HL Deb 25 July 1939 vol 114 cc456-91

Order of the Day for the Second Reading read.

3.2 p.m.

LORD TEMPLEMORE

My Lords, it is exactly three months ago to-day that my right honourable friend the Chancellor of the Exchequer in introducing the Budget in another place laid stress on the enormous influence on every aspect of our public finance of the need for Defence expenditure on an overwhelmingly large scale. In particular he drew attention to the fact that whereas two years ago we had to bear the burden of £26,500,000 on Defence Services, by last year that figure had swollen to £400,000,000, while for the current year he had to assume a provision of no less than £630,000,000. As your Lordships will be aware, that last figure included a sum of £50,000,000 for Supplementaries to meet the cost of expansion and acceleration of the Defence programme; and it is a disturbing fact, no less well known to the House, that in the event it has proved necessary to increase that allowance of £50,000,000 to £150,000,000—largely owing to the passage of the Military Training Act—with the result that the total expenditure on Defence alone for the year will be £730,000,000. This figure, which dwarfs the £100,000,000 Budgets which most of us can remember, accounts for the fact that the estimated expenditure for the current year is of the order of £1,400,000,000. Already last year's total expenditure of £1,068,000,000—itself the highest expenditure since 1921—is by comparison coming to appear quite a modest sum.

That expenditure of last year was provided for as to £128,000,000 from Defence Loans, and as to £940,000,000 from revenue. On the revenue account my right honourable friend was left last March 31 with a deficit of £12,714,000, but it should be noted that that deficit arose after providing a rather large sum—£13,219,000—out of revenue for the various Sinking Funds of the National Debt. For the current year, my right honourable friend had at the time of his Budget to contemplate borrowing £380,000,000—the figure to-day is greater by £100,000,000—which left him to find in all £942,000,000 from taxation. On the existing basis of taxation the estimated revenue was about £918,000,000, so that the Chancellor's task was to provide an additional £24,000,000 from revenue in order to balance the Budget this year.

In arranging to meet this additional sum the Chancellor of the Exchequer had to resort to existing taxes which had proved the best standby in the past. But with a view to harming industry as little as possible he left the greatest standby of the lot—the Income Tax—unaltered at 5s. 6d. in the £; from this source it is hoped to obtain £327,000,000. He increased the Surtax and Estate Duties by way of a percentage addition to the present rates estimated to bring in, in the current year, an additional £4,000,000 and £3,000,000 respectively, and in a full year £5,000,000 for each of them. When we take account of the National Defence Contribution, Stamp Duties and the like it will be seen that the total from Inland Revenue will be £524,000,000. In addition, the Chancellor has this year made a further call upon the direct taxpayer by increasing the horse-power duty on private motor vehicles from 15s. to 25s. per horse power. This increase will only begin to operate on January 1 next and is expected to bring in £6,250,000 more revenue this year, and in a full year £11,500,000. These fresh direct taxes add up to over £13,000,000 in the current year and my right honourable friend decided to raise the remaining £11,000,000 from the "indirect taxpayer."

Clause 1 of the Bill raises the basic rate of duty on tobacco by 2S. per lb. with an estimated gain to his revenue of £7,000,000 making the total yield from tobacco £93,000,000 this year. Clause 2 increases the basic duty on fully-refined sugar by 2S. 4d. per cwt. or ¼d. per lb. with an estimated gain to the revenue of almost £4,000,000 this year raising the total yield from sugar to £15,500,000. I am quite aware That these levies on articles of general consumption like tobacco and sugar are admittedly open to the criticism that they involve an additional burden on the poorer sections of the community; but I think the plain truth is that all sections of the people are concerned in strengthening the defences of the country, expenditure on which it is the outstanding object of this Finance Bill to provide, and it is in my right honourable friend's view right that all should be asked to help find the money.

Now I pass to two special features of this Finance Bill on which I think your Lordships would wish me to say a few words. It has again been necessary to include in this Bill provisions dealing with tax avoidance. The taxpayer who seeks to avoid his proper share of the heavy burden which the community is called upon to bear at the present time has found means, particularly by the use of one-man investment companies, to circumvent certain of the provisions relating to the avoidance of Surtax which have been enacted in recent years. Accordingly, if your Lordships will turn to Part II of the Bill, you will see that Clauses 13 to 19 are mainly concerned with the suppression of this evil.

I might perhaps lay stress on two points in these provisions which have aroused considerable discussion. The first concerns retrospective taxation. Clause 13 of the Bill is expressed to have retrospective operation, and some objection has been taken to the application of such a principle. The Government dislike the principle of retrospective legislation as much as anybody else, but in this case I think the House will agree with me that it is a necessary sanction. Clear warnings have been given last year and for several years past, not only by the present Chancellor of the Exchequer but also by my right honourable friend the Prime Minister when he occupied that post, that retrospective legislation would be introduced if it were found that the clear intention of the Statute was being defeated by artificial devices. Clause 13 applies only to cases where such artificial devices have been flagrantly adopted, and it is the intention of the Government that no innocent case shall be affected. The second and more important point in this connection arises on Clause 14. That clause requires the Special Commissioners, in the case of what are called one-man investment companies, to apportion the whole of the income of the company among the members irrespective of whether or not there has been a reasonable distribution of income. The provision has been found necessary because the test of reasonable distribution which the present law incorporates has been found insufficient to cope with new types of avoidance.

There has been some discussion about the position of trading and estate companies under the clause. It was never the intention of the Government that trading companies should be caught by the clause, and the Bill as at first introduced was amended to make it clear that a legitimate trading company is not affected Nor was it intended that the clause should apply to income of an estate company derived from its estate. The clause provides for the division of the income of such companies into estate or trading income and investment income. The estate or trading income will continue to be dealt with under the existing law, and the apportionment required to be made by the main provision of the clause will apply only to the company's income from investments. Moreover, the clause provides that where such a company sustains a revenue loss upon the estate in any year, it will be entitled to have its investment income reduced by the amount of that loss for the purposes of apportionment. Before I leave Part II I should mention that provision is made in Clause 18 to enable the Revenue authorities to exercise a check on the accuracy of returns of various sources of income.

Now I turn to the next important feature of this Finance Bill, which is what is familiarly known as the "A.P.D.," the Armaments Profits Duty, which is provided for in Part III of the Bill, Clauses 20 to 28. This Armaments Profits Duty has, as your Lordships will remember, been added since the first appearance of the Bill in another place, and it was added for this reason. On April 26 last, when the intention to introduce the Military Training Bill was announced, a statement was made in another place by my right honourable friend the Prime Minister, and to your Lordships by my noble friend the Leader of the House, that it was the intention of the Government to impose a tax upon firms engaged on a large scale on armament work in respect of any excess profits arising from that work. I should say that my right honourable friend the Prime Minister repeated that statement on April 27 and again on June 15. The Chancellor of the Exchequer, when moving the necessary Resolution in Committee of Ways and Means in another place, explained that the proposed duty was intended as a second or reserve measure in cases where the existing provisions for preventing excessive profits did not adequately secure the desired results.

