HL Deb 12 October 1939 vol 114 cc1365-91

Order of the Day for the Second Reading read.

3.1 p.m.


My Lords, I have had entrusted to me the somewhat unpalatable task of presenting to your Lordships the Finance (No. 2) Bill. Your Lordships will readily appreciate that it is possible to hold two opinions on matters of this kind: an official opinion and a private opinion. This afternoon I am expressing an official opinion; I fear that my private opinion would be unfitted for Billingsgate Market, let alone for the chaste seclusion of your Lordships' House. At the end of July my noble friend Lord Templemore moved in this House the Second Reading of the first Finance Bill, and he then stated that His Majesty's Government were providing for expenditure in the current year of the order of £1,400,000,000. He pointed out that, because of the scale and pace at which the country was pressing forward—with what wisdom events have proved—with its programme of preparations against war, expenditure on Defence had mounted to a total of £730,000,000; and he observed that, in spite of the increased taxation which the April Budget of my right honourable friend the Chancellor of the Exchequer imposed, the yield from revenue was calculated to be £942,000,000, leaving something like £480,000,000 to be borrowed. By the time Parliament rose at the beginning of August a total expenditure of £1,453,000,000 had been authorised; and expenditure for Defence purposes accounted for £749,000,000 of the total, of which £502,000,000 was to be met by borrowing. I mention these figures for the sake of precision; but, as they related to a situation in which it was estimated that the country would keep out of war until March 31, 1940, they have now little more than an historical interest.

The events of the last days of August and the beginning of September are fresh in all our minds. On September 1 Parliament granted a Vote of Credit for £500,000,000 for additional war expenditure. At this stage of the war nobody can be expected to foretell with any precision its effects on the nation's resources as a whole, or on the first Budget position in particular. It remains to be seen whether the first Vote of Credit will suffice to cover the total war expenditure during the rest of this financial year, 1939–40. But it was at once apparent to my right honourable friend the Chancellor of the Exchequer that the outbreak of war necessitated a revision of the earlier Budget proposals. As he explained in another place in introducing the War Budget on September 27, it was reckoned that on the revenue side the yield of existing taxation might be expected to drop by £54,000,000 to some £888,000,000, while on the expenditure side it was evident that the revised total, with £500,000,000 added to £1,453,000,000, could not be much less than the gigantic sum of £2,000,000,000. Even allowing for savings on certain peace-time services, it will be apparent to your Lordships that the gap between the revised revenue total and the revised expenditure total is so huge that new taxation has become inevitable.

On the last occasion when the noble Lord moved the Second Reading of a Finance Bill in this House, and explained proposals the effect of which was to raise an additional £24,000,000 from revenue, he drew from the noble Lord, Lord Strabolgi, the injunction with regard to the whole problem of finance that as much money as possible should be raised out of revenue and as little as possible borrowed. I hope therefore that the noble Lord at least will find no difficulty in supporting the present proposals—


As long as you spend the money properly.


—proposals, by which the Chancellor of the Exchequer seeks to bring in from increased taxation £107,000,000 this year and £226,500,000 next year, by way of taxes which are, of course, to come on top of the high rate of taxation which the country was already bearing. I cannot expect this House as a whole to relish these proposals in themselves; but as my right honourable friend the Chancellor of the Exchequer reminded another place in his Budget speech, it is a fact which we have to face that except in so far as war is financed either out of the proceeds of taxation or from the proceeds of loans which come from the genuine savings of the nation, it can only be financed by methods or out of sources which are essentially inflationary. That, I think all your Lordships will agree, is a course which we must strive by all means in our power to avoid. Moreover, there is the further justification of additional taxation now—apart from the amount of money it brings in—that it is an instrument by which resources can be diverted from private and non-essential expenditure into the public purse, and civilian demand be deflected from channels which do not assist the successful waging of the war.

