present form of Death Duties was invented in 1891 the enormous sum of £1,727,000,000 have been raised. In the first twenty-seven years of these Death Duties, up to 1918–19—that is, to the end of the War—the sum of £477,000,000 had been raised. Even at the time of the Budget of 1909–10, when it was thought the then Government were doing all they could particularly to do away with landowners, the yield from Death Duties was, as we may now say, the comparatively small sum of £25,000,000; that is for the year 1910–11. This last year the yield was £87,990,000, and during this current year the Chancellor of the Exchequer hopes to get £89,000,000. I am sorry to give your Lordships so many figures, but it is necessary. During the last four years £342,000,000 have been raised in Death Duties—that is an average of £85,000,000 a year. That average of £85,000,000 a year compares with the yield up to the end of the War, when the average for the first twenty-seven years was only £18,000,000. There are many people who consider that Death Duties are an attractive form of taxation, in that while you are alive they do not affect you. At the present day enough people have succeeded to estates to realise that these duties affect them while they are alive on the death of the person they succeed.
When I said at the beginning that there should be a balance sheet as well as a

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profit and loss account, I meant that the Budget is only a profit and loss account. There is no balance sheet, but if we had had a balance sheet during the last four years, we should have had an item such as this: "Taken from Capital Reserves, £342,536,000, and Placed to Sinking Fund, £46,686,000, which leaves a capital deficit during the last four years of £296,000,000." In other words there has been during the last four years a capital deficit of nearly £300,000,000, or at the rate of £75,000,000 a year. I am only raising this question because these figures are so enormous. It is quite possible that if any Committee or Commission of financial experts were set up, they might say that this enormous yield of Death Duties did more harm to the prosperity of this country; not merely in the cities but in the countryside, than any other form of taxation. These Death Duties are levied on two forms of property—personalty and realty. The yield from personalty is very much larger than the yield from realty, because the land of this country is only of a limited size. The yield from stocks and shares, in a total yield of £87,000,000, is £85,000,000, and only £2,000,000 comes from the land. I believe it is a fact, which the Treasury full well know, that Death Duties on personally may not have such a bad effect as Death Duties on land. On land, if the owner of that land has to split up and sell his share, it not only affects his heirs and successors, but it affects farming and agriculture in general.
I do not intend to make, if I may call it so, an agricultural speech, because we are discussing the Agriculture Bill again presently, except that I would say this: I think that if the Government of this country intend to continue to do away with agricultural landowners and do not intend, as our noble friends opposite intend, to nationalise the land, they are leaving an absolute void in putting no one in the place of the agriculture landowner, and they are not giving those credit facilities to farmers for carrying on their trade of farming which they should give. In my submission this question of Death Duties on agricultural land should be the first to be tackled. The question of Death Duties generally is, of course, the spending of capital as income, and should be tackled in due course. I know quite well, I may say so, What the answer of any Government at the
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present day is, and that is they want the money. The noble Lord on the Front Bench (Lord Templemore) gave me rather a knowing look when I said that, and I am quite sure that that will be his answer. But, as the noble Viscount, Lord Horne said, I am only raising this question for next year's Budget, or even for the Budget of years after that. I hope that at some time this enormous expenditure on rearmament will be reduced, and then will be the time for the Government of this country to reduce these taxes which do most harm to the country and also to the taxpayers.
I want to say only one other thing. I notice that the First Lord of the Admiralty is quoted by some newspapers as having put out an olive branch to Italy the other day. Now one of the first acts that Mussolini did when he came into power was to abolish Death Duties. I believe, in Italy, there are no Death Duties; therefore, perhaps, Mussolini's finances are sounder to that extent than ours. If that is so, presumably no capital is spent as income in Italy. I do not intend to go on any longer, but I felt that it was my duty to raise this subject, and I would like to say to the Government that there are a great many people in this country who, whatever their political feelings are, believe that so long as this drain of capital continues there can be no real sound basis upon which to base the finances of this country or the agriculture of this country.
LORD TEMPLEMORE: My Lords, we have had, as we generally do in your Lordships' House, an interesting debate on the Finance Bill, and I am glad to feel that on the whole the Bill has not had too bad a reception from your Lordships. We had the usual type of speech from the noble Lord, Lord Arnold, and it would interest me very much on another occasion than the present to enter into an argument with him as to whether this Budget is balanced or not, but I will not do so now because time is going on and we have other business. I was particularly interested in one part of the noble Lord's speech which, however, I did not quite follow. So far as I could make out he suggested that owing to the increase of the national income we could have paid the whole of our way out of taxation, and that instead of raising

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£863,000,000 we could have raised £955,000,000. I really did not follow how we were to raise that larger sum, because in the previous part of his speech he ruled out, as far as I could make out, any increase of Income Tax beyond 5s. in the pound. I was very glad to hear him say that. We all live and learn, I suppose, and I would point out to him that he has considerably altered his opinion from that which he held a few years ago. I can remember well when from the Front Bench opposite he stood up and said more or less that an increase in Income Tax made no difference.
LORD ARNOLD: May I interrupt the noble Lord? What I have said this afternoon is precisely what I have always said, and if he looks back he will find that that is so.
LORD TEMPLEMORE: I beg the noble Lord's pardon if I have misrepresented him. However that may be, I honestly do not see how, without increasing Income Tax you could possibly raise such an amount as £955,000,000 unless, indeed, you lowered the exemption limit and put a tax on wages or something of that kind. I was very interested to hear the speech of my noble friend Lord Horne. So far as I could make out he thought that the new National Defence Contribution was a little better than the old one, but he did not think very much of it even as it stands. I gathered that he has two great complaints about it: the advantageous position occupied by the debenture and preference shareholders as compared with the holders of equities, and also the position of insurance companies. I am sure from what the noble Viscount said that he did not wish me to give him a direct answer about this matter, or to enter into any great detail about it. He said that his remarks were intended for my right honourable friend and his Budget of next year. I can only say to my noble friend that the remarks he made will be conveyed to my right honourable friend the Chancellor of the Exchequer who, I have no doubt, will give them the weight which they deserve coming from such a source.
My noble friend opposite asked me a direct question about the shortage of iron and steel. He was good enough to give me notice a few days ago that he was
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going to raise the point, and I am much obliged to him for having done that. I know the rules in your Lordships' House are very wide, and I really did not see the connection between that question and this year's Budget. However, I make no complaint and I shall be very glad to give the noble Lord the information. There is, as he said, at the present time a world-wide shortage of iron and steel. This shortage has led to complaints from firms in the United Kingdom who are unable to obtain sufficient supplies of steel for their manufacture or other constructional work. But, in contradiction of the view of the noble Lord, I should like to point out that in our opinion these difficulties are not to be attributed to the Government policy: on the contrary that policy has done much to mitigate them. The main features of the policy of His Majesty's Government in regard to iron and steel are increase in production and regulation of imports. In both of these matters the policy has been attended with considerable success. I have here some figures which show that the production of pig iron increased from 3,750,000 tons in 1931 to 7,750,000 tons in 1936, and it is still increasing. In the first half of this year production was over 4,000,000 tons, representing an annual output rate of 8,000,000 tons. The increase in the production of crude steel has been even more striking. In 1931 it was less than 5,250,000 tons, but by 1936 it had risen to 11,750,000 tons, which was the highest figure ever recorded. For the first six months of this year the output was 6,250,000 tons, representing an annual output rate of 12,500,000 tons. In my opinion those figures testify not only to the soundness of the Government's policy but also to the energy which the industry itself has been devoting to the tasks of reorganisation and development.
As regards imports, the difficulty recently has been not so much to keep them within reasonable bounds as to obtain supplies from the Continent of the quantities already authorised. Under our present system steel within the limits of an agreed quota can be imported at a specially low rate of duty while other steel is dutiable at a higher rate. In order to stimulate imports the Government have reduced the rate of duty for quota steel to the exceptionally low level

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of 2½ per cent. while at the same time the rate on other steels has been reduced to 12½ per cent. Even this 12½ per cent. is a very low rate. It will be remembered that the rate of duty imposed on the main classes of steel when the tariff system first came into being was 33⅓ per cent. These reductions of duty have enabled further orders to be placed abroad, and it is hoped that in a very short time the deficiencies in our supplies will be made up. I should like to say in passing that this shows, in contradistinction to what is sometimes said by noble Lords opposite and also by noble Lords on the Liberal Benches, that our tariff policy is flexible and can be adapted to meet changed conditions when circumstances require.
I turn for a moment to the interesting and instructive speech made by my noble friend Lord Brocket, on the very thorny subject of the Death Duties. He rather anticipated my answer when he said that the usual reply of the Chancellor of the Exchequer or of the Financial Secretary to the Treasury when the question of Death Duties was raised was that "we want the money." I am afraid that is the only answer I can make to him this afternoon, but I gather that both he and the noble Viscount, Lord Horne, intended their remarks for the consideration of the Chancellor of the Exchequer before another year's Budget. I can only say that their remarks will be received in the proper quarter with the attention which they deserve. I have answered, to the best of my ability, the questions raised, and I am obliged to your Lordships for having listened so patiently to my remarks. The Bill, on the whole, has been received without (shall I say?) too much hostility, and I hope your Lordships will now give it a Second Reading.
On Question, Bill read 2a: Committee negatived.

RATING AND VALUATION BILL.
Read 3a (according to Order), and passed.