The first and main method for controlling profits on armaments must be the arrangement for fixing the terms of the contract entered into between the State and the manufacturer, and very drastic powers have been given to the Minister of Supply addressed to the same purpose. But however reasonable a rate of profit may be when considered as a percentage of turnover, very large increases in the size of orders may very well produce large total profits upon the much enlarged turnover. The proposed duty was therefore in the nature of a supplementary provision which would operate supposing that the main check were not adequate. The Government's proposals are contained in Part III of the Finance Bill. The duty is to be charged at the rate of 60 per cent. upon such portion of the excess profits arising in an armament business as is attributable to armament contracts. A business is deemed to be an armament business if the Minister of Supply declares that its total receipts under armament contracts in a chargeable accounting period were not less than £200,000 per annum. The term "armament contracts" is defined in the Bill. The duty is chargeable for the three years beginning with April 1, 1939. Provision is made for the computation of the standard profits of the business by reference to the profits of the business in one or two years within the period from January 1, 1935, to December 31, 1937, certain options being available to the taxpayer in the choice of years. Where a business was commenced too late to permit of the standard profits being so computed, the standard profits will be a percentage of the capital employed in the business in the chargeable accounting period.

The amount by which the profits of the chargeable accounting period exceed the standard profits constitutes the excess profits of the business as a whole. The portion of that excess which is to be attributed to armament contracts is to be ascertained primarily in the proportion of the turnover under armament contracts to the total turnover, but adjustments may be made where either the taxpayer or the Commissioners of Inland Revenue show that in fact a smaller or a greater proportion of the excess arises from armament contracts. Profits are to be computed upon Income Tax principles, subject to certain adaptations, of which the most important is the allowance of interest paid by the taxpayer as a deduction in computing profits. A deduction is also to be allowed of the proper proportion of any diminution in the value of buildings, plant or machinery, provided after the beginning of 1937 for the purpose of fulfilling armament contracts, where those assets become obsolete or redundant or have been sold before a date which remains to be fixed.

That, I think, is the Bill, which I have tried to explain to the best of my ability. I do not expect, of course—nobody expects—that a Finance Bill of this kind will be received with very much pleasure or with acclamation from any quarter. But I think its merit is that it provides in a straightforward and realistic way for the carrying on of the business of the country. We live in difficult times and we shoulder great obligations, but I think that the people of this country have shown during the last year or more that they will do this and will do it with determination. I think the Bill has met with really very little opposition in the country as a whole, and although my noble friends opposite, if I may so call them, may not agree with me, the Government think that the allocations which my right honourable friend has made between direct and indirect taxation, and between taxation and borrowing, have met with general approval. The distribution of the burden of new taxation has been generally accepted as both sound and fair. When we have had our pleasure or amusement it is never very satisfactory to be faced with the bill next morning, and there is this great difference in what we are now discussing, that there is very little pleasure or amusement that we get out of these matters on which the money is spent.

However, I think the mind of the country is made up. I think that it is a source of great pride that, with all this vast expenditure on armaments, our Social Services have not in any way been allowed to decay or been neglected. In fact they are, as your Lordships know, the envy of the whole world. The overriding necessity, however, at Whatever cost, is to strengthen and accelerate our growing defensive power, and I do not think any one of your Lordships, except perhaps Lord Arnold—and I am not sure that he would at this stage—will deny that. I hope for these reasons that your Lordships will give this Bill a Second Reading. I beg to move.

Moved, That the Bill be now read 2a.—(Lord Templemore.)

3.22 p.m.

LORD STRABOLGI

My Lords, it is one of the pleasurable occasions of the Parliamentary year to hear the noble Lord, Lord Templemore, doing his annual task of introducing ever-growing Budgets, and he does it in such a disarming way that it must be only the accident of birth which has prevented him from becoming Chancellor of the Exchequer. Had he been Chancellor, of course, the Bill would have reached your Lordships much earlier. It is impossible, of course, for us to allow a budget of £1,400,000,000 to pass without a word of comment. Although we have not the power to amend or reject the Bill, it does deserve attention in your Lordships' House. The noble Lord said that this Bill had been received with a good deal of resignation or pleasure in the country.

LORD TEMPLEMORE

I never said pleasure.

LORD STRABOLGI

Acquiescence, then. He never mentioned, however, the various blunders which the Chancellor of the Exchequer has made, as for example that perfectly ridiculous film tax, which would have ruined the producing half of the film industry. I am very glad that that was dropped, and I hope that the Chancellor of the Exchequer will never put such taxes on again in the future. We object very much to the form of increased horse-power motor tax. We think it will have a bad effect on the motor car industry, and that the money could have been raised in another way. British high-powered cars are necessary for the Dominions and Colonies, and are therefore useful for the export trade. We consider that it would have been better to put an ad valorem tax on all, new cars, as a kind of sumptuary tax, whatever the horse power, so as to decrease the number of men employed in the motor car industry and release them for employment in aeroplane construction. At the present moment, aeroplane manufacturers have to get men by bidding against the motor-car industry, and in consequence the prices of their products rise.

The very few comments which I have to make to-day, with your Lordships' permission, are as follows: I think one lesson from the present economic state of the country is that everything possible must be done to encourage and foster the export trade of the country, and that all help should be given to the merchants and manufacturers of this country to develop new markets, and to extend existing markets. I believe that the Government are alive to that necessity, and are doing all they can in that direction. The policy of the Party for which I have the honour to speak, with regard to the whole problem of finance, is that as much as possible should be raised out of revenue and as little as possible borrowed. We think that the only defence for borrowing is when it is for such capital goods as barracks, docks and so on. It is necesary, we think, to conserve our resources, because this state of international confusion may continue for some considerable time, and the more intact we can keep our financial reserves the better. Our second great principle is to adjust the burden of taxes and to put it on those who are best able to bear it.

In this connection I want, if I may, to say a word about the Death Duties. Yesterday Lord Hastings said that he considered that Death Duties on agricultural land should be suspended. Speaking quite personally, I have always regarded the whole Death Duty policy of successive Governments as spendthrift and uneconomical. Death Duties should be raised only for the reduction of debt and not for current revenue. In any case, Lord Addison, when Minister of Agriculture, did examine this question very carefully, and he was in favour of an alteration being made with regard to Death Duties on agricultural land for the very reason which Lord Hastings pointed out yesterday—namely, that they tended to deprive agricultural land of its working capital, which is bad both for farmers and farm labourers. My noble friend's suggestion, which we would support, is that if you have to levy Death Duties on agricultural land, the landowner should be entitled to pay in kind, in other words, in land, and gradually in that way more land would come into public ownership.

In that connection, again, I would like to make a suggestion, which I made a few years ago, to the noble Lord, who represents a welcome stability in the Government, having regard to the time that he has been in charge of the representation of the Treasury. I think that if we could have a national balance sheet drawn up, as an annex to the Budget, just like a business house budget, showing assets on one side and liabilities on the other—the National Debt on one side, and the value of your assets, dockyards, arsenals and land which the Government holds now for afforestation and so on, all that capitalised on the other side of the balance sheet, making a very interesting comparison—and then a profit and loss account, that would form a most useful annex to the Budget, from which we should be able to see whether the country was shouldering its burden, speaking of the nation as a whole.