Taxation, accordingly, is to be increased by the Finance (No. 2) Bill which I will very briefly now explain to the House. Part I of this Bill is concerned with indirect taxation. Clause 1 and the First Schedule increase the duty on beer by 1d. a pint with an estimated gain to the revenue of £11,000,000 in 1939–40 and £27,000,000 in a full year. The effect of Clause 2 and the Second Schedule is to raise from spirits £2,000,000 in 1939–40 and £3,500,000 in a full year. The increased duties on wines will produce £1,000,000 this year and in a full year about £2,000,000. By Clause 5 and the Fourth Schedule the basic rate of duty on tobacco is increased by a further 2s. per lb., or 1½d. per oz., with a resulting gain to revenue estimated at £8,000,000 this year and £16,000,000 in a full year. Lastly, by Clause 6 and the Fifth Schedule the sugar duties are increased by the equivalent of 1d. per lb. on the fully refined product, with corresponding increases elsewhere. The yield is put at £8,500,000 this year and £18,000,000 in a full year. The total additional yield of this group of Customs and Excise taxes is estimated to be some £30,500,000 this year, and some £66,500,000 in a full year.

Part II of the Bill relates to the Income Tax, and here my right honourable friend's proposals are designed to secure increasing contributions from direct taxation all along the line. It is contemplated—subject, as my right honourable friend pointed out in his Budget speech, to any necessary reconsideration when the time comes—that the standard rate of Income Tax in a full year shall be 7s. 6d. in the £. Clause 7 of the Bill applies this rate for the last three-quarters of the current year, so that, taking into consideration the rate of 5s. 6d. operative in the first quarter, the standard rate for the whole of the current year will be 7s. In order to mitigate the effect of the rise in the standard rate in a case where an individual has suffered a substantial reduction in his earned income on account of the war, there is an important provision in Clause 11 of the Bill. Under that clause an individual who can show that his earned income this year has fallen through circumstances connected with the war by 20 per cent. or more below the figure on which he is assessed for this year may claim such relief as will reduce his bill for standard rate tax to what it would have been if the assessment had been made on the actual earned income of the current year. In any case where this relief is claimed, the Inland Revenue will have the right to compare the assessment for last year with the actual earned income of last year and to revise the liability, if necessary.

The proposals which are included in the Bill relating to reductions in the various Income Tax allowances and reliefs will, with one exception, not come into force until the next Income Tax year, 1940–41. The one exception is the reduced rate relief, hitherto £135 at is. 8d., which will be £135 at 2s. 4d.—that is. one-third of 7s.—for this year. Next year the charge will be at 3s. 9d.—one-half of 7s. 6d.—but the zone in which the rate will operate is to be increased from the first £135 of taxable income to the first £165. The other reliefs affected next year are the earned income relief, which will be reduced from one-fifth, with a maximum of £300, to one-sixth, with a maximum of £250, the marriage allowance, at present £180, which will become £170, and the children allowance, which will be reduced from its present level of £60 for each child to £50.

With regard to Income Tax, my attention has been called to one point about which there has been some uneasiness. It relates to the case of those persons, not normally resident in England, who may come to England for the purpose of joining the armed forces of the Crown, and the question of whether they will be liable to English Income Tax, Surtax and Death Duties in the event of their being domiciled in England as the result of war service. I have been able to get in touch with my right honourable friend on this subject, and he authorises me to state that persons who join the forces from overseas and become resident in the United Kingdom by reason of their service will not be charged to Income Tax on income that would not have been taxable if they had not become resident. Their service pay out of British funds will, of course, be subject to tax. As respects Death Duties, I am advised that the position of such persons will not be affected by their joining the forces. That matter has been raised to me, and I hope that that assurance, which the Chancellor has authorised me to give, will prove satisfactory. The new Surtax scale which applies to the Surtax year 1938–39 payable on January 1, 1940, appears in Clause 8. The scale begins at 1s. 3d. in the £ and rises at the other end to 9s. 6d. on the slices of income over £30,000.

Part III of the Bill relates to the new Excess Profits Tax. It has been described very fully in another place, and I do not propose to do more than give an outline of it here. The tax will be chargeable, as from April 1, 1939, at the rate of 60 per cent. on the excess over a defined pre-war standard of the current profits of all trades and businesses. The general scheme of the tax is similar to that of the Armament Profits Duty, which made its appearance in the first Finance Act earlier in the year. The Armament Profits Duty applied only to armament concerns, but as those concerns are included with all other trades and businesses within the scope of the new tax, the Armament Profits Duty is no longer required and will be repealed.