LOCAL GOVERNMENT SUPER ANNUATION (SCOTLAND) BILL.
Order of the Day for the House to be put into Committee read.
Moved, That the House do now resolve itself into Committee.—(Lord Strathcona and Mount Royal.)
On Question, Motion agreed to.
House in Committee accordingly:
[The EARL OF ONSLOW in the Chair.]
Clause 1 [Superannuation funds]:
THE UNDER-SECRETARY OF STATE FOR WAR (LORD STRATHCONA AND MOUNT ROYAL)THE UNDER-SECRETARY OF STATE FOR WAR (LORD STRATHCONA AND MOUNT ROYAL) moved, in subsection (3), to leave out "prepare" ["prepare and submit… a scheme"] and insert "make." The noble Lord said: I think I ought to explain to your Lordships that the Government Amendments to this and other clauses—with the exception of those relating to military service, registrars and library committees, with which I shall deal separately—are really drafting Amendments or Amendments put in to clarify provisions of the Bill which did not appear to be sufficiently clear. Following on the conclusion of the Committee stage in another place the Amendments made at that stage were circulated to the local authority associations concerned and my right honourable friend the Secretary of State authorises me to state that those Amendments and the Government Amendments now proposed have been examined and agreed by the local authority associations. The first Amendment is purely drafting and I beg to move.
Amendment moved—
Page 2, line 36, leave out ("prepare") and insert ("make").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Clause 1, as amended, agreed to,
Clause 2 agreed to.
Clause 3 [Contributory employees]:
LORD STRATHCONA AND MOUNT ROYAL: There is a drafting Amendment to this clause. I beg to move.
Amendment moved—
Page 5, line 30, at end insert ("and to the provisions of Part III of this Act relating to officers appointed in a temporary capacity").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Clause 3, as amended, agreed to.
Clause 4 agreed to.
Clause 5:
Power to admit employees of statutory undertakers, and registration officers.
(8) This Act shall not apply to any registrar of births, deaths and marriages if he gives

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notice, in the case of a registrar holding office at the appointed day not later than the appointed day or, in the case of a registrar appointed to that office after the appointed day within one month after the date of such appointment, that he so desires.
LORD STRATHCONA AND MOUNT ROYAL: There is a drafting Amendment to this clause. I beg to move.
Amendment moved—
Page 8, line 35, leave out ("thirty-six") and insert ("one hundred and ten").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
LORD STRATHCONA AND MOUNT ROYAL: The next Amendment is also drafting. I beg to move.
Amendment moved—
Page 8, line 36, leave out ("1932") and insert ("1937").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
LORD STRATHCONA AND MOUNT ROYAL LORD STRATHCONA AND MOUNT ROYAL moved to leave out subsection (8) and insert:
"(8) This Act shall not apply to any registrar of births, deaths and marriages holding office at the appointed day, if within one month after such appointed day he gives notice in writing to the council of the county or large burgh within which the whole or the greater part of his registration area is situate, that he so desires."
The noble Lord said: Provision is made in Clause 5 whereby registrars of births, marriages and deaths are enabled for the first time to be included in local authority superannuation schemes. The Amendment is designed to secure that while existing registrars have an option to remain out of the scheme the option shall not extend to those appointed after the appointed day. The Amendment has been agreed with the local authority associations and the Association of Registrars of Scotland.
Amendment moved—
Page 9, line 26, leave out subsection (8) and insert the said new subsection.—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Clause 5, as amended, agreed to.
Clauses 6 to 11 agreed to.
Clause 12:
Reckoning of contributing and non-contributing service, and service of persons indirectly employed.
(3) In the case of a contributory employee who left the employment of a local authority
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in order to serve in His Majesty's forces or forces of the allied or associated powers during the late war, the period during which he so served shall be taken into account for the purposes of the last preceding subsection as if it had been a period of service within the meaning of this Act:
Provided that, in the case of an employee who, after the eleventh day of November, nineteen hundred and eighteen, voluntarily extended his term of service in the forces, no period of such service during any such extension shall be taken into account.
LORD STRATHCONA AND MOUNT ROYAL LORD STRATHCONA AND MOUNT ROYAL moved, in the proviso in subsection (3), to leave out all words after "Provided that" and insert "no such service after the thirty-first day of December, nineteen hundred and twenty, shall be taken into account." The noble Lord said: This is an Amendment to which reference was made by my right honourable friend the Secretary of State on Third Reading in another place. As already explained to your Lordships by the noble Viscount, Lord Gage, in moving a corresponding Amendment on the English Bill, it is designed to meet the point that certain municipal employees may not have been able to return to their municipal work after serving with the forces by Armistice Day, the date mentioned in the clause. Although the clause as it stands would probably have covered the case of a man who was not demobilised until some later date, the proviso would have prevented the reckoning for superannuation purposes of any period subsequent to that date in which the man continued to serve with the forces as a result of voluntary extension of his service. It is felt that doubts may well arise as to the exact circumstances in which a man did continue with the forces and it might be difficult to establish whether his continuance was in fact a "voluntary extension" or not. It has been thought desirable to remove these doubts by substituting a later date and removing the reference to "voluntary extension." The date selected is that which was agreed by the Treasury for Civil Service purposes and should, it is thought, be a sufficient extension of the period laid down in the Bill to meet all cases which ought equitably to be covered.
Amendment moved—
Page 18, line 36, leave out from ("that") to the end of line 40, and insert ("no such service after the thirty-first day of December,

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nineteen hundred and twenty, shall be taken into account").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Clause 12, as amended, agreed to.
Clauses 13 and 14 agreed to.
Clause 15 [Teachers]:
LORD STRATHCONA AND MOUNT ROYAL: There is a consequential Amendment to this clause. I beg to move.
Amendment moved—
Page 20, line 34, leave out ("1935") and insert ("1937").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Clause 15, as amended, agreed to.
Clauses 16 and 17 agreed to.
Clause 18 [Actuary's certificates and periodical valuation of superannuation fund]:
LORD STRATHCONA AND MOUNT ROYAL: There is a drafting Amendment to this clause. I beg to move.
Amendment moved—
Page 26, line 10, after ("shall") insert ("within three months after receiving the valuation and report").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Clause 18, as amended, agreed to.
Remaining clauses agreed to.
First Schedule:
LORD STRATHCONA AND MOUNT ROYAL LORD STRATHCONA AND MOUNT ROYAL moved in Part I ("Local authorities whose whole-time officers are to be compulsorily superannuable") to insert "A committee appointed for the purposes of the Public Libraries (Scotland) Acts, 1887 to 1920." The noble Lord said: This Amendment is designed to place all library officials on a uniform basis in regard to superannuation. In counties such officials are directly employed by the county council and would automatically come within a superannuation scheme. The position is different in burghs where such officials are normally employed by a Library Committee appointed under the Libraries (Scotland) Acts. The Amendment, by securing that officials in the employment of library committees automatically come within the scheme, will facilitate transfers within the library service. I beg to move.
Amendment moved—
Page 41, line 12, at end insert: ("A committee appointed for the purposes of the Public Libraries (Scotland) Acts, 1887 to 1920").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
LORD STRATHCONA AND MOUNT ROYAL: The next is purely a drafting Amendment.
Amendment moved—
Page 41, line 25, leave out ("1935") and insert ("1937").—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
First Schedule, as amended, agreed to.
Second Schedule [Provisions as to asylum employees]:
LORD STRATHCONA AND MOUNT ROYAL LORD STRATHCONA AND MOUNT ROYAL moved to add to the Schedule:
"4. Where the fund out of which the remuneration of an asylum employee was or is paid by the body under which he was or becomes such an employee is not the fund out of which superannuation allowances are paid to such employees, the foregoing provisions of this Schedule shall have effect subject to such modifications as may be prescribed."
The noble Lord said: The Bill as it stands makes provision for the ordinary case in which superannuation allowances of asylum employees are paid out of the fund from which their remuneration is paid. The Amendment is designed to cover any cases in which the superannuation of such employees is paid out of a different fund. I beg to move.
Amendment moved—
Page 43, line 35, at end insert the said new pargaraph.—(Lord Strathcona and Mount Royal.)
On Question, Amendment agreed to.
Second Schedule, as amended, agreed to.
Remaining Schedule agreed to.

EXPORT GUARANTEES BILL.
Read 3a (according to Order), and passed.
NIGERIA (REMISSION OF PAYMENTS) BILL.
House in Committee (according to Order): Bill reported without amendment.