The only other comment which I would like to make is this. Here we are spending, one way or another, £1,400,000,000. The reason for the great increase is armaments. As we have always said in the Labour Party, the one thing for which money can always be found is armaments and indeed war, and whenever money has to be found for Social Services noble Lords opposite and their political friends say that ruin is facing the nation. I agree with the noble Lord that the present Government are keeping up the existing Social Services. We admit that, in spite of this great effort for rearmament, education and the health services are being kept up, but there are certain improvements needed in the Social Services and, if the cost of living goes up, the need for them will become acute. The only case I wish to cite now is that of the old age pensioners. It is a fact that to-day an old couple without other resources, without relations to help them, particularly if they have to live in a town on the present old age pension, literally have not got enough to keep body and soul together. It is slow, gradual starvation for them. There are no comforts, no kind of luxuries for them in their old age. The case for an increase in old age pensions for the veterans of industry who have not been able to put by any resources is, we consider, overwhelming. If rumour is correct, a great many members of the noble Lord's Party have come to that conclusion also, especially those with constituencies to fight in the coming autumn, if all goes well in the international field.

We have been hammering at this subject for a long time now, and, with all this vast expenditure, we believe it would be a good investment, and not an extravagance at all, to add something to the allowances of the old age pensioners. The money spent in the country helps to keep trade alive, and is not wasted, and it would bring happiness to these old people. We consider it would be a great act of social justice. I believe that in a day or two the Government are going to make a statement in another place, in which they will say that they are examining the matter sympathetically, or something of that kind. I do not know whether I can draw the noble Lord to say something on the matter, but if, from his inside knowledge of the Treasury, he can make any statement so that we may expect something for the old age pensioners in the corning winter, he will bring great happiness and hope to thousands of poor homes. I am sure he would wish to do this. We naturally do not propose to offer any direct opposition to the Budget.

3.32 p.m.

VISCOUNT SAMUEL

My Lords, on a similar occasion last year I brought before your Lordships' House the question of the British War Debt to America, and we had then a most interesting discussion. I do not propose to revive that subject to-day. I did not then ask for any immediate action, for the moment was unpropitious for reviving that question, and I do not ask for any immediate action now. But I should like to take this opportunity of expressing appreciation of the statement that was made on that occasion by the spokesman of the Government, the noble Earl who leads this House. He then said that he wished to reaffirm that His Majesty's Government will be willing to reopen discussions on the subject whenever circumstances are such as to warrant the hope that a satisfactory result might be reached. He desired to contradict suggestions sometimes made that His Majesty's Government failed to recognise the great importance of this question or that the Debts had been repudiated. Such suggestions he said are entirely unfounded.

I do not think that the Government could have said more than that in the circumstances, and I would express the hope that this exceedingly important matter will not be lost sight of. Among those members of your Lordships' House who on that occasion supported the plea that I made was the noble Marquess, Lord Lothian, and I feel sure that all your Lordships will share in the pleasure that is felt that he should have received the very high appointment of His Majesty's Ambassador to the United States. We on these Benches in particular rejoice in that fact although we shall lose the advantage of his advice and co-operation. I only hope that during his incumbency of that office it may be possible to make some progress towards the solution of this grave matter, for its solution is indeed a matter of importance, first, because it affects our financial credit with the United States and with other countries which may be of great moment should there be war; secondly, because it has a strong political bearing upon public opinion in America, which also is a matter of moment, and even greater moment; and, thirdly and most important of all, because the honour of the British name is involved in our failure hitherto to fulfil obligations solemnly undertaken.

With respect to the Bill now before the House, the noble Lord in his able exposition did omit, as has just been mentioned by the noble Lord, Lord Strabolgi, to refer to certain incidents that have occurred during the passage of the Bill through another place. Two changes in particular were found necessary. It was recognised that a serious mistake had been made with regard to the proposed taxation of news cinematograph films; it was obvious that insufficient inquiry had been made beforehand, and the Government were obliged to withdraw their proposal. Secondly—I do not think my noble friend referred to this—the proposal to surrender the revenue derived from patent medicines had to be abandoned. That proposal, again, was an obvious mistake. The subject of the taxation of patent medicines certainly has long required review, but why in these times, above all, the Government should surrender the revenue which is derived from that particular source is difficult to understand. One of the classic English essayists in the eighteenth century—I forget now which it was—said that he wished that the nation could have a respite from physic for six months in order that it might recover its health.

LORD ADDISON

Hear hear.

VISCOUNT SAMUEL

My noble friend, speaking with his experience as a member of the medical profession, I am glad to say endorses that view. Certainly there are too many medicines consumed, rather than too few, and I repeat that I see no reason whatever why the contribution to the national Exchequer which is derived from that source should be surrendered. Thirdly, I agree with my noble friend that probably some disadvantage would be imposed by the particular form that has been taken by the change in the tax on motor cars, and I believe that it may be found necessary at no distant date to modify that tax.

It is, however, not the province of this House to go into particular taxes, but rather on this occasion to take a broad survey of the national situation in the light of the Budget of the year, and the main facts succinctly stated are that the Chancellor of the Exchequer has had to find the sum of £1,400,000,000, of which he has found £940,000,000 from taxes. More than one half of the whole expenditure is on Defence and armaments— £730,000,000; and of that £245,000,000 has been found from taxes. The expenditure upon Defence this year is roughly double what it was last year. It is now £730,000,000, and as 730 is exactly twice 365, the number of days in the year, it is mathematically exactly £2,000,000 every day. Last year it was £1,000,000 a day, and it is increasing still with great rapidity. When the Chancellor of the Exchequer introduced the Budget three months ago it was estimated at £630,000,000; now it is £730,000,000, as last stated a week or so ago; and since then further additions have been made.

It is felt to be a matter of satisfaction that this great expenditure should be undertaken, in so far as it has proved that the Government now have overcome their lethargy and are showing a very marked activity in providing for the national defences. But for years, in spite of many protests and strong appeals, that spirit was lacking. I observed in a newspaper yesterday that a motorist, charged in the Highgate Police Court with an offence, said, "I approached the crossing at less speed than a standstill." That was indeed carrying self-justification somewhat to excess, but until recently relatively to other nations our provision for defence was at a speed less than a standstill, because we were continually deteriorating year by year.

Now we are going ahead and the leeway is being made good. So much so that there are some people who take a kind of grim satisfaction in these colossal figures. However injurious, and in the long run wasteful, as all expenditure on armaments necessarily is, there are some whose bosoms swell with pride at the thought that we are now spending 2,000,000 every day upon National Defence. They take a certain perverted pleasure in suffering, and there is such a thing in these days as sadistic finance. The greater the scale, the greater is the risk of waste. It is a mistake to think that because expenditure, and vast expenditure, is essential, therefore extravagance is impossible. On the contrary, the greater the scale the greater the risk of waste and the less is the efficacy of the normal Treasury control.

Particularly has that proved to be so with regard to armaments profits. I mentioned the other day, when we were discussing the Ministry of Supply Bill, that the Government's announced determination to ensure that no swollen profits should be reaped had not been fulfilled. When the enlarged Defence programme was voted in 1936, the statement was most categorically made in a White Paper presented to Parliament that the Government were determined to prevent undue profits being reaped. After three years it was found that that had not in fact been done, and the Armaments Profits Duty had to be introduced in order to make good that defect: But if that tax is found to be necessary now, it could not have been unnecessary before. If it has been found practicable now to devise machinery for gathering into the Exchequer these undue profits, it ought to have been equally practicable three years ago. The Government's present action is in itself a censure on their previous inaction, and many millions of the taxpayers' money have, in fact, been wasted from the national point of view in these undue profits.