The profits standard which forms the datum line for the purpose of measuring the growth of profit is precisely the same as that adopted for the purposes of Armament Profits Duty. In the ordinary case of the long established concern, the standard will, at the taxpayer's option, be either the profits of the calendar year 1935, or the profits of the calendar year 1936, or the average profits of the calendar years 1935 and 1937, or the average profits of the calendar years 1936 and 1937. In the exceptional case where a particular concern may have had bad trading results in the years by reference to which the profits standard is to be fixed, it will be able to appeal to the Board of Referees for a higher standard. Where additional capital is now employed in the business as compared with the years by reference to which the profits standard is fixed, an addition will be made to the standard in respect of the increase in capital—namely, 8 per cent. in the case of companies and 10 per cent. in the case of individuals and firms. The profits standard for new businesses formed since July 1, 1936, will be taken as a percentage of the capital employed in the business, the percentages being the same as those obtaining in the case of the ordinary concern in respect of an increase in capital. Clause 19 of the Bill deals with the relation between Excess Profits Tax and National Defence Contribution, and the effect of it is that a concern is not to be liable to both these taxes, but only to whichever of them is the higher.

I have detailed the main provisions of the Bill. My right honourable friend's intention has been to produce a scheme of taxation which will call for contributions for war expenditure from citizens of every kind, and possessing every degree of fortune. I cannot say that I am myself, nor that I hope that your Lordships will be, deeply enamoured of the Bill. It has been criticised, and I am bound to say rightly criticised, on the ground that it will dislocate many businesses which are at present making substantial contributions to the revenue, and that the yield of the new taxes will be disproportionate to their impact on the economic life of the nation. In that connection I would venture to put three considerations before your Lordships.

The first is that the war will impose, as it goes on—indeed in many cases has already imposed—heavy burdens, and perhaps even cruel sufferings, upon many sections of the population. It is of vital importance that the sacrifice should, as far as possible, be equally spread. Even under this very heavy War Budget, with its crushing incidence upon the higher rates of income—because, as your Lordships realise to an extent which is not generally realised, the Surtax is not charged in many cases on income actually received, but upon a figure which is fixed according to more or less arbitrary rules—the higher ranks of the Super-tax payers will not have their lives disorganised to the same extent as the war has already disorganised the lives of very many people whose families have been evacuated, whose businesses have been shattered, and whose employment has been lost. But it does go—or at least in my belief, it goes—as far as possible, without destroying the very foundations on which the revenue rests, to ensure that the burden of sacrifice is equally spread.

Another consideration which I put before your Lordships is that, vast and ultimately decisive in its effect upon the issues of the war as Great Britain's contribution in the realm of sea and air power will be, in the early stages, at all events, the brunt of the effort on land must be borne by our Allies the French. It will take far less time than in the last war for us to assume a larger share of the task of defending the frontiers of civilisation in the West, but until we can assume that larger share the tremendous effort which we are making in the field of finance is an earnest of our resolution to stand side by side with our Allies who are fighting in the field to-day.

The third consideration is that it is desirable to show quite unmistakably to the world at large, which is somewhat confused about this war—which, after all, is in many ways unlike previous wars—and to our enemies in particular, the spirit of grim determination in which we are entering the struggle and our resolve to use in its prosecution our gigantic financial resources to the full. In very many ways we occupy to-day—the fortieth day of the war—a far stronger relative position than we occupied on the fortieth day of the war of 1914–18. It is not my function to make a review of the war situation. Your Lordships are fully capable of doing that for yourselves. Suffice it to say that in almost every respect we are better off, and in some ways immeasurably better off, than we were then. Our Armies, and those of our Allies, are unbroken in the field and behind immensely strong fortified positions. I need not go through the catalogue of advantages, but in the field we are surveying this afternoon—the field of finance—it may make it easier for us to shoulder this grim burden to realise that in the realm of finance our position, as compared with that of our opponents, is immeasurably stronger than it was in 1914.