LONDON NAVAL TREATY BILL.
Order of the Day for the Second Reading read.
THE PRESIDENT OF THE BOARD OF EDUCATION (EARL STANHOPE): My Lords, your Lordships will remember that the Treaty of Naval Limitation, signed at Washington in 1922, and the London Naval Treaty, signed in 1930, came to an end on December 31, 1936. In order to carry out the terms of those two Treaties it was necessary to pass an Act requiring firms engaged in building warships to obtain a licence from the Admiralty before undertaking such work and to furnish to the Admiralty full particulars of the warships upon which work was being undertaken. Such an Act was passed in 1923 and again in 1930. The Bill now before your Lordships' House imposes a similar obligation in regard to the London Naval Treaty of 1936. If the House approves of this Bill, the Government propose to ratify forthwith the London Naval Treaty of last year, and therefore the debate on this Bill enables your Lordships to discuss the London Naval Treaty if you so desire. The Treaty was first of all published sixteen months ago in Command Paper No. 5136, and it was also explained in a memorandum, Command Paper 5137, at the same time. I should therefore imagine that your Lordships would not wish me to go into its details or to give any further information about it, although I shall be very glad to try to answer questions which may be raised during the debate.
Perhaps, however, the House might like to know the present position of the London Naval Treaty: who has signed it and who has not, and so on. Your Lordships may remember that the Conference began in November, 1935, between what I might describe for the moment as five Powers: the United States, France, Italy, Japan and the British Empire. Japan, quite early in the proceedings, announced her desire—indeed, her demand—for the recognition of her right to complete equality of total tonnage with that possessed by any other Power. That was discussed by the other nations there, and they were unable to agree to grant such a request in view of Japan's more limited defensive requirements than those possessed by several of the other nations attending, amongst others ourselves. When that was announced Japan thereupon, to every-
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body's regret, walked cut of the Conference and took no further part in it, and indeed reserved to herself the right to build whatever number of ships she desired and of whatever type she desired. She has, however, told us through the diplomatic channel that she has no intention of starting a naval armaments race. The fact remains that in March of this year she notified us that she was not prepared to agree to the limitation of a 14-inch gun in capital ships, and as a result the United States have also stated that they intend to arm their new capital ships with 16-inch guns, as is allowed under the Treaty, in place of the 14-inch gun which everybody agreed to adopt, and Japan is not precluded from going above that limit.
The Treaty was signed by the representatives of the United States, France, Great Britain and Northern Ireland, Canada, Australia, New Zealand and India. Italy unfortunately did not sign. Your Lordships will remember that at that time the difficulty in regard to Abyssinia and the League of Nations was in full operation, and Italy was not prepared at that moment to sign any international agreement. In view of the fact, however, that her representative was among those who contributed extremely valuable work in getting the Treaty brought into shape, there is still considerable hope that perhaps, when other nations have ratified, Italy may also be prepared to sign and to agree to bring into force, as far as she is concerned, a Treaty with the framing of which she had so much to do. The United States ratified the Treaty in May of last year, and France ratified it just over a month ago, on June 24 of this year. We propose, as I have already stated, to ratify the Treaty as soon as your Lordships agree to the present Bill—if you do. I understand that the other British signatories intend to ratify it also. From that moment the Treaty will come into full effect.
As soon as the Treaty was signed last year we approached Germany and asked whether she was willing to make a bilateral agreement with us on the same lines as the London Naval Treaty. She said, quite legitimately—and, indeed, as we should have done in her place—that she was quite prepared to do so provided that the other great Baltic Power, Russia, also accepted similar obligations. As a result of that, simultaneous but

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separate negotiations took place between ourselves and Germany and between ourselves and Russia, and I am glad to say that they have both come to a successful conclusion, and bilateral Treaties were signed between us and those two nations on July 17, which is just over a week ago. They have been published in Command Papers Nos. 5518 and 5519, but perhaps your Lordships might like me to state very briefly the difference between those Agreements and the. London Naval Treaty.
The Soviet Government are concerned with the naval situation in the Far East, where Russia faces Japan, who, as I have already stated, is not a party to the Treaty. The Soviet Government therefore stipulated that they should not be bound to communicate information of their naval forces in the Far East, nor particulars of any ships they might build in the Far East, unless and until an agreement should be concluded between Soviet Russia and Japan on this subject. Moreover, if Japan builds outside Treaty limits—for instance, with larger guns, larger ships and so on—the Soviet Government claim the right to follow suit on notification to His Majesty's Government, but without invoking Article 25 of the London Naval Treaty, which entails giving three months' notice. Your Lordships will notice that this freedom applies to the Far East as long as Japan remains outside the treaty system. But so far as construction in Europe is concerned the Soviet will indicate all details of all ships which she lays down in her European dockyards whether or no those ships are ultimately destined for the Far East. Further allowance had to be made to the Soviet Government in the construction of cruisers, since Russia is not at present in a position to manufacture 6-inch guns, whereas she has developed a 7.1-inch gun and has this weapon in production. Her right to carry this gun in a certain number of her 8,000 ton cruisers now' building or projected has been recognised.
As regards the Anglo-German bilateral Agreement, that follows the lines of the Anglo-Soviet Agreement and is accompanied by two other documents. The first deals with the exchange of notes on subcategory (a) cruisers. This document reaffirms the German right to construct a total of five 10,000-ton 8-inch-gun cruisers, which is her 35 per cent. of the British Commonwealth's total of fifteen
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such cruisers. This exchange was rendered necessary because Germany had only availed herself of the right to lay down three of these cruisers prior to the present Treaty, and she wished to make it clear that her rights under the 1935 Agreement were not prejudiced by the present Treaty. Although these rights are retained, the German Government have stated that they are prepared not to avail themselves of their freedom of action unless special circumstances arise which compel them to do so.
The second document to which I wish to refer is the Declaration at the end of the Agreement. This clears up some of the points that were left open when the Anglo-German Agreement of 1935 was negotiated. The most important of these points concerns over-age tonnage. The German Government accept the principle that their Fleet should be divided into over-age and under-age tonnage in the same proportions as the British Fleet is divided. This is a most valuable concession which demonstrates yet again the friendly attitude displayed by Germany throughout these negotiations, but it is difficult for Germany to implement this Agreement at the present moment in view of the shortage of over-age ships belonging to Germany. Special arrangements have therefore been made to consider those ships which Germany built under the restrictions of the Treaty of Versailles as becoming over-age before the normal date and counting them as artificial overage tonnage.
These provisions are fully explained in Articles 4 and 5 of the Declaration. Article 3 of the Declaration deals with those questions of transfer and adjustment that are necessary in order to enable Germany to utilise to the full the 35 per cent. of British tonnage in each category to which she is entitled. The House will notice that the manner and extent of any transfer of tonnage between categories will be regulated by prior agreements between the two Governments. I should like here to reiterate the great value which His Majesty's Government attach to the Anglo-German Agreement of 1935. The working of this Agreement has entailed close collaboration between the two Admiralties and I should like to pay tribute to the friendly and accommodating spirit shown by Germany throughout these discussions.

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It is hoped to conclude similar bilateral treaties with Poland and Turkey, with whom negotiations, I understand, have already begun, and a multilateral treaty with Sweden, Norway, Denmark and Finland. Discussions have been initiated with Greece and Yugoslavia. Your Lordships will therefore see that, although the London Treaty is only signed by four sets of Powers, including Great Britain, we hope to make it into a general treaty to which all those who own warships will eventually adhere. The London Naval Treaty does not, of course, fulfil all the hopes entertained for it when the negotiations first started, but I think many of us feel that at any rate it escapes some of the objections against the earlier London Treaty which limited our cruisers to the number of fifty, which no naval officer that I have met was prepared to accept as adequate for the purpose of protecting our trade routes and fulfilling other necessary duties.
In view, however, of the very unsettled state of the world at the present time, I think your Lordships will agree that it is no mean achievement to have succeeded in carrying through a treaty at all—indeed, the only kind of armament limitation which has been successfully brought to a conclusion—by obtaining the signatures of the Powers. The provision for information and notification of building before it actually takes place is one that I think you will agree is of great value. It is entirely new among treaties of this kind. It has been mentioned of course at Geneva and during the discussion of treaties, but it has never before been successfully concluded. It is a matter which is likely to get rid of a great deal of uncertainty and suspicion which is very often hanging over the building of ships by ourselves and other Powers. If we can only get rid of suspicion and uncertainty we shall get rid of one of the main causes of international misunderstanding. Although the Treaty does not go as far as some of us would like, it does go a long way and is a treaty of very real value. I hope therefore that your Lordships will agree to the passing of this very small Bill of one clause to bring the Treaty into effect and to show your approval of the Government's having signed the London Treaty of last year.
Moved, That the Bill be now read 2a (Earl Stanhope.)
LORD STRABOLGI: My Lords, my noble friends do not offer any opposition to this Bill, and with regard to the Treaties that have been negotiated and initialled with Germany and Russia I think everyone who knows what went on and what a complicated matter it was would wish to congratulate the negotiators, especially the British negotiators, on their great patience and perseverence. The net result is not very great, as I shall show in a moment, but it is better to have a limited treaty than no treaty at all. I am beginning to think that if you can only keep people talking long enough you will stave off real trouble indefinitely. The main Treaty which this little Bill makes possible will depend tremendously upon good will and the absence of those suspicions to which the noble Earl referred, because as long as Japan and Italy are not parties there is no limitation at all. There are escape clauses in every direction and we see that Japan have broken away from the discussed agreement and have increased from 14-inch to i6-inch guns. Accordingly we have the United States saying that they must arm their new battleships with i6-inch guns, and there is an agitation started here—we have heard it in another place—to the effect that you cannot build British ships with 14-inch guns but we must have 16-inch guns as well. I do not know whether the noble Earl, Lord Howe, agrees with that, and whether he thinks that if some other naval staff considers it necessary to have these monstrous guns, we must have them too. There is, at any rate, a loquacious naval section in this country and their friends outside who say that we cannot possibly mount our ships with guns of a less calibre than others. You can have a naval race started to-day in spite of all these complicated and intricate Treaties.
In the few words I propose to say on this Treaty I hope to plead for patience and forbearance on our part, so that in effect a new competition in monstrous hyper-super-Dreadnoughts will not commence. The Americans and the Japanese are going to build 35,000-ton warships, with 16-inch guns, and I do not know what the new Italian warship launched yesterday carries, but I believe it is 16-inch guns. That is far too big and too costly,