The Government are proposing to borrow £500,000,000 this year towards this Defence expenditure. I have long held views of perhaps somewhat purist character as to the necessity of paying our way in Defence matters out of revenue, but in present circumstances that is utterly beyond what is possible. In war no one suggests that all military expenditure should be defrayed from the revenue of the year, and in conditions such as now prevail it is for similar reasons out of the question that expenditure of this magnitude could be met from annual revenue. Any attempt to do so would impose such heavy charges upon industry and enterprise as to be, financially, utterly unsound. In that respect I do not join with my noble friend Lord Strabolgi, who urged that a larger proportion than now should be provided from revenue and less from loans. It is a striking fact that, although the Chancellor of the Exchequer recently announced that £500,000,000 is to be borrowed in the near future for these purposes, the effect upon the money market has been almost negligible. It is felt generally that there will be no insuperable difficulty in raising this sum, partly by short-term borrowing, partly by long-term loans.

There has been for so long a suspension of the normal rate of investment abroad, mainly owing to the fact that so few countries are now credit-worthy, and there has been for so long a diminution in normal capital development in this country owing to lack of confidence, except, of course, in industries directly or indirectly connected with armaments, that there has been an immense accumulation of moneys awaiting investment. At the present time it may be said the City is bulging with money waiting for investment, and therefore there should be no difficulty in absorbing even the colossal sum of £500,000,000 of additional loans. Some of your Lordships may have read in The Times of yesterday and to-day interesting articles by Mr. Keynes, who urges that this great expenditure need not involve any considerable, or indeed any, rise in the rates of interests that have to be paid by the Treasury for their loans. I for one sincerely trust that may prove to be the case, and there is no reason to think that the economic factors are such as to make it difficult or impossible.

The Exchequer is being assisted at present by the satisfactory decline in the figures of unemployment. That, of course, is due mainly to this great expenditure, chiefly of borrowed money, and it is welcomed not only because of the relief it gives to human suffering, but also because it brings with it a saving of some tens of millions in this year's expenditure. The question is frequently asked, when this expenditure of borrowed money upon armaments stops which has so greatly improved the situation with regard to unemployment, will it mean that the figures of unemployment will immediately go up again? Are we faced with the probability of a great decline in activity if, and when, the international situation improves, with the result that the savings we now rejoice to see made in unemployment assistance will be countered by a similar and corresponding expenditure? For my own part I do not think so, and for this reason. If expenditure on armaments ceases it will be because the international situation has improved; the world will be returning, somehow or other, to conditions of normal tranquillity and confidence. These same conditions would immediately bring about an immense expansion of international trade. In spite even of the obstacles that now exist to international trade in the way of tariffs, quotas, exchange difficulties, and so forth, if there were a universal restoration of confidence we should find such a rapid and immense growth of international commerce that industry would probably enter upon a boom period. Therefore the unemployment situation would be eased.

Further, the fact that confidence had been restored internationally would render it all the easier to remove those obstacles which now so seriously interfere. Owing to complacent declarations constantly made by members of His Majesty's Government as to the improvement of our exports since the year 1931—the year always chosen for comparison—the fact is lost sight of by many, possibly even in this House, that since the great depression began, taking the year 1929 as our basis and not 1931—the period before the depression—compared with the present, we have lost in value one-third of our British exports, 250,000,000 of exports a year. Our exports now are less than they were before the War a generation ago. That is the often ignored but essential fact of our economic situation, and that is the reason why we have had this persistent chronic unemployment. For the first six months of this year, 1939, our exports show hardly any improvement—only 1 per cent. of improvement on last year. Nevertheless, I do not feel pessimistic with regard to the possible future of our export trade, for if tranquillity should be restored, and if obstacles can be removed, there is no reason why our exports should not recover in a very large degree, and that £250,000,000 even be made good without any excessive delay.

Meantime we have, in spite of the armament expenditure, still a large number of unemployed, well over a million persons, involving an infinity of suffering and distress, and still we have a vast number of people afflicted by grinding poverty, not only the aged, but many classes of working people in the country. And that is the great weakness, as we all know, of the social system of the present age. It is satisfactory to think that, in spite of this great armament expenditure, the Social Services have been maintained and even in some directions have been increased. It is there in the long run that the prosperity of the nation must be sought—through greater prosperity of the working classes. It is they who must, in very large degree, provide the wealth and revenue of the nation. If the masses are poverty-stricken, the nation will not be rich, and the greater wealth that we possess to-day is largely due to the fact of the rise of the general level of prosperity of the workers. But do not let that general average rise conceal the fact that there are multitudes of individuals who do not share in these benefits and whose condition still demands the sympathetic consideration of the State.

This greater wealth, this economic resilience it is that enables the enormous burden that we have undertaken to be carried. I do not know what Gladstone would have thought if he could have foreseen that one of his colleagues in his own Ministry who now sits beside me should live to see the day when the tobacco duty alone would have been enough to provide the whole of the expenditure of a Gladstonian Budget. I do not know what his feelings would have been if he had foreseen in time of peace a standard rate of Income Tax of 5s. 6d., which indeed leaves little margin for additional revenue if war should come. Not only is the standard rate of tax 5s. 6d., but it was pointed out by a representative of the Government in another place that in the case of the highest levels of income, in the case of the wealthiest taxpayers 5s. 6d. is not the amount in the pound which they have to pay but is the amount in the pound which they are permitted to retain, and that Income Tax and Surtax amount to 14s. 6d. in the highest levels of income. But if this colossal expenditure upon Defence this year has the result, and it may very well have, that aggressors are deterred and that war is avoided—and that may in fact prove to be the case—then no-one would doubt for a moment that it has been well worth while, not only because it will have saved mankind from incalculable disaster, but also, looking at the matter from the lower standpoint of finance, it will have avoided a war expenditure which would amount to many times even the great sum that we are now providing.

Whose fault is the present international situation, how far it has been due to the action or inaction of the present British Government or previous British Governments, or the Governments of France, is a question which history will resolve and which it is not now profitable to discuss. The situation is there, the facts are inescapable, the measures that are being taken are unavoidable, and this conclusion may present itself as the essence of the whole matter so far as this country and the dictatorships are concerned. A conclusion which will bring some satisfaction to our bosoms is that while the dictatorships boast of great achievements in the military and international sphere, in the economic and financial sphere the democracies easily surpass them. Dictators always, by their very nature, are ignorant of even the elements of public finance and economics. Germany and Italy now are reduced in one shape or another to levy money payments by means of forced loans, and by all sorts of shifts and expedients, while this country and this Empire, after centuries of democracy, steadily becoming more and more complete, are able to produce this vast and increasing economic and financial strength. We are able to carry this great burden, if not with a smile, at least without groaning and panting, and the nation shows every sign of being able to endure.

3.58 p.m.

LORD ARNOLD

My Lords, the noble Viscount is surely right when he says that this is an occasion for a broad review of the financial situation and outlook rather than for a detailed examination of the taxes in a Bill which we cannot amend. I am afraid, however, I do not find myself in agreement with the noble Viscount in many of the optimistic, not to say rosy, statements which he made in regard to the financial position. On the contrary, I should have thought that it would be generally agreed in all quarters of your Lordships' House that we are faced with a financial situation of extreme gravity. It is unfortunately only too true to say that the Bill which we are now discussing is far and away the most unsound financial measure which has been submitted to Parliament in modern times. It has been introduced by the noble Lord, Lord Templemore, in a speech which, as usual. was lucid and terse, but which did not cover, it could not cover—nothing can cover—the extreme seriousness of the situation in which we find ourselves. What is the position with which we are faced? In the current year we are borrowing and finding from taxation for armaments no less a sum I am afraid than £747,000,000. The noble Lord said £730,000,000, but I take my figures from Saturday's Economist. It is a sound, reliable paper, and it puts the figure now as £747,000,000, making in all, with the current expenditure and what we are borrowing, a total expenditure, according to the Economist, of £1,454,000,000. That is more than the £1,400,000,000 which the noble Lord mentioned. If the Economist is wrong I think we should be told, but those are the figures given in the Economist on Saturday last. Of this vast sum — the noble Lord said £940,000,000, but I will call it £950,000,000, I will be generous and throw in £10,000,000—

LORD TEMPLEMORE

£942,000,000.