I now turn to a matter which is of prime importance in relation to the great programme of expenditure on which the Government are engaged. The question of economy and avoidance of waste in Government expenditure has been very much in the mind of the Government in connection with the current Budget. My right honourable friend, replying at the end of the Budget debate in another place, dealt at some length with the question of economy. He emphasized the importance of financial control within the spending Departments, and told the House that the finance branches of these Departments had recently been strengthened to enable them to maintain their control over their greatly increased expenditure. In the new Departments strong finance branches are being provided, and special inquiries are being instituted in which experienced business men and Treasury officials will take part. Such an inquiry has already commenced in the Ministry of Information, and the Minister of Home Security is taking immediate steps to secure a review of the war establishments of local authorities in the light of the experience already gained.

The Chancellor of the Exchequer added a warning that it was in the public interest that such inquiries should not impede the rapid and efficient execution of the tasks with which the Departments are specially charged. It may well be that in the transition from peace to war economy we have in certain cases over-elaborated our administrative machinery. The Chancellor of the Exchequer has given the House of Commons a promise that complaints of extravagance will receive examination, but he explained that the alleged over-organisation and unnecessary expenditure, against which a good deal of criticism has been directed, was really due to the fact that there has not, So far, been an aerial attack upon the country. If such an attack had been made, the arrangements which have been made would have been more fully appreciated than they have been, but that is, of course, no reason why the system should not be reexamined in the light of events. My right honourable friend is confident that in some directions, at all events, an improvement has been made. The Government are fully aware of the need to investigate thoroughly the position, and every effort will be made to reduce unnecessary expenditure, whether by the War Departments or in the normal administration of the country.

I may for one moment cease to be a Government spokesman and express my own personal opinion, that there has been a great waste of money in local and to a smaller extent in national expenditure. How ever that may be, I have my right honourable friend's assurance that he is making every effort to make sure that the national resources are husbanded and that waste, where it can be detected, shall be brought to an end. It is a formidable task to control expenditure, for war is essentially a Socialistic business. Indeed, war might fairly be described as the supreme expression of Socialism and, in my view, waste and muddle are inseparable from Socialism. But your Lordships may rest assured that, so far as lies in the power of the Government, waste, where it is occurring, will be checked and fresh expenditure will be most carefully watched. I beg to move that the Bill be read a second time.

Moved, That the Bill be now read 2a.—(The Duke of Devonshire.)

3.30 p.m.


My Lords, I am sure we all regret the personal bereavement which has deprived us of the services of the noble Lord, Lord Temple-more, who usually has the melancholy task of introducing the Budget, but he certainly has found an able substitute in the noble Duke, if he will allow me to say so. I only regret that in certain passages of his speech he was not speaking from this side of the House, and could have spoken with greater freedom than he has allowed himself as a Minister of the Crown. My noble friend Lord Snell has asked me to make our contribution. The noble Duke reminded your Lordships that the Party for whom I speak has advocated the policy of paying as we go as far as we can do so in this war, and therefore we have not in another place assailed the majority of the taxes for that reason. He was quite right, too, when he also fastened that policy on myself. But he must not run away with the idea that the Labour Party approve of taxes as taxes. If we are given our own way one day there will be no direct taxes at all in the country and we will earn our national income by a well-designed and well-organised system of collective industry.

Having said that, I want to raise one question of doubt as to the wisdom of the very heavy burden being enforced so suddenly. I think it is arguable that it might have been better to have postponed the heaviest of the direct taxation until the country's war effort had had time to take up the slack of unemployment. Through lack of proper planning we are not yet utilising anything like our full resources of man power for war production. With the inevitable dislocation of industry on the outbreak of war and now this sudden heavy increase, especially of the Income Tax, those two things have combined to cause a great deal of unemployment. The only real effort made by the Government to provide employment for the people so far as I can make out has been in the Ministry of Information. If the Lord Privy Seal, Sir Samuel Hoare, had been allowed to continue and we had not put, if he will allow me to say so, a hard-headed Scottish nobleman in charge who has performed wonders already, I think in cutting down (and I congratulate him on doing so)—if Sir Samuel Hoare had been given his head at the Ministry he would, in time, have solved the problem of unemployment. That is the only possible planning for the purpose that I can find; yet this very heavy taxation is suddenly put upon the country and I think it is questionable whether we could not have postponed it till some of the unemployment had been reduced. Indeed, if my noble friend Lord Ponsonby had been Prime Minister, and if Lord Arnold had been Chancellor of the Exchequer—an excellent peace-time choice—one might have suspected that this Budget was a subtle attempt to make the war unpopular and stimulate a demand for surrender at discretion. Now, as things are, the least we can expect, as the noble Duke has admitted and indeed very strongly emphasized, is that the money should be economically expended and everything possible done to stop waste and extravagance.