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and if only there had been a little more statesmanship and sanity in 1930, when the great Naval Conference took place, I believe you could have got a far more drastic limitation of tonnage and armaments by agreement. My own friends were in power at that time, but that does not matter—I am bound to say what I think. The truth of this matter is that a great chance was lost in 1930, when the Italians particularly were on our side, for reducing the size of warships generally. Only one Power then stood out and I believe that with proper handling it could have been brought into line. I venture to say that a size of 10,000 tons is ample for any warship to-day, if only the others will agree to the same size, with great benefit to the unfortunate taxpayers and Ministers of Finance, and nobody would be a halfpenny the worse. Another chance was lost when the noble Earl's friends were in power in 1927. We had that terrible Naval Conference at Geneva, when chance after chance was thrown away and the whole cause of limitation of naval armaments by agreement was set back for a decade. Now we have these Treaties. They are better than nothing, and I do not want to scatter blame when the real blame fell on those two previous Governments, and of course on other Governments as well.
With regard to this question of the size of guns, I do not want to open up again the controversy on bombs versus battleships. The Government were good enough to set up a very strong Committee to look into that matter, and they have issued a Report. It is therefore chose jugée for the time being. I only hope that the question will not be tried by the only judgment that matters, ordeal by battle. I do not want to open that question at all, but what I am afraid of is this. After the Great War the American Navy Office drew up designs for monstrous warships of 50,000 tons burden, armed with 18-inch guns—and technically I suppose there is no reason why you should not have 60,000-ton warships armed with 20-inch guns, though I should like to see a naval architect who would design a triple turret for 20-inch guns. But there it is; you could have such a competition started. There is no reason why the 50,000-ton warships armed with 18-inch guns, costing I suppose £12,000,000 or £14,000,000, should not appear in some Navy. Then
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you would have the same agitation for all the other Fleets to be armed with the same sort of ships.
In this question of warship design it is really like women's fashions. If one Navy produces a certain type of ship and gun, the naval officers of all the other Powers must have the same. It is like Mrs. Brown who must have a fur coat because Mrs. Jones in the next street has one. You saw the supreme example of that in the Dreadnought design. In the Dreadnought design there were special features which every other Power promptly started to copy, and that really started a very serious naval competition. Even in the time that I have followed these matters, since I was a boy, we have seen changes of fashion continuously. We had a period in which it was considered better to have comparatively small ships. We gradually got into the period of much larger ships, and then we had various attempts at limitation. The giant cruiser was practically abolished by the Washington Treaty of 1922—a most successful Treaty—and now we are getting back once more into the era of the sort of hybrid battle-cruiser type, which is neither one thing nor the other—very fast, very costly and very heavily armed.
Now is it really necessary for the British Empire to follow the fashion, if it should be set, of the monstrous ship and the monster gun? Mr. Churchill and other protagonists say, Yes we must. I venture to say that the matter needs further consideration. What we need for our naval defence is numbers—I do not mean very small ships that cannot lie in the line of battle, but we really do need numbers of ships. Our responsibilities are all over the world. There is a great Navy on the other side of the North Sea, which is entitled by treaty to have a force equal to 35 per cent. of our own. At the same time there is a very great Fleet being built up in the Far East, and we have other responsibilities in the Mediterranean. We really therefore cannot afford to indulge in this luxury of hyper-super-Dreadnoughts, as I call them, if we can with a smaller and less costly ship, but yet a powerful ship, make the same strategical dispositions. I venture to say that technically it is not necessary to have these very large ships indeed.
I am not a small gun man. When I used to discuss designs of warships—as it was my duty to do—I always used to say

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that according to the size of the ship you should carry the biggest possible gun you could. A destroyer, for example, should carry the heaviest gun that she can safely mount, and the cruiser should carry the heaviest gun that she can safely mount. There are psychological reasons for it. We made a great blunder when those vast protected cruisers were built before the War, the "Amphitrite" class, armed only with 6-inch guns. I do not know what the Admiralty Staff were thinking of at that time. But where there should be a limitation, I do suggest, is in the tonnage of a ship, and there are reasons for that. In theory the larger the ship the cheaper she is and the greater power you can give her. That is to say, in theory your 35,000-ton battleship is cheaper, and at that size you carry a greater proportion of weight—armour and defensive power—than at the smaller size. That is perfectly true, but at the same time you lose in other directions. There is the old argument about not having too many eggs in one basket, which I think is a potent one and becomes more potent with the new sort of weapons that are being produced all the time. The very large ship needs very extensive docking arrangements; she needs special docks—and we always have to remember the limitations of the Suez Canal.
Apart from that is there really such a tremendous gain in the 16-inch gun over the 14-inch gun? I admit there is a tremendous gain in the 8-inch gun over the 6-inch gun. I have heard the noble Earl, Lord Howe, in another place protesting against any British cruisers existing with 6-inch guns, which might have to meet hostile cruisers armed with 8-inch guns. There is a tremendous difference there, but when you get into the very high calibres I am not sure that there is. And I am not sure it would not pay us better to mount comparatively light guns—light heavy guns if I may use that expression, that is, of the 14-inch category—on a comparatively large tonnage, with better armoured protection, especially against air attack. I think that would be better value. Furthermore there is the question of ammunition. Your very big gun means a very heavy outfit of ammunition, and only a limited number of rounds can be carried, although I believe recent experience has shown that you need a great deal of ammunition to
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be carried. These matters therefore lessen the theoretical advantage of the very big ship and the very big gun. I hope therefore that the naval advisers of His Majesty's Government are not going to be stampeded, or allow themselves to be influenced by outside agitation into saying that "we are sending our brave sailors with inferior ships to meet the more powerful ships of possible adversaries."
Strategical dispositions depend on many factors besides the mere paper strength of ships. They depend on your fuelling bases abroad, your scouting services, your training and personnel, and on many other factors. Just to compare the weights of guns, the weights of projectiles, and the displacement of warships may give a very false value. When the noble Earl, Lord Stanhope, so lucidly explained this small but important Bill, he hoped there would not be a new naval race. I sincerely Lope so too. I hope we shall hold our hand and not be rushed into bringing out designs of very heavily armed ships with very costly and heavy armament, which in turn will be used in the American Senate and the Japanese Diet and elsewhere by Big Navy agitators to spur on their Governments into following suit, so that we shall once more be engaged in terrible competition. I hope that these Agreements between the six Powers will give the necessary breathing space for people to be able to turn round and recover their sanity. All nations are feeling the present burden of taxation, and as soon as the outcry begins the opportunity will, I hope, be seized for another Naval Conference to see if we cannot fill in the gaps left in the last Naval Treaty.
EARL HOWE: My Lords, I am sure every one of your Lordships will wish to congratulate His Majesty's Government on the success which was outlined to us to-day by the noble Earl, Lord Stanhope. But some of us are a little bit anxious with regard to this Naval Treaty. I am not going to follow the noble Lord, Lord Strabolgi, in all his arguments, but there are one or two matters which he raised which seem to me of supreme importance The noble Earl who introduced the Bill did not tell us very much about the all-important question of Japan. Japan is the enigma which governs the naval situation to-day. It is true that the noble Earl has told us that the Japanese have said they are not going to start a new naval

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race in armaments, but, on the other hand, they have made it clear that they intend to have a Navy as big as our own. If that intention is carried into effect, it is bound, it seems to me, to have considerable effect on the calculations of our Naval Staff. The noble Earl has told us how the Government have successfully brought off bilateral or multilateral treaties, or got them on the stocks, between the various naval Powers he mentioned—what I may call the minor naval Powers. But I should like to ask the noble Earl what is going to happen supposing His Majesty's Government find that the Japanese have built a ship of more than 35,000 tons displacement, of very high speed—say thirty to thirty-three knots—and with an armament of most powerful guns, 16-inch or 18-inch guns.
I do not myself believe that it is possible to build a battleship armed with 18-inch guns. The noble Lord, Lord Strabolgi, will remember the experiments which were carried out in H.M.S. "Furious" at one time, when it was found to be almost impossible to build a structure which would stand the blast of the discharged gun. But supposing Japan has laid down a ship of vastly greater offensive and tactical value than the ships we are to build ourselves, what is to be the effect on us? We have, under the Treaty, the power given by the escalator clause. Supposing we put that escalator clause into operation and say we must revise our designs, fit a slightly heavier type of gun, and have a more powerful ship generally, what is to be the effect on these multilateral and bilateral Treaties? Will they be affected in any way? I have many friends in the Royal Navy, and I have been talking to them—many of them are experts in gunnery—about this question of the 16-inch gun versus the 14-inch gun. So far as I can gather, most of my friends are very anxious to secure an annihilating salvo. An annihilating salvo, as your Lordships will understand, is a salvo to secure the greatest number of hits, one that will probably sink the ship that it hits. An annihilating salvo is more likely to occur with a larger number of guns. What I am going to ask is this, can the noble Earl tell us, supposing it transpires that the Japanese ships carry very powerful guns and are of very high
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speed, will the Admiralty re-design our ships so as to give them, if not guns of equal calibre to the Japanese, more of them, so that we may have more chances of hitting in a salvo?
I am particularly anxious, as far as our own Navy is concerned, that we should not forget the lesson of Coronel or of the Battle of the Falklands. The lesson there learned by the defeated sides—our own in one case and the Germans in the other—was that, all other things being equal, the ships armed with the heaviest guns and the ships with the highest speeds, will probably win the day. It is a terrible question, and I can quite imagine that it is one which is exercising all our minds very much indeed. We ought to be prepared with an answer. It may be that the noble Earl will feel that, for other reasons, he should not say what we are going to do. I am the last person to wish to press for an answer in such circumstances. We have listened to the speech of the noble Lord, Lord Strabolgi. We probably all agree that if there had been more sanity and statesmanship in 1930 we should have had a very different London Treaty. I rather fancy that in 1930 another Government was in power, and that that sort of thing was not possible. We must, as the noble Lord has said, study the question of ammunition supply, which is becoming an increasing problem with modern gunnery. If the noble Earl is not able to give an exact answer to-day, I hope he will indicate that the Government will keep this matter in mind and keep it open. I am anxious that they should not burn their boats and tell us they are going to build a ship of a certain power and no more, but that, if necessary, the escalator clause will be put into operation. I hope that will be kept in mind.
EARL STANHOPE: My Lords, the two noble Lords who have spoken have supported the Treaty and the objects of the Treaty very thoroughly. The noble Lord opposite counselled patience before starting any naval race. The whole object of the Treaty is to prevent a naval race starting if that is possible. That is why His Majesty's Government initiated these discussions and made such a great effort to get the Treaty carried into effect. We should be the last people to start such a race. We are doing our best to stop competition all over the world, as far as