LORD ARNOLD

I will say £950,000,000. The Chancellor of the Exchequer was rather optimistic about the yield of some of his taxes, and that is a nice round figure. If £950,000,000 is to be found from revenue that means, again according to the Economist, that there would have to be borrowed at the present time no less than £502,000,000. But there will be more than that, because there is a Supplementary Estimate to come for the Navy and there will be other Supplementary Estimates probably before we reach the end of the financial year. That is a very serious situation. The noble Viscount in his speech referred to the time when he said that our expenditure on armaments was deteriorating. He almost gave the impression, as many speakers do, that we had come down to a period of something approaching disarmament and were spending next to nothing on armaments. As a matter of fact in no year since the War have we spent on armaments less than £108,000,000. That, taking into account the changed value of money, is a sum equal to the high expenditure—and it was a high expenditure—which the country was incurring for armaments in 1913–14. I think it is only right I should make that clear because there is very much misunderstanding on the point and it is an important point.

Returning to the present situation, this year's borrowing will bring the total National Debt up to nearly £8,700,000,000. That is an appalling state of things and if unhappily we should find ourselves involved in war—this is the point which I wish to stress in what I hope will be considered my not too long remarks—the problem of financing it would call for very drastic financial measures. Consider the position at the time of the last War. On the eve of the last War, instead of having a National Debt of £8,700,000,000, that Debt was £651,000,000. It was actually less than the amount we are borrowing for armaments in this single year. Income Tax and Surtax at the highest levels came then to 1s. 8d. in the pound. To-day we have as I have said this National Debt of £8,700,000,000 and, as the noble Viscount has pointed out and as some of your Lordships know only too well, the total Income Tax and Surtax on the highest incomes comes to no less than 14s. 6d. in the pound. Not only so but other taxes have been raised almost to the highest possible level.

The result of all this is that in our efforts to finance the huge expenditure to which we are committed the taxable capacity of the country has been almost strained to its full limit. In February this year—I would venture to ask your Lordships' serious attention to these words because they bear so closely upon the situation—the Prime Minister himself said this: One cannot help wondering whether the annual cost of maintenance of this increased armament together with the cost of interest and sinking fund may not be more than it is possible to extract from the taxpayers of this country out of current revenue. If those words are at all related to the true facts of the position, and we all know that they are, they mean that it will not be possible out of revenue to pay the interest of further large borrowing. So the stark fact with which we are faced is that if we are going on as we are we shall soon be living on capital, when interest on borrowings can only be paid out of further borrowings. That is a very different position from the last War. Then when the War was over, although the accumulated Debt was huge, it was just possible to pay the interest on our huge Debts and all the current national expenditure out of current revenue. It could just be done. But very soon now that will no longer be the case, and in my submission the financial situation of the country ought to receive very much more consideration from the Government and others capable of discussing these problems than has been the case hitherto.

We have, and have had, all kinds of preparations for another war. We have A.R.P., Civil Defence, National Defence, conscription, food supplies and so forth. All these matters have been the subject of prolonged consideration, but it is a most extraordinary circumstance that at the present time I do not think anybody in Parliament has yet raised the question of how the next war is going to be financed, if unhappily that war comes. Surely this problem of finance is at least of as much importance as these other matters which have been the subject of anxious consideration. It seems to me inevitable, if another war should unhappily come, that there is bound to be some form of conscription of wealth. I do not see how we can avoid it. Now conscription of wealth does not merely mean, as the Prime Minister seemed to indicate in something he said two or three months ago, a curtailment of war profits. It means something much More than that. It means the taking of wealth for the service of the war.

The question is, by what method should wealth be taken? That is the subject which should be receiving consideration if you are going to make plans for another war—and in fact the Government seem to be doing little else. If it is not possible to borrow money in the ordinary way by paying interest on borrowed money out of revenue, it is difficult to see how we are going to avoid either a levy on capital or some form of taxation of capital. In 1918, near the close of the last War, I laid before Parliament a scheme for a levy on capital. Whatever may be said for or against that scheme, it did at any rate lay down the machinery by which the operation should be carried out. Moreover I would say that, speaking in May this year, Sir John Simon, the Chancellor of the Exchequer, said: I agree that at the end of the War there was a great deal to be said for the proposition"— that is, for a capital levy. However the levy was not made. It was just possible, as I have indicated, for the Chancellor of the Exchequer to get through his troubles without taxing capital and without a levy. Though it was difficult, he was able actually to pay the interest on the War Debt and the other expenditure out of current revenue.

LORD STRABOLGI

Mr. Bonar Law was in favour of it.

LORD ARNOLD

In the event of another war it would be quite impossible, with the large borrowing which would have to be made, to go on paying interest out of current revenue. It would have to be paid out of capital in some way or another, and nothing could be more unsound than that. In fact it would be difficult to raise large loans at all if the current revenue is not sufficient to pay interest on the loans when they are raised. In these circumstances it seems obvious that other measures would have to be resorted to in order to finance a war, and the country would inevitably be brought face to face, as I have indicated, with some form of conscription of wealth. This might take the form of forced loans at a low rate of interest or even at no interest at all. On the other hand, there is much to be said for a definite capital levy, or again for an annual tax on capital, as was suggested by Mr. Pethick-Lawrence in another place.

As regards a capital levy, I cannot of course deal with that problem to-day in any detail, and I am not of course going to do so; it is a very large subject. But I should like to refer to two or three points in connection with it. First let me say this: if a capital levy had been made at the close of the last War it would have done a great deal to stop the dangerous boom in 1920 and the subsequent slump, with its devastating effects on the trade of the country, especially of Lancashire. In fact, Lancashire has never really recovered from that slump. I do not think it is going too far to say that a capital levy would be some safeguard against inflation. Then again, if there had been a capital levy after the close of the last War, the Budget would have been brought into more manageable proportions, and in all the subsequent years we should have been saved this very high rate of income Tax, which according to Conservative speakers is such a deterrent to enterprise.

On the other hand, I know quite well that it is often contended that a capital levy would be such a blow to confidence and to credit and would lead to such depreciation of securities that it ought not to be contemplated. But credit is being adversely affected now and will be increasingly so—in fact, very seriously so—if the finance of the Government goes on present lines, if we get the situation outlined by the Prime Minister in the words to which I have referred. Also, gilt-edged stocks are constantly depreciating. I do not say that this is particularly due to the financial policy of the Government, but it is partly due to it; it is a good deal due to the financial policy of the Government. As a matter of fact, in the last three years the gilt-edged stocks of the country, looking at them as a whole, have depreciated by somewhere about 15 per cent., and that process seems likely to go on. Therefore, you do not avoid depreciation of securities by avoiding a capital levy.

