§ Order of the Day for the Second Reading read.
§ LORD TEMPLEMOREMy 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 931 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.
932 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 933 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 934 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 935 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 ARNOLDMy 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 936 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 937 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 938 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 939 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 940 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 941 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 942 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 SLAMANNANMy 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- 943 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 944 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 945 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 946 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 947 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 948 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.
949§ 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 950 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 951 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 952 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 STRABOLGIMy 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 953 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.
954 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 955 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 BROCKETMy 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 ARNOLDI 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 BROCKETThen 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 956 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 957 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 958 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 TEMPLEMOREMy 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 959 £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 ARNOLDMay 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 TEMPLEMOREI 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 960 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 961 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.