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we can. The noble Lord talked about the danger of having a hybrid battle-cruiser type of ship. If he studies the Treaty he will see that there is a gap between which no nation which accedes to the Treaty is permitted to build a ship. You may not build a capital ship between 8,000 tons and 17,500 tons displacement. With regard to the hybrid type of battle cruiser, it will approximately approach the tonnage of an aircraft carrier and be not very far short of the ordinary capital ship of 35,000 tons. At any rate there is to be nothing of what I call the pocket battleship type which upsets the building programme of every other nation all over the world.
I am not capable of dealing adequately with the question of the 14-inch gun in the 35,000-ton ship. As the noble Lord knows better than I do, the whole object of the Admiralty and of the naval constructor is to produce what is described as a balanced ship in which the guns should not be too heavy for the ship and the armour should be adequate, the speed adequate and so on. All I can say in regard to that matter is that in view of the decision of Japan not to be limited to a 14-inch gun the Admiralty will have to reconsider, or still further consider, whether in future it is wise, if we intend to limit our ships to 35,000 tons, to arm them with a 14-inch gun rather than a 16-inch gun, or whether we ought in time to go to the 16-inch gun. There is little difference in range between the 14-inch and the 16-inch gun, and in this respect in the two battles to which my noble friend Lord Howe referred, there was of course a great difference in the range of the guns. I think—again I speak under correction, because I am not an expert and he at any rate is an expert or knows a good deal about it—I am right in saying that the 14-inch gun may have as good a range as the 16-inch gun; therefore it is the question of keeping the other fellow outside your straight left and ultimately winning with your right, until you put him down. Admittedly, the bigger the gun, the heavier the shell, the greater the destruction. When my noble friend talks about an annihilating salvo it has to be borne in mind that the first point is to hit the ship with the shell and, therefore, if you get a good salvo with your 14-inch guns before the other fellow with his 16-inch gun is able to hit you at all,
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the chances are that you will win the battle.
As regards the future, I cannot say more than that the Admiralty will watch the situation very carefully. If it is found that Japan or any other nation is building a ship above 35,000 tons or with a bigger gun than is proposed in the Treaty, as the noble Lord knows the escalator clause gives the opportunity for this country or any other country to give notice to other nations, saying that in view of the action being taken by such-and-such a nation they must use this "escape" clause in order to follow suit and to build a ship which will be adequate to deal with the situation. Whether that would be a bigger ship than the Japanese ship, or a faster or more heavily gunned one, is a matter that the experts will have to go into when they have such information as they can get in regard to the ship of the other nation concerned. I can assure the noble Earl, as he well knows, that this will be very carefully watched by the Admiralty. There is not the smallest intention that we should send our men to sea in ships inferior to others they may have to meet which belong to any other Power. The whole essence of the thing is to try to stop these races in naval armaments either in regard to ships, guns or armour. I hope that Japan in course of time will see that it is to her advantage no less than to that of every other nation to agree to a limitation, and that she may see her way to sign a treaty of this kind, or at any rate act in accordance with the terms of that Treaty and not put us or any other nation into difficulties.
EARL HOWE: Will the noble Earl tell us whether the escalator clause would have any effect on the operation of the bilateral or multilateral Treaties that the Government have come to?
EARL STANHOPE: Yes, they all have a similar clause, I think in identical wording. The bilateral agreements have the same wording in this respect as that in the London Naval Treaty itself. Therefore those who have signed the London Naval Treaty can get out; so also can Germany and Russia and any other nations with whom we are fortunate enough to make similar Treaties.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

LOCAL GOVERNMENT SUPERAN NUATION BILL.
Read 3a (according to Order), with the Amendments, and passed, and returned to the Commons.

AGRICULTURE BILL.
Amendments reported (according to Order).
Title:
An Act to assist farmers to increase the fertility of their land; to provide against heavy financial loss by farmers in respect of their crops of oats and barley, and to raise the limit of the quantity of wheat in respect of which deficiency payments under the Wheat Act, 1932, may be made at the full rate; to make further grants for land drainage; to promote the eradication of diseases of animals and poultry, and with that object to establish a national service of veterinary inspectors; and for purposes connected with the matters aforesaid.
THE LORD CHANCELLOR (VISCOUNT HAILSHAM): My Lords, there is a manuscript Amendment in the name of Lord Hastings.
LORD HASTINGS LORD HASTINGS moved to omit "against heavy financial loss by farmers in respect of their crops" and insert "for securing farmers against any substantial fall in the price." The noble Lord said: My Lords, in Committee an Amendment in the title was inserted which has not been printed in the Bill, inasmuch as the Bill has not been reprinted. My right honourable friend the Minister of Agriculture, who is aware that certain words were accepted here in Committee, had certain alternative words which he submitted lo me as being in his view slightly preferable to those inserted in Committee. I was able to meet him, and I am glad now to move this alteration in the title in those alternative words.
Amendment moved—
Leave out ("against heavy financial loss by farmers in respect of their crops") and insert ("for securing farmers against any substantial fall in the price").—(Lord Hastings.)
On Question, Amendment agreed to.
Clause 6:
Subsidy payments in respect of land under oats or barley.
(2) If the qualifying acreage of land under oats or under barley in the year nineteen hundred and thirty-eight or any of the following three years exceeds the standard
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acreage, the rate at which any subsidy payment may be made in respect of any land by reason of its having been under oats or under barley, as the case may be, in that year shall, subject to the following provisions of this part of this Act, be a rate bearing to the rate determined by the preceding sub-section the same proportion as the standard acreage bears to the qualifying acreage of land under oats or under barley, as the case may be, in that year; and if the rate determined by the preceding provisions of this subsection is not an exact multiple of a penny, the odd fraction of a penny shall be disregarded.
In this subsection the expression "the standard acreage," in relation to oats or in relation to barley, means such acreage as the Ministers may by order declare to be the number of acres arrived at by multiplying by eleven-tenths the qualifying acreage of land under oats or under barley, as the case may be, in the year nineteen hundred and thirty-seven.
LORD HASTINGS LORD HASTINGS moved, in subsection (2), to leave out "or under barley," where those words first occur. The noble Lord said: My Lords, in Committee I pressed upon the Government the unreasonableness of limiting the acreage of barley in view of the fact that our importations of barley into this country are on a very great scale. The Bill provides for a standard acreage and a qualifying acreage, and I think it is quite true to say there is nothing in this Bill which prevents farmers from growing as much barley as they please, yet there is a definite inference that an over-production of barley is possible. I maintain that in view of these importations an overproduction of barley in this country is impossible. The noble Earl, Lord Feversham, on Second Reading committed himself to a statement in respect of production of barley which I felt bound to challenge. The noble Earl himself was good enough to substantiate my own figures and in fact to extend them by quoting in Committee the very large figures which are now current for barley importations.
In so far as that particular point is concerned, I feel that the noble Earl will be of opinion that really his ammunition is exhausted and that there is nothing for it but to hoist the white flag in that connection. We return therefore to the financial issue. It is, of course, accepted that the Treasury must be safeguarded against any unlimited expenditure in respect of the assistance which this Bill proposes to give. That would be granted by any reasonable man, but I still am of