I will not go into detail about a capital levy: as I have said, it is a matter for very close statistical argument, but there is one point about it which I think should be made. I would call attention—I think this is very important—to what I will call the psychological effect of the capital levy. We are told again and again that one of the chief essentials in war—it may be the most important essential—is to maintain the morale of the people. I do not want to-day to make an unduly controversial speech, but we have now had, as everybody knows, conscription in peace time, and that is very likely to be greatly extended in war time. In my submission, it really is not fair that on the one hand men should be conscripted and in some cases ruined—this is happening now, and cases have come to my knowledge of men with small businesses who have been ruined because they have had to go and serve, and later on they may be called to face wounds and death on the battlefield—while on the other hand older and wealthier men stop at home and lend money (some of it made out of war profits: a good deal of it in the last War was made out of war profits) to the Government at a high rate of interest. I do not think that the national conscience would permit that to be done again, even if it could be done, if it were financially possible. Anyhow, a capital levy would help in that direction: it would at any rate approach more nearly to that principle of equality and sacrifice of which in the past we have heard so much and seen so little.

In conclusion, I would make it clear that I am not advocating that a capital levy should be made at this moment. If, however, war comes, a capital levy, or some other form of taxation of capital, would have to be instituted without much delay. I do not think that can be denied. But I emphasize again that a capital levy need not necessarily be the way, and would not be the only way, of dealing with the situation. I have already referred to forced loans at a low rate of interest or perhaps at no interest at all; and another financial expedient which is well worth consideration is the small annual tax on capital which was suggested and outlined in great detail by Mr. Pethick-Lawrence in another place. This is in some ways a more drastic measure than a capital levy. Whereas a capital levy is one operation and when it is over it is done with, an annual tax on capital would go on at any rate for a considerable term of years.

I am not to-day going to discuss the objections to a capital levy or to an annual tax on capital. Obviously there are objections. In fact, there are objections to any kind of taxation, whatever kind it is. But in these matters I submit that we have to take the balance of things, and it simply does not do, if I may say so to the Government, to bring up certain objections and difficulties against new proposals and to assume—or indeed to assert—that these dispose of the matter. It really is not so. What is necessary is to face the whole situation boldly, and that certainly has not been done up to the present time. As it is, we are getting more and more into an unsound position from which it may be very difficult to rescue ourselves. We ought to pay far more attention, if we are going to prepare for war, to what should be done to finance another war if unhappily it should come. A great deal more thinking requires to be done on that subject than has yet been done.

What I should like to suggest to the Government is that—they have done it in a great many other matters—they should set up a Committee of some kind to consider the whole question of the Financing of war if unhappily a war should come. Lord Haldane used to say again and again that thinking costs nothing, so at any rate my proposal has the supreme advantage, the almost unique advantage in these days, that if it were carried out it would not add anything to the annual expenditure. We all know that these financial problems are extremely difficult and complicated, and it would be much better for machinery to be devised to deal with them now rather than to wait until the time when war may have come upon us and when the various arguments for and against particular proposals cannot receive the calm and impartial consideration which they ought to have.

There is just one last point, and it is this. It is a very strong argument for getting the Budget into more manageable proportions. I would particularly commend it to the noble Viscount, Lord Samuel, who spoke last. It is that before long we shall be faced with a rapidly declining population, and when that time comes the revenue forthcoming to meet the national expenditure, including the interest on the loans, will also decline very seriously unless something is done well in advance to deal with such a situation. The national credit will be likely to be most seriously injured. Let me emphasize this: we are faced with a choice of evils. There is no pleasant path, whichever way we look. The noble Viscount, Lord Samuel, seems to think that we could somehow find some sunlit path. It is not true. There is no pleasant path, whichever way we look it is a choice of evils, and in my submission any evils which might come from a levy on capital or from other taxation of capital, are less than the evils which will inevitably come upon us if we go on as we are. As a matter of fact we cannot go on long as we are doing. It is impossible. But up to the present time there seems to be no recognition of that vital consideration on the part of the Government. They do not seem to have paid any attention to the grave words of the Prime Minister, to which I have referred, and which I will again emphasize, because this is what they come to. If we go on much longer we shall come to living on our capital, and there is a great political maxim which says that without sound finance no sound government is possible. I do not think any supporter of the Government, even in his wildest moments, can honestly maintain that the financial policy of the Government is a sound one.

4.21 p.m.

LORD STAMP

My Lords, if I may follow a line of thought, suggested by the noble Lord who has just spoken, I would like to say that there are two approaches to this comparison that one naturally makes with the task in 1914, as to our ability to carry on a war. One of these leads to very pessimistic conclusions and the other fortunately leads to a much more optimistic outlook. If we may look at the problem from the ordinary financial framework of the society in which we live (and that is our easiest method of thought) then, as has been said, we find ourselves starting on this occasion with a very heavy National Debt already, with very high taxation and so with little scope left for any increase, and with no such central fund of wealth as was due to our enormous financing of foreign trade with all the acceptances turning in our favour at the opening of war, with a weaker and more difficult position in foreign exchanges and finance—whichever line you take you are bound to draw conclusions pessimistic in their nature.

But, after all, we are not really to be fighting by finance, for there are the underlying realities of production from day to day—you cannot fight with guns made in years to come; in the last resort it depends upon your capacity day by day—and if you look at the realities of the situation we have a much larger working population, and much greater technical efficiency in our population, and much finer industrial resources. In all the underlying realities we have much greater capacity for day-to-day production. We have a higher daily standard of life and the margin between that and the reduced standard after the war (if we assume it would be no higher than the last one) provides a margin of real resources to divert which makes us feel that we are not so poverty stricken as the superficial structure of finance would indicate. The real problem is to get through from the financial framework to these underlying realities and make these prevail. To be deadlocked by the technicalities of finance along all lines and unable to mobilise those real resources and to move the incentives of production—that would indeed be the bankruptcy of our thinking and political life.

Whatever thoughts we may have had upon the original introduction of the Budget as to the true proportions between taxation and other forms of finance for bearing the great burden of the year, I am sure all our doubts must have been removed by the very great increase in the armament programme. We now desire to spend as much as ever we can, provided it is effectively spent, and the problem whether taxation is too heavy and we are not leaving enough of such expenditure to loan finance seems to me to have undergone very considerable change. There is a magic phrase now being used, the phrase "full employment." We know it is safe to go on financing with Treasury Bills and so on, and not to curtail personal expenditure so long as there are unemployed resources of capital and labour which can be called into being to provide extra production. The moment the unused elements approach exhaustion then we have competition between the private purse and the public purse for commodities and services, and that is the moment of danger when we have to consider the problem of diverting purchasing power from consumption by taxation most urgently. Now "full employment" does not mean the point when unemployment vanishes. It is the point when governing factors come under pressure, when particular key employments or essential materials are under pressure. These may automatically hold up other kinds of employment.

So as soon as skilled labour problems and the like begin to make their presence felt and competition sets in for resources, prices may rise. That is what happens if there is "full employment" in this technical sense, and when that point is reached we can no longer rely upon laisser faire to produce all those extra armaments on top of our ordinary standard of life. At this point we must increase taxation to divert purchasing power, or consider pressure on lending power. I am quite sure that before this great programme is achieved much more external control will be necessary to divert by compulsion resources from private expenditure into the public purse. But we must be clear that the programme has reached such a stage that justifies this increase of taxation in the present Bill.