I find myself in complete agreement with what he said, not for the first time in both Houses, when he stated that some of the criticisms of waste had been a little unreasonable and he mentioned particularly the case of civil defence. With great respect I would like to second him there. If we had had heavy air raids at the beginning of this war, as we all expected, these young men who are now jeered at, these young men who gave up their leisure and prepared themselves to become efficient air raid wardens, would have been the heroes of the day and the night—as they may yet become. From what I have seen of the efforts of the local authorities up and down the country, with certain exceptions, they have done really splendid work of preparation, their A.R.P. preparations being well advanced. Of course this costs money, and we may still need them. These young men and women who have given up their leisure and spent long nights, after working in the day to earn their livelihood, deserve something better than exaggerated complaints made about them.

I mentioned just now the need for economic planning and if I may I will voice a very serious complaint of the Labour Party with respect to it which I think is very appropriate to this discussion. We have stressed the need for an Economic General Staff; which does not now exist. We have asked in another place for a Minister specially charged with economic affairs in the War Cabinet and the answer has been that the War Cabinet is already too big. That answer came from the Prime Minister. There are certain members of the War Cabinet—I do not refer to any of your Lordships present—whom we would be very glad to see out of the War Cabinet to make room for a Minister who would devote himself to the economic problems which this war has raised. But perhaps even better than that we want whole-time economic experts, not to take decisions but to prepare the case for the War Cabinet, to assist the taking of decisions upon the great economic problems now before the country. It is no use forming, as has been announced by the Prime Minister in another place, as a kind of substitute for an Economic Planning Committee, the heads of the Ministries concerned with economics, like the Board of Trade, the Ministry of Labour and so on, sitting as a Committee. It is no use calling these permanent heads together as a Committee. They are all busy executives who want to be allowed to get on with their work. If you want people who are to think ahead and make plans to deal with the problems of the future you must put that as a duty upon men who have not day to day activities to attend to; and of that organization for economic planning there is a complete lack.

I wrote a letter to my noble friend Lord Stamp to say that I intended to refer to his appointment and I have had a very friendly reply, saying that he cannot be here and making certain explanations. The appointment of Lord Stamp for part-time job as Economic Adviser does not satisfy us, and that is no reflection on the great abilities and the great services in the past that the noble Lord, Lord Stamp, has rendered. He is not to have a separate staff. He is to rely on the existing civil servants at the disposal of the Cabinet; and the appointment does not mollify us for the absence of this Economic General Staff that we demand and which of course should have Labour representation upon it. If the Labour movement in the country—organised Labour and trade unions and political Party—is to play its part in this great struggle, as it desires to do, it demands that its voice should be heard; and the contribution that it might bring should be utilised. If an Economic General Staff were set up, as we are convinced that it will have to be set up, we contend that it certainly should have a Labour representative upon it. But I repeat that this Economic General Staff should be for study and not for taking executive decisions.

May I give an example of the sort of problem they ought to be dealing with now and which, as far as I know, no-one is dealing with? Is it to be our general policy to let prices rise while at the same time checking profiteering, or do we propose to stabilise prices, wages and so on as, for example, we did in the case of rents, coal, etcetera, in the last war? We have to do the one or the other. These are very important considerations that will have to be faced. Which are you going to do, and who is thinking about it? Not the people who have to meet at 11.30 every morning as the War Cabinet and survey the whole field of operations, not the heads of busy Departments, but people with the requisite knowledge who can give their whole time to the problem and at the same time watch the whole development of the economic war and the effect of the war on our own economics. At the present moment we are not only blockading Germany but to a certain extent, owing to the lack of what I have suggested, we are blockading ourselves. At the beginning of this war I had the privilege of speaking on certain emergency War Bills brought in by the Government and I said that that would happen. I got certain assurances which have not been carried out, although that, no doubt, is not the fault of the noble Duke who spoke for the Government. We are blockading ourselves to some extent and that cannot be allowed to go on.