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opinion that any standardisation of acreage is not only undesirable but in this matter quite unnecessary. The noble Earl, Lord Feversham, told the House that it was estimated that there might be as much as 300,000 acres of barley eligible for this assistance. I am of opinion that the actual acreage will be infinitely less. But the noble Earl is entitled to his opinion as I am to mine. None the less the noble Earl went on to tell us that the total production of barley is getting on for 900,000 acres of that commodity, so that the quantity which he would expect to become eligible in this year for this assistance would, on his own showing, be not more than one-third of the total production of the crop.
The Bill contains provision that the standard acreage shall be eleven-tenths of the present acreage—that is, plus one-tenth of what it is now. The acreage which the Ministry of Agriculture expect may, in certain circumstances which I believe to be exceedingly remote, be reached is 300,000—that is, something less than four-tenths. There is a margin between the acreage which they expect may be eligible and the total acreage of barley of not less than two-thirds. As no one would suggest for one moment that anything approaching the whole acreage under barley could during the continuance of the wheat subsidy become eligible for assistance, I maintain that this standardisation so far as barley is concerned is wholly unnecessary because the Treasury is already safeguarded by a two-thirds margin. So I am endeavouring by this Amendment and sundry consequential Amendments which I have put on the Paper to take this standardisation of barley acreage out of the Bill. It may be said with a certain truth that this is an academic point, but it is undesirable that the Ministry of Agriculture and the Government and this House and the other House should be committed to anything which could be interpreted as an opinion that barley production should be limited and should not exceed a standard acreage. I have nothing to add to the point and I beg to move.
Amendment moved—
Page 5, line 30, leave out ("or under barley").—(Lord Hastings.)
THE PARLIAMENTARY SECRETARY OF THE MINISTRY OF AGRICULTURE AND FISHERIES (THE EARL OF FEVERSHAM): My Lords, my noble friend Lord Hastings said curing the Committee stage and now that it could not be undesirable to increase the production of British barley so long as our imports remained at their present figure. The noble Lord was good enough to refer to figures I gave him. He said that they substantiated the case he made out. The noble Lord has intimated that the Government have no further ammunition with regard to the answer made to him on this point, but I would say that in considering the question of imports of feeding barley—and this Bill is designed to give assistance to those persons who grow feeding barley and not malting barley—you must bear in mind the paramount need not to contemplate raising the price of an important feeding stuff to the livestock producer. As the noble Lord is well aware, prices of feeding stuffs are already high and my knowledge is that the livestock producer would by no means welcome any further increase. Yet, prices would rise if imports were restricted. Imports keep pace with demand and the increase in imports from 15,000,000 cwt. to 18,000,000 cwt. in recent years has been largely due to the increase in our pig population. Too large a production of barley at home would soon bring about over-supply, and consequently lower prices, unless there were a corresponding reduction in imports. But an increasing proportion of barley imports, as the noble Lord will be aware, comes from the Empire, and it is not possible to impose any duty on those supplies. Foreign supplies are subject to the general ad valorem duty of 10 per cent. and, as I have suggested to the noble Lord, any increase in this duty on feeding barley has been consistently opposed by a great body of agricultural opinion in England and Wales. It is of that general consideration that I would wish the noble Lord to take cognisance.
But the noble Lord has directed his argument in the main to the financial position under the Bill. Although I said during the Committee stage that it had been estimated by the Ministry of Agriculture that out of the total barley acreage of 800,000 to 850,000 acres, the qualifying barley acreage for this year, 1937, would be approximately 300,000, I would remind the noble Lord that that is only an estimate. With the present level of prices for the three cereals, which

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according to the latest figures at my disposal are 9s. 9d. a cwt. for wheat and 9s. 6d. for oats and barley, it is quite possible that the farmer will elect to take advantage of the barley subsidy proposals rather than of a deficiency payment under the Wheat Act, owing to the fact that the price of wheat is such that he would not derive any considerable benefit from it. So it is possible that the qualifying acreage figure will be in excess of 300,000 acres. If that is the case, then from the point of view of the liability of the Exchequer and the taxpayer it is proper to follow the precedent adopted in other agricultural legislation of imposing a limit, and the limit will be the acreage that qualifies for barley subsidy this year plus 10 per cent. increase for the year 1938 and the next three succeeding years.
The noble Lord said that the Government need not include this provision because on my own figures they are safeguarded by a two-thirds margin. The amount that will be stipulated under this Bill will be the qualifying acreage alone. If, as the noble Lord fears may be possible, farmers only register in respect of 30,000 acres instead of 300,000, they would not be able to increase their barley acreage for the purpose of assistance by more than 10 per cent. on that acreage. That is the point, I think, that the noble Lord most fears. As I have said, I think that is improbable owing to the price level of the three cereal crops today; and farmers wishing to qualify for the barley assistance would elect to do so this year, in the year 1937, because the ascertained weighted average price will be calculated on the seven-months period from September to March, and nobody can foretell to-day what that ascertained average weighted price will be at the conclusion of that period.
I understand that propaganda will be conducted, both in England and in Scotland, by the representative associations of the agricultural industry to suggest to farmers that they should register this year. I do not think that that propaganda precaution will be essential, for the reason that I have already given: that all those who are likely to benefit more from these proposals than under the Wheat Act: will register in the month of September irrespective of the present price, because the ascertained price will not be calculated until the end of March. There
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is some misapprehension in the mind of the noble Lord that it is unnecessary to put in this Bill any limit whereby the Exchequer will be safeguarded. For the reasons which I hope I have been able to make clear to the noble Lord, however, that course is necessary because it is impossible to foretell at this stage exactly which way the farmers generally will decide to go.
LORD HASTINGS: My Lords, in regard to the first part of my argument: with great respect to my noble friend, he has drawn an enormous red herring across it. I never said anything about the restriction of imports from the Dominions. We never raised that point at all. All I ventured to say was that, so long as these importations, whether from the Dominions or foreign countries, amount to anything in the nature of the 18,000,000 cwt. which they now do, it cannot be reasonable for a Government to insert into an impending Act of Parliament the statement, even by inference, that the acreage under barley in England and in Great Britain as a whole should be standardised or be subject to any kind of qualification. It cannot be right, it cannot be proper, and I cannot agree that any argument could be advanced which would justify any such thing, other than the necessity of limiting the charge upon the Exchequer—and even then I should strongly object to it.
With regard to this limitation of charge, the noble Earl has let out, so to speak, a new fact. I had assumed, I say—and it may have been through my misreading of the Bill—that the eleven-tenths was to be applicable to the persent total acreage of barley. That would be the present total acreage of barley plus one-tenth. I hold that, where it was anticipated that more than one-third of that total acreage could conceivably be found eligible for this assistance, the margin of two-thirds was in itself ample for the protection of the Exchequer, and that consequently there was no reason whatever for the insertion of the standard acreage into the Bill. Now my noble friend tells me that the qualifying acreage is to be eleven-tenths of the acreage which became eligible for the subsidy—or the assistance, as I should prefer to put it—in 1937. Of course, that puts an entirely new face on the matter. We are up against an entirely different proposition.

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My noble friend has said that, in view of the fact that world wheat prices have risen to a figure at which the subsidy provision cannot assist the grower, it is conceivable that he will elect to become eligible to register for this barley and oats assistance rather than receive assistance for wheat.
And the noble Earl quoted these world figures of 9s. 6d. per cwt. for oats and for barley. He appears to have forgotten that no kind of assistance is going to be given to the British farmer until the price of oats drops to 8s. per cwt. less 5d. What conceivable incentive has the farmer, when barley and oats are standing at 9s. 6d. per cwt., with no immediate prospect of decrease, to register for any such slight assistance as this Bill proposes to give him? It is highly improbable that any farmer would sacrifice the certainty of the wheat susbidy for the nebulous uncertainty of this assistance in respect of oats and barley, particularly when their prices have risen, are rising, and are likely to continue to rise in the way which my noble friend has described. We are far more likely to get down to this position: that those barley growers who apply and register and thereby become eligible for this assistance in the year of grace 1937 will be infinitely fewer than the 300,000 which the noble Earl designated in Committee when he was discussing this matter with me. Suppose that under this Bill these barley growers do in fact only register some 30,000 acres instead of the 300,000 anticipated acres. Then, as the qualifying acreage has application to 1937, in the coming year and in the three years to follow no more than 30,000 plus one-tenth—that is, 33,000 acres—can ever under this Bill be eligible for the assistance which is granted to them under Part II. If anything tends to substantiate the contention, which I have advanced from the very beginning, that this Bill does nothing whatever for barley growers, it is that very fact and figure. It is really intended to apply the qualifying acreage to the acres registered in 1937. I can only say that the Bill is even more useless to barley growers than I believed that it was, and I did not think much of the Bill from that point of view from the very start.
What I would really urge upon the noble Earl is to come back to the original point. It cannot be right to put into
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this measure, or into any measure, that it is desirable to standardise a form of production which is liable to importations on an enormous scale. It must be unsound, and in the circumstances the Exchequer stands to lose nothing at all. It is inconceivable that the limit should be reached by so large a figure as to be more than two-thirds, far wider than a two-thirds margin. It seems to me quite absurd to put in this standardisation of acreage, this qualifying acreage, in respect of barley when it is not needed. It gives a wrong impression, and it gives a kind of inference which I cannot think that the Ministry of Agriculture and the Government themselves would wish to be read into the Bill. I still hope that the noble Earl will see his way to make some kind of concession in the matter. It would cost the Government nothing and would make the Bill more digestible, if I may use that word.
THE LORD PRIVY SEAL (EARL DE LA WARR): My Lords, I do not know that there is very much to add to what my noble friend has already said. The noble Lord, Lord Hastings, has accused him of drawing a red herring across the path of the argument by discussing the question of a tariff on barley from the Dominions. But I think it is perfectly clear that if there is going to be a very large increase in the production of barley in this country, to the extent of a greater production than is really needed, then the price must fall, and either the price must be forced up by means of a tariff or else there must be a large amount of Exchequer assistance. There is a perfectly clear choice. My noble friend can therefore rightly argue against, in this particular case, a tariff, and I think the noble Lord, Lord Hastings, himself admits that, where there is a necessity for anything in the nature of Exchequer assistance, there is a case for inserting some sort of provision for not encouraging a greater production. Therefore I think it would be very undesirable to accept the noble Lord's Amendment. It must in fact lead to an increased amount of subsidy. The noble Lord appears to find that point amusing, and I am afraid I can only leave it at that.
LORD HASTINGS: The noble Earl must really make his argument more complete than that. He says it would lead to an increased amount of subsidy. It