I am interested in this Bill from a long distance point of view in that it has two very important innovations that to some extent have attracted public notice, but in the years to come we may look upon them as a turning point and perhaps live to regret them. The first innovation is on a very small scale, and very apologetically done, with a great show of reason, and that is the introduction of retrospective or retroactive taxation. I am not saying that there is not good reason put forward for it, but this precedent may be repeated, with reasons less cogent and more specious, and once we have departed from that cardinal aspect of our fiscal life in which the sole offence is an offence against the letter of the law, and not against the spirit of the law, I do not know where we may ultimately land. We may ultimately find ourselves in the position of the German fiscal system, where punishment follows no infringement of the letter of the law, but an infringement of something which somebody said was intended by the Legislature. Our own Law Courts have laid down repeatedly that it is the letter of the law which counts, and if the Legislature does not succeed in putting its spirit into true grammar and syntax it must try again. The American law also depends to some extent on infringement of the spirit, but this is so cardinal a departure from our whole tradition that I think it will want watching with the narrowest jealousy.

After all, it cuts both ways. How many times have I in another place—not the other place which is usually referred to here—said to a taxpayer: "Your case is perfectly moral and equitable, and I am quite sure it was intended by the law to be the way you say, but unfortunately the letter of the law is against you, and we cannot do it." If it is going to be on the side of the Government that they can plead the spirit of the law, why not also on the side of the taxpayer? And we land ourselves then into a veritable quagmire of uncertainty and difficulty and questions of degree. So I would beg that all those responsible for the slow development of our fiscal policy and philosophy should watch this with very great care. It is true we get a little extra revenue perhaps by taking advantage of the warning given by the Chancellor of the Exchequer that if certain things were evaded in the letter they would be hit later on by retroactive legislation. Perfectly true that we get revenue from them, but the cost to us some day, with less scrupulous legislation, may be very great indeed. And it is the beginning of rather an important change if no taxpayer can rely upon making his financial arrangements in the light of the existing law.

But there is a second aspect in which there is a great novelty introduced in this Bill—namely, in the Armaments Profits Duty. I do not know of any case in which a tax has been produced for which there is supposed to be a revenue where the revenue does not figure in the Budget. It is a small matter, and due to exigencies of the times, but it is a novelty at any rate. But there is much more uncertainty about this tax in its weight and incidence than I have ever known before, and a great delegation to authorities outside the taxing authorities. I well remember when the future of E.P.D. was under discussion in another place many attempts were made to settle what should be paid by particular concerns outside the rate of the tax—outside the actual specific provisions—by putting them into the hands of boards of referees and other authorities with discretionary powers. The reply of the Government in those days was that that was repugnant to our fiscal philosophy, that the tax should be certain, and that Parliament should not delegate to other non-controlled bodies the powers of taxation over the subject which we are quite perilously near in the provisions of this Bill.

But there is a third and more important way in which this Duty is unique. It is much more selective than any tax we have ever had. I know we select by amounts of income, and we select by consumption of particular commodities, but in those cases selection applies to all alike. Here profits are made, and they are being selected—particular profits in a particular way. That would be very disturbing but for the fact that the whole matter is capable of being looked at in quite a different way. I regard this part of the Finance Bill as merely an annexe or an additional clause in a Government contract. Supposing you had never done it this way at all, supposing that after the complicated clauses in the ordinary Government contract dealing with prices under all conditions, you followed them by saying: "In addition to all the foregoing conditions, the total amount payable under this contract shall be abated by a certain sum, if the conditions are as follows." Then would follow the provisions set out about the nature and the amount of profit, and the clause would go on to say: "These results of the contract shall be judged in the light of the scheme in the Schedule to this contract." And then would follow the provisions. It is really, in effect, another limitation of the price payable under a contract, and with the added provision that the machinery for calculating it should be in the hands of a Government Department, the Inland Revenue Department. It would have been perfectly feasible to have carried this limitation through as an element in a contract. And it is because the one who enters into the contract can take it or leave it, can sign it with the knowledge of this new liability, that I am not quite sure that it is so selective an item of taxation as it appears at first sight.

I do not think it is out of place in a Second Reading debate to refer to one or two provisions, not in detail, but by way of raising a question as to whether the fullest consideration has been given to them by the Government. You will find that the whole incidence of this Duty depends upon two measures: one is a turnover measure, and the other is a contract measure. Only those concerns which have a turnover of a certain magnitude are notified for consideration. Now it is the profits that it is desired to tax, and it is quite possible that you may have the most diverse results, through choosing as your initial selecting criterion the question of turnover. After all, the profit from a given turnover depends very often on the cost of materials and labour in that particular industry, and so you might have£150,000 of turnover that produced an excess profit of £20,000; on the other hand you might have a turnover of £200,000 that produced only£10,000 excess profit. The£10,000 comes under the tax, the 20,000 does not. So whether this is going to work out with the roughest justice in the area to which it applies I am not at all sure.

One observes, too, that there is no provision in the Bill for merging or consolidating the various concerns that are integrated together as parent and subsidiary companies. I may have misread the Bill, but it appears to me that with this initial measure of£200,000 turnover, it would be possible for subsidiary companies which do not reach this particular figure under sub-contracts and have a very considerable part of the total profit directed into their areas, not to come into the field of taxation. But even supposing that is not so, the whole machinery of this tax has been made by the draftsman and by the Government to depend upon contracts. A great deal of business can be done with subsidiaries that are amenable or under majority control, not under contract. A very large part of a Government contract might be worked by subsidiaries under day to day prices, with profits that were suitable—not in the least cooked profits applicable to those—but if those subsidiaries were not under contract it seems to me they have escaped the provisions of the Bill. I may be wrong from a technical point of view, but it does seem to me that before justice is done to these particular concerns, and before the intention of the Legislature is carried out, there may be much remedial legislation to be carried through.

The noble Lord who has just spoken in his closing remarks asked that we might look into these fundamental fiscal considerations independently of the particular legislation of the moment. He urged that thinking costs us nothing, but thinking is just the most difficult thing we are ever called upon to do, and perhaps in sheer effort it is the most costly of all. But without it, it seems to me we are facing a very perilous situation—I agree with those who have spoken upon that; though, if you consider the extent of our natural resources, it must be possible to think our way through. I heard the noble Lord who has just spoken, I think twenty-five years ago, make a most masterly speech on the capital levy. I never heard him make so good a one either before or since. But he put the case at its very highest then. Whether that is the right way of breaking through from the current financial way of thinking into the underlying realities, I very much doubt. But that we must break through, one way or the other, is abundantly clear.

4.39 p.m.

LORD HASTINGS

My Lords, I intervene for a moment in this debate, but only for a moment, by reason of a remark which fell from the noble Lord, Lord Strabolgi, when he referred to the question of Death Duties from agricultural land, and expressed his personal opinion—not the opinion, I regret to say, of his Party—that he was strongly in favour of the remission of these Duties on such land. This is very relevant to the subject we are debating to-day. Of necessity the astronomical figures which have to be raised by the Chancellor in order to meet this terrifying expenditure on armaments have occupied the thoughts of all previous speakers. In face of those great figures, it is of course a mere bagatelle how much of that total has to be found for the encouragement of the agricultural industry, but at any normal time the aggregate of that amount would be thought to be very large. This is the only occasion in the year on which it is possible to remind the House that there is now being paid back to agriculture every year a vastly larger sum than is being taken out in the form of Death Duties upon agricultural land. If these Duties had never been levied it is perfectly certain that a mere fraction of the sum that now has to be found for agriculture would have had to be found, because by the action of the State those persons whose duty it is to maintain land fertility have been deprived of that power, so that the State has had itself to pay for what in other days the landowners themselves paid.