Furthermore, the Economic General Staff should work with the spending Departments, and try to help them and co-ordinate their efforts. They must not be a general public nuisance, I agree, but they should get information from the spending Departments and prevent overlapping and clashing of interests. This sort of organisation we think is very necessary, particularly with the scattering of the Government Departments in different parts of the country. We had an echo of that in the debate yesterday on the commandeering of hotels. The spending Departments of various Ministries are scattered about the country and so there is all the more need to see what they are up to. But mere co-ordination is no substitute for planning and thinking ahead.

We also see the danger of the Fighting Services, represented by four Ministers in the War Cabinet, taking too much material and skilled labour to the detriment of our export trade, thus weakening the exchange value of sterling. A strong sterling position in the years ahead, if the war lasts a long time, may be as important as strong fighting forces. I think something of that kind fell from the noble Duke in his very able and interesting speech. The Labour and co-operative movements should have a say in the economic planning. At present the so-called controls are in the hands of employers of labour or the servants of employers of labour, if your Lordships understand what I mean by that. They represent the capitalist side of industry. The noble Lord, Lord Stamp, is himself a big employer of labour as head of one of the principal railways. The Labour movement wants its share of decision and to make its contribution to this great effort, and not to leave the matter entirely in the hands of the employing classes. At the present moment you have the following Ministries all concerned with the economics of this war: the Ministry of Food, the Ministry of Supply, the three Fighting Services, the Ministry of Home Defence, the Treasury, of course, the Foreign Office, the Board of Trade, the Ministry of Agriculture, the Ministry of Labour, and I suppose a little later there will be the Ministry of Shipping. All these are concerned in the maintenance of our economic strength, or in waging economic warfare on our enemies, or in the mobilisation of the tremendous effort which the people of this country are determined to make to bring about victory in this war. There is no body at the top with the time or, to a certain extent, the ability to consider the grave problems that are created by the present situation. Our demand is that some such body should be created as soon as possible, because otherwise the proceeds of this tremendous taxation may be wasted.

3.44 p.m.


My Lords, the first part of the noble Duke's lucid speech was an exposition of the Budget proposals, and in the second part he made a strong plea for control of expenditure and prevention of waste, and gave assurances that the Government were taking steps in that direction. The first part of his speech was the strongest and most cogent argument in support of the second part. The vastness of the expenditure, the crushing weight of the taxation, are pleas indeed for a careful control of the expenditure necessary for the war and the avoidance of any form of extravagance. For my own part, on each occasion when these matters have come before your Lordships' House and I have had the privilege of addressing you, I have urged that control of expenditure ought not to be disregarded or undervalued in the presence of the enormous flow of expenditure which necessarily is involved by a great war. When the Ministry of Supply was set up, I urged, and other members of your Lordships' House urged, that this control side should be most carefully watched. When the expenditure on the great Defence programme was begun a couple of years ago, the same point was urged and the Government gave assurances that no waste would be allowed and no undue profits would be permitted to be earned by the armaments firms.

Those assurances—I regret to have to say it—have not been fulfilled. Still the Government, in my view, are not taking the measures necessary to guard the public interest. I was able to quote on a previous occasion instances of the enormous profits which had in fact been reaped by many of the armament firms. The Government finally found it necessary to propose to Parliament and to carry through a special Armament Profits Duty in order to recoup to the Treasury the profits which had accrued and which the Government beforehand said could not have been obtained under the arrangements they had adopted. Now, faced by the present Budget, public opinion is alert on this matter and the many instances of obvious waste which have come close to the attention of the masses of the people have brought this subject into the forefront and the Government are taking action—in many respects belated action. Two days ago the Minister for Air, in a statement made in another place, said that he had recently appointed Sir Harold Howitt, the well-known chartered accountant, to be a member of the Air Council to help, so he said, on the financial side. "Recently appointed!" I wonder how many millions of the taxpayers' money has been involved in that word "recently." If such a measure is necessary now to strengthen the financial side of the Air Council, why was it not taken when the enormous expansion of the Air Force was begun a year or two years ago?