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would lead to nothing of the kind. How can it lead to an increase of subsidy when there is a two-thirds margin, and nothing else? The Government do not wish to give way. I said at the beginning that the Bill was of no use to barley growers, and having got no further forward I think the best I can do is to withdraw my Amendment.
Amendment, by leave, withdrawn.
THE EARL OF FEVERSHAM: My Lords, my Amendment is drafting.
Amendment moved—
Page 5, line 36, leave out from ("shall") to ("be") in line 37.—(The Earl of Fever-sham.)
On Question, Amendment agreed to.
Clause II [Persons to and by whom payments, elections and applications may be made]:
THE EARL OF FEVERSHAM: My Lords, these Amendments are drafting Amendments.
Amendments moved—
Page 9, line 27, leave out ("then") and insert ("at the beginning of the said day")
Page 9, line 30, after ("payment") insert ("otherwise than by virtue of an assignment").—(The Earl of Feversham.)
On Question, Amendments agreed to.
THE EARL OF FEVERSHAM THE EARL OF FEVERSHAM moved to add to the clause:
"(2) Where—

(a) in any year there occurs, at any time before the fourth day of June, a change in the occupation of a farm which, at the time of the change, comprises land under oats or land under barley, and

(b) the outgoing occupier is, by virtue of any custom or agreement, entitled to harvest the oats or barley,

the preceding provisions of this Part of this Act shall, in relation to the said land, have effect as if for any reference in those provisions to the person who, at the beginning of the fourth day of June in that year, was the occupier of the farm, there were substituted a reference to the outgoing occupier."
The noble Earl said: My Lords, this Amendment has been designed in consultation with the Scottish Department of Agriculture to meet the difficulty raised by Lord Saltoun and other Scottish Lords on the Committee stage, with regard to changes of occupation on May 28, where according to Scottish custom the outgoing occupier retains possession of the crop until it is harvested. The Amendment puts the outgoing occupier in such circumstances in the place of the person in
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occupation of the farm on June 4, and thus enables him to claim the subsidy in respect of any barley or oats of which he remains the owner. He will also become the person who has to elect to receive either subsidy payments for barley and oats or wheat deficiency payments, and the person to whom the subsidy will finally be paid. The Amendment follows the precedent of the Corn Production Act, which I am advised worked satisfactorily in Scotland, and it avoids the serious administrative difficulty that would be caused by the alteration of the operative date from June 4 to May 28 as originally proposed by my noble friends from Scotland.
Probably this Amendment does not completely cover the Scottish points, in that it does not cover the case of the outgoing occupier who, though he would by custom of the country be entitled to the crop of oats or barley on the land, may not come within the words "is entitled to harvest the oats or barley," because there may be a clause in the agreement under which he entered into the holding, requiring him to sell his crop to the incoming tenant. But that point raises very great difficulties, though I hope I shall be in a position to put on the Paper on the Third Reading an Amendment to cover this additional point.
Amendment moved—
Page 9, line 30, at end, insert the said new subsection.—(The Earl of Feversham.)
LORD STONEHAVEN: My Lords, I should like to thank the noble Earl for meeting the Scottish point of view to the extent found possible, and also in regard to the further point which he hopes to meet at a later stage.
On Question, Amendment agreed to.
Clause 19:
Special payments in connection with the eradication of bovine tuberculosis.
(3) The Minister shall, as soon as may be after any arrangements made by him have been approved for the purposes of this section by the Treasury, lay particulars of the arrangements before Parliament.
THE EARL OF FEVERSHAM: My Lords, my first Amendment is a drafting Amendment.
Amendment moved—
Page 52, line 38, leave out ("arrangements") and insert ("a scheme").—(The Earl of Feversham.)
On Question, Amendment agreed to.
THE EARL OF FEVERSHAM THE EARL OF FEVERSHAM moved to leave out subsection (3) and insert:
"(3) Any scheme made under this section, and any subsequent scheme amending a scheme so made, shall be laid before Parliament as soon as may be after it has been approved by the Treasury, and if either House of Parliament, within the next twenty-eight days on which that House has sat after the scheme is laid before it, resolves that the scheme be annulled, the scheme shall thereupon cease to have effect, but without prejudice to anything previously done thereunder or to the making of a new scheme."
The noble Earl said: My Lords, this Amendment is similar to that moved by Lord Sempill in Committee, and I am glad to be able to meet him with regard to this point.
Amendment moved—
Page 13, line 2o, leave out subsection (3) and insert the said new subsection.—(The Earl of Feversham.)
On Question, Amendment agreed to.
THE EARL OF FEVERSHAM: My Lords, the next Amendment is consequential.
Amendment moved—
Page 13, line 28, after ("been") insert Centered into in accordance with a scheme").—(The Earl of Feversham.)
On Question, Amendment agreed to.
Clause 32:
Application to Scotland.
32. In the application of this Act to Scotland—
LORD ROWALLAN LORD ROWALLAN moved to insert at the end of the clause "(d) Section eighteen shall not apply." The noble Lord said: My Lords, I would like first of all to thank the noble Earl in charge of the Bill for having seen the Scottish point of view in connection with the Amendments of Lord Saltoun and Lord Sempill. I do not intend to press the Amendment which I have down on the Paper to-day, but I wish to have another opportunity of impressing upon your Lordships the serious position that may be occasioned in Scotland by this Bill. I have called attention to the difficulties which this Bill places upon the police, and the very great extra burden which will be placed upon them, which may well prove almost intolerable. At the present time the Chief Constables in Scotland are answerable not only to their county but to the Departments of Health and Agriculture, and to the Secretary of State for
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Scotland, who is in the position of the Home Secretary in England. So we have a division of duties at the present time, and the county police, particularly in some scattered districts, are so fully occupied with duties other than those of the protection of property and the prevention of crime that things are getting almost out of hand.
In large parts of Scotland, such as Argyllshire and Sutherland, wholesale sheep stealing is going on in a way with which the police are unable to cope, while in the Lowland districts the same thing is occurring in connection with poultry. Poultry thefts are taking place every day and night. These have been facilitated by the improvements in transport—the motor lorry, the motor car and the motor bicycle. And I fear that another growing evil which has appeared in the last year or two is the question of the greyhound race tracks, whose owners' dogs wander over the countryside completely out of control, chasing the ewes at lambing time, while the owners destroy the fences and leave gates open, doing inestimable damage to the countryside. If the duties of the police under this Bill are to be added to I fear that the farmer may not benefit very much under it, because he will certainly suffer through still less supervision of these pests of the countryside.
Amendment moved—
Page 22, line 30, at end insert the said new paragraph.—(Lord Rowallan.)
THE EARL OF FEVERSHAM: My Lords, I am sure that my noble friend needs no assurance from me that this point was given special consideration in the framing of the Bill. Perhaps, in view of the discussion that has taken place when this matter has been debated on former stages of the Bill, I might be allowed to re-state the intention of the whole of Part IV. This campaign for the eradication of animal diseases is part of a general policy of increasing agricultural productivity, and it has special reference to Defence considerations. The question of the eradication of animal disease has in the past been dealt with in two ways. One has been the machinery set up under the Diseases of Animals Acts, which embodies two essential features. It first involves control at the ports, which prevents new disease from coming into this island of