It is not for your Lordships' House, we know, to have any effective voice in these matters, but I was much struck by what the noble Viscount, Lord Samuel, said in the course of his remarkably interesting speech, if I may call it so. He said that the City was bulging with money. May I remind him that the land is starved of it? It is not uncertain that one day the people of this country will also be starved by reason of the fact that the land is now starved of that money which it so urgently requires. What prospect is there of the money which is bulging in the City being lent or placed at the disposal of the land which is starved of it while these most unreasonable, foolish Duties continue to be levied and to take out of the land what small remaining capital it still has? The subject is not one of great urgency at the moment, I am very well aware, but, as I said, it is only once a year your Lordships have the opportunity of discussing finance, and it occurred to me as these speeches were proceeding that it might perhaps be not altogether unsuitable if I mentioned this subject briefly in your Lordships' House on this occasion.

4.43 p.m.

LORD TEMPLEMORE

My Lords, we have had, as we always do on the Finance Bill of the year, a very interesting debate, and I have been asked various questions to which I shall reply as well as I can. To start with, the noble Lord, Lord Strabolgi, found fault with His Majesty's Government—of course he has got to do that because it is his duty, very largely, to oppose. He found fault with the Chancellor of the Exchequer because he had changed his mind over the films tax. I quite admit that this tax was announced in the Budget and that after consideration my right honourable friend agreed it was not a good tax, for various reasons, and took it off. I would call that a very sensible thing to do. What is the House of Commons for but to debate these matters, and if the Chancellor of the Exchequer or any other Minister sees he is wrong, he changes his mind like a sensible man. The noble Lord also objected to the horse-power tax on motor cars, and proposed instead a flat rate on all new cars. I assure him that such a proposal would not fill the gap which my right honourable friend has to fill. He has got to raise £11,500,000 by this tax in a full year. There are only about 300,000 new cars registered each year, and to raise that amount would require a tax of nearly £40 per car, and would hurt what the noble Lord said he was out to help—namely, the export trade in cars.

LORD STRABOLGI

I did not say a flat rate. You could have an ad valorem tax on new cars with, of course, a rebate in respect of cars exported to foreign markets.

LORD TEMPLEMORE

I do not think that would fill the gap. It would not get the money that the Chancellor of the Exchequer wants, which is £11,500,000 in a full year. The noble Lord reminded me that a year ago he raised the question of a national balance sheet. I passed on the noble Lords suggestion to the Treasury, as I always do, but the noble Lord knows my position here. I am not really in the Treasury. I am neither the Chancellor of the Exchequer nor the Financial Secretary, and whether any representations that I may make would be of much use I do not know, but I shall certainly pass on that very interesting suggestion again. The noble Lord also asked me about old age pensions. He asked whether I could say anything about a possible increase in these pensions. I can assure the noble Lord and your Lordships that there is nobody in this House more sympathetic to old age pensioners than I am. I am a landowner in a small way in this country and in Ireland, and I know full well the hard job some of these old people have to live. Other members of your Lordships' House know that as well as I do. But I am afraid I cannot say anything on this matter to-day, as it is quite impossible to anticipate in this House what may be said about the policy of the Government in the statement which is going to be made by my right honourable friend the Prime Minister on the Vote of Censure on Thursday. I hope the noble Lord will take that as my answer to-day.

The noble Viscount, Lord Samuel, made a very interesting speech, and I am very glad he did not press me about the Debt to America because I could not add anything to what my noble friend the Leader of the House said on that subject a year ago. The noble Viscount raised the point of the size of Defence expenditure, and I have to say that His Majesty's Government fully appreciate that rising expenditure means greater risk of waste and undue profits. As regards waste, the Government are constantly reviewing their methods of control, and your Lordships will share my hope that their efforts are becoming increasingly successful. As regards profits, these are dealt with not only by costing systems and price fixings but, as in this Bill, by the Government's new taxation proposals. The former systems were in the main adequate in the early stages of rearmament, and are still employed, but the very largely increased scale of orders tends to throw up profits which may be excessive, and these profits the Armaments Profits Duty is designed to limit. The noble Viscount made some interesting remarks about the course of unemployment when this armaments phase dies down. He was not, I was glad to notice, pessimistic about the future. As regards that, I can only say the possibilities of the future are not lost sight of for one moment by His Majesty's Government.

I should like to make one other remark about the speech of the noble Viscount. He made one very interesting reference of which I should like to remind your Lordships. We all know very well that in this House, sitting on those Benches, are several members of the Governments of Sir Henry Campbell-Bannerman and Mr. Asquith. The noble Viscount reminded your Lordships that there is also one member who sat in the Government of the great Mr. Gladstone. The noble Marquess, Lord Crewe, if I mistake not, was a Lord-in-Waiting in the Government of 1886 and Lord Lieutenant of Ireland in the Government of 1892. The noble Marquess never grows any older, and we hope he will long be spared to lead his Party on those Benches.

I shall now pass to the rather gloomy speech of my noble friend Lord Arnold. He made one remark with which I cannot possibly agree. He said this is the most unsound financial measure ever produced.

LORD ARNOLD

In modern times.

LORD TEMPLEMORE

Since I have been producing them in this House! My noble friend gave us a dissertation, and his main complaint was that the Government were not thinking sufficiently about planning methods of finance in preparation for war and what we should do in the way of taxation in time of war. I need hardly tell your Lordships that I cannot possibly go into the details of that matter, even if I knew them, because if such details were made public they might be of great assistance to a possible enemy. For the same reason I do not think His Majesty's Government could entertain the idea of setting up, as he suggested, a Committee to consider this matter because the Committee would presumably have to sit in public.

LORD ARNOLD

No.

LORD TEMPLEMORE

We know how these things sometimes get out.

LORD SNELL

That is what we should like to know!

LORD TEMPLEMORE

It might be really a great advantage to an enemy and to our disadvantage if he knew what we were going to do. I can only say that this subject has the earnest consideration of the Cabinet. His Majesty's Government know full well that the financial situation is serious, and I can assure the noble Lord that the point which he raised in a very interesting way is not lost sight of, and more than that I cannot say to-day.

The noble Lord, Lord Stamp, in the very bright and cheery speech that he made, and the very interesting one, in great contrast to the almost inspissated gloom of the noble Lord, Lord Arnold, asked me why the sum of £200,000 per annum had been adopted as the limit at which a business is deemed to qualify for the Armaments Profits Duty. I have to tell him that the adoption of the £200,000 figure of total receipts as the test for deciding the initial liability of an "armament business" is a ready and convenient test which can be easily applied by the Minister of Supply. The ultimate test will be the actual excess profit which may emerge on the trading accounts in a chargeable accounting period. I hope that will satisfy the noble Lord as regards that question. I think I have now answered all the questions which I was asked. I am grateful to your Lordships for what has been on the whole the favourable reception that you have given to this Bill, and I hope the House is now ready to come to the decision to give the Bill a Second Reading.

On Question, Bill read 2a: Committee negatived.