The necessary steps in every direction are still not being taken. In spite of the vastness of the expenditure and the weight of taxation, the one effective measure which ought to be taken now is being obdurately resisted and rejected by the Government just as a few years ago they refused the establishment of a Ministry of Supply in spite of the most cogent arguments. It is essential that there should be outside inquiry into the expenditure of the Departments and not merely inquiry by Treasury officials. Treasury control in time of war is quite inadequate. The representations of financial officers are brushed aside by the heads of the Services. It always has been so in wartime, and I cannot doubt that the danger exists to-day. There is need for bringing in some body of greater authority than any Government Department, and under our Constitution that can only be found in the House of Commons. During the last war—at a late date, it is true, not until July, 1917—the House of Commons did take action and established a Select Committee on Expenditure of which I had the honour to be Chairman during its sessions for more than a year. It is for that reason that I venture to address your Lordships on this subject on this occasion. It was a large Committee of twenty-six, and it sat continuously through the Parliamentary Recess.

I should explain in the first place what that Committee was not. It was a Committee which did not presume to deal with matters of policy. That was specifically excluded from its reference. Questions of policy must only be dealt with by the Government of the day with the approval of Parliament as a whole. It was a Committee which was always on its guard against taking any action which would hinder the war effort or delay any necessary measures. Then, as now, we all realised that the supreme object was to win the war, and financial considerations, we recognised then, as we must all recognise now, must take second place. Second place, yes, but not be ignored altogether; for wasteful finance is a squandering of our resources for the war, in addition to which it makes the taxpayers discontented if they have reason to think that the immense sacrifices which every one of them is making are being unduly enlarged or protracted because there is not adequate control over the way in which the money is spent. We did not, of course, seek to control the placing of contracts beforehand. I must express my disagreement with my noble friend opposite, Lord Mancroft, who yesterday urged that there should be established at once a Committee of both Houses which should function before expenditure is embarked upon and act in advance.


If the noble Viscount will permit me to intervene, while I agree with nearly everything the noble Viscount has said, it does not put this aside, that this Economy Committee should not be deprived of the right, not of preventing expenditure, but of referring back something which is questionable, which can be reviewed by the Cabinet, where expenditure would be incurred which the Committee would not think reasonable or advisable.


I am quoting my noble friend's words of yesterday, that a Committee of both Houses "should be appointed at once, which should function before expenditure is embarked upon and act in advance." If the noble Lord does not hold that view, I need not dispute with him.


I do hold that view.


Because it is obvious, I think, that it is quite impracticable for any Parliamentary Committee to review all contracts of the various Service Departments, or of the Air Raid Precautions Department or those in any other category, before they are placed. Such a step would create a bottle-neck and cause intolerable delay and confusion and would prove to be quite impracticable. But that was not the function of that Committee during the last war. A similar Committee, I would urge, ought now to be demanded by public opinion. We divided ourselves into a number of sub-committees, one of which dealt with the War Office, a second with the Admiralty and Ministry of Shipping, a third with the Ministry of Munitions, a fourth with food and agriculture and blockade and other similar Departments, a fifth with the Office of Works, National Service, Ministry of Labour, the Post Office and other Departments, and a sixth with the organisation of the Treasury. We visited those various Departments.

The War Office sub-committee, of which I had the privilege of being Chairman, went to General Headquarters in France and held long conferences with the Quartermaster-General and with various of the soldiers in control. We examined carefully the methods of control within all the Departments. The sub-committees contained many practical men of wide experience and our belief was (and I think it was confirmed by opinion at the time) that we did save the taxpayer very considerable sums of money. We could not prevent waste beforehand in all cases, obviously, but we were able to detect cases in which waste had occurred and to