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ours from foreign lands; and secondly, it has as one of its main tenets the criterion of infected areas which are the subject of an order. Under this machinery no account is taken of county boundaries, or indeed of any other border. Under the machinery of the Diseases of Animals Acts we have in the last forty years or more been eminently successful in eradicating some of those most pronounced diseases among our flocks and herds which were doing great damage at the end of the last century and the beginning of this. Sheep pox was stamped out, cattle plague was eradicated in 1877, rabies was stamped out at the beginning of this century, and the last known case of glanders was in 1928. That side of the campaign against disease has been justified in the machinery that was set up under the Diseases of Animals Acts.
The second way in which we have tackled the problem has been legislation directed to the purity of supplies from the public health service point of view. That has been administered by local authorities in England and Wales and in Scotland, with varying results. Under this Bill we propose to tackle the problem as we know it to-day, which is a very serious one. The Gowland Hopkins Committee's Report estimated that £14,000,000 a year was lost on account of disease in our flocks and herds and poultry. Although my right honourable friend has naturally paid a tribute to the work of the local authorities, which have during the course of those years done all within their power to reduce the incidence of disease, there can be little doubt that what is wrong is the varying standards of administration, and those varying standards are often due to the varying rateable values and the resources of certain of the local authorities. Good work done in one county can be hampered, or even destroyed, by less good work clone in an adjoining county.
I feel that your Lordships' experience is similar to my own, and that farmers generally are disheartened from cooperating in this great battle against disease if they know that a higher standard is imposed in one area as against that imposed in another. This Bill therefore proposes something larger in scope than the local authorities have been able to undertake in the past. We are now treating the whole question of animal disease from the point of view of the health of the animal, laying greater stress
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upon health than upon the public service for making greater headway. The best and surest way of getting tubercle-free milk is to get cows free from tubercle in the first instance. That is the reason why the Government decided that a central veterinary service was necessary.
The noble Lord, Lord Rowallan, has referred to the difficulties that will be met by local authorities in Scotland when the function of the veterinary officer is taken over by the State, and he has said that they will be left with many heavy administrative functions to be effected by the police and by the sanitary inspectors, without having the control of the disease problem and the solution of eradication within their jurisdiction. There can, no doubt, be very strong arguments on the lines put forward by the noble Lord, but I suggest that it would not be administratively possible for the Government to take over those functions that are incidental to the veterinary service as we know it; it would inevitably create duplication of service. There would necessarily have to be officers of the central authorities whose duty would be to carry out the work which is now done by the police of the local authorities. There would at the same time have to be a police service within the jurisdiction of the county council, and it would, I think, not be in the interests of public finance if we were to admit that by this scheme we are going to lose that useful element of co-operation that has existed in the past.
My right honourable friend, in making arrangements for the central veterinary service, must depend to a large extent upon the good will of the local authorities if the main fundamental principle of the Bill is to be carried out and if there is to be much headway made in the general eradication of disease. It is felt that the result of the noble Lord's Amendment would be that, whilst in England the Minister of Agriculture would be in control of all the veterinary services as they are viewed under Clause 18, these services would in Scotland be partly under the control of the Minister and partly of the local authorities as regards the functions under the Diseases of Animals Acts, and under the control partly of the Secretary of State's Departments and partly of the local authorities as regards the functions under the enactments relating to milk and to dairies. This would leave

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the position as regards veterinary services in great confusion, and would be contrary to the principles that underlie the single veterinary service for Great Britain as a whole which Clause 18 of the Bill is intended to provide. It is for these reasons that I am afraid the Government cannot recognise the claims that the noble Lord, Lord Rowallan, has so clearly put before your Lordships on behalf of Scotland and of the County Councils' Association for Scotland.
LORD ADDISON: My Lords, in view of the statement of the noble Earl covering the rather wide ground of Part IV, it might be appropriate if I asked him to make clear a certain matter regarding the powers for the eradication of disease which does not appear to me to be as clear as one would like to see it. I understood the noble Earl to suggest that the encouragement of research was one of the services which might be rendered. In the White Paper which has been circulated the various moneys are set out to which the noble Earl has been referring, but there is no mention of any fund being available for the assistance of research, and the only section of the Bill under which that would appear to be possible is Clause 2o. Whether the words "eradicating as far as practicable diseases of animals" include the provision of assistance for research or not is a very important matter. I should be glad if the noble Earl would look into it and if he could give us some assurance that it does include assistance for research, and also that it will include ability on the part of the Department to obtain from the Treasury such sums as they may agree with them for that purpose, these sums to be included in the Departmental Votes in the ordinary way. It is a vital part of this attack on disease that the Council for the Scientific Research into Animal Diseases should be very generously assisted, and I should be glad if the noble Earl could tell us whether that assistance is possible under the Bill as it now stands, and, if so, is it intended that it shall be provided.
THE EARL OF FEVERSHAM: My Lords, by leave of the House, I beg to reassure the noble Lord, Lord Addison, in regard to both the points he has raised. Clause 20, to which he drew your Lordships' attention, does enable the Department to make grants to the Agricultural
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Research Council. With regard to the second point, the money provided by the clause is merely limited by the Vote of Parliament. I hope that that answer is sufficient to assure the noble Lord that the matter which he has so much at heart is provided for in the Bill.
LORD ROWALLAN: My Lords, while thanking the noble Earl for his reply, I must at the same time say I am disappointed to get no assurance from him that the Minister will do his best to see that the duties of the police are not unduly increased by the administration of this Bill, so that the countryside may still receive attention.
Amendment, by leave, withdrawn.

MILK (AMENDMENT) BILL.
Order of the Day for the Second Reading read.
THE EARL OF FEVERSHAM: My Lords, I do not think this Bill need detain your Lordships for long as it does not raise any important new question of principle, but merely provides in effect for an extension for a further year of those provisions of the Milk Acts, 1934 and 1936, which would otherwise expire on the 30th September next. Such amendments of the Acts as the Bill provides for are merely designed to restore the original intentions of those Acts on certain technical points. I need not remind your Lordships at length why the original Act of 1934 was passed. You will recall that in 1933 the English Milk Marketing Scheme and the main Scottish Scheme came into operation just in time to prevent a disastrous fall in the liquid milk price which might eventually have led to a milk famine. But the schemes could not materially improve the returns from milk used for manufacture, since these were governed by the price of imported dairy produce. Under the Ottawa and foreign trade agreements, the Government were precluded from providing assistance by way of tariff or the regulation of imports, and the Milk Act of 1934 therefore authorised the Exchequer to make contingently repayable advances to the Milk Boards in order to provide them with minimum returns on milk used for manufacture. This system had the advantage of enabling consumers to continue to get ample supplies of

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butter and cheese at very low prices. The Act also provided for Exchequer assistance for schemes for increasing the demand for milk (including the milk-in-schools scheme) and for improving the quality of the liquid milk supply.
Early in 1936 my noble friend Lord De La Warr invited your Lordships to pass a Bill to extend the provisions of the 1934 Act to the 30th September, 1937, and he expressed the hope that in the intervening period the Government would be able to put before Parliament legislation embodying a long-term milk policy. But the Report of the Milk Reorganisation Commission for Great Britain was not available until the end of 1936, and, as your Lordships will appreciate, it was then necessary to ascertain the views of the Milk Boards and of representatives of all sections of the milk industry on the important issues raised by the Report. The views of some of these bodies have only been received quite recently and it has not been possible to frame a longterm policy in time for legislation this Session. In the meantime, the case for insuring the industry against depressed prices for manufacturing milk is as strong as ever. Clause 1 of the Bill, accordingly, proposes to extend for a further twelve months to the 30th September, 1938, the period during which payments may be made to Milk Boards in respect of milk used for manufacture into butter, cheese, cream, condensed milk and milk powder. Clause 2 provides that this further payment period is to be balanced by a corresponding extension of the period during which there will be a contingent liability to repay these advances.
Under Clause 3 it is proposed to extend for a further year the period during which Exchequer payments may be made in respect: of schemes for increasing the demand for milk. The most important are the milk-in-schools schemes, which now cover more than 2,750,000 children in Great Britain. Clauses 5 and 6 are designed to rectify certain anomalies which have arisen in connection with the Exchequer payments in respect of manufacturing milk. These anomalies are of importance to the Milk Boards, but they are concerned with matters of detail, and I do not intend to give your Lordships a full explanation of them at this hour unless I am expressly asked to do so.
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As I have said, this Bill does not introduce any new and controversial principle. It is designed simply to hold the situation until long-term policy can be embodied in legislation; and I therefore commend this Bill to your Lordships for a Second Reading.
Moved, That the Bill be now read 2a.—(The Earl of Feversham.)
LORD ADDISON: My Lords, in commenting upon the noble Earl's statement I only wish to express the hope, not perhaps the belief, that the long-term policy which we have been promised so long will be forthcoming before the twelve months have elapsed for which this Bill provides. My impression is that we have been promised this long-term policy for at least four years, and we have been bridging over the intervals by grants of money in this fashion. It would be interesting if the noble Earl could give us some indication as to whether this is likely to be the last of all these costly expedients, and if he could shed some further light upon what is to be the nature of the long-term policy which he so properly and so often referred to but which is still shrouded in mystery. As to the grant for schools, I am sure every one of us will welcome the statement as to the efficiency of the administratian which is accompanying this grant, and I hope that the Government will, as far as possible, arrange for its wider extension during the next twelve months.
THE EARL OF FEVERSHAM: My Lords, in reply to the noble Lord, I still hope that my right honourable friend the Minister of Agriculture will, before the conclusion of this Session, be able to make some announcement to members of another place upon the long-term policy for milk. It would be rash of me to say that this will be the last occasion on which I shall have to stand before this box to introduce a measure of expediency until that long-term measure is inaugurated. That expression was made, I believe, by my noble friend on the last occasion when the Milk Act of 1934 was extended. But I believe that it will not be necessary to make such temporary provision again in the future.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

CARDIFF EXTENSION BILL.
THE CHAIRMAN OF COMMITTEES (THE EARL OF ONSLOW): My Lords, before the adjournment of the House, may I say one word to call your Lordships' attention to the business which is down to be taken first to-morrow—namely, the Cardiff Extension Bill—and to express the hope that your Lordships will be able to dispose of that Bill and get a decision thereon. There is a Motion for its rejection to-morrow. I may point
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out that the Bill has had a long and strenuous journey through both Houses of Parliament, and if it is delayed further than to-morrow I fear it would perhaps be difficult to secure its passage—that is, if your Lordships are pleased to pass it. Therefore I very much trust that it will be possible to dispose of the matter tomorrow and get a decision upon the Bill then.
House adjourned at twelve minutes before seven o'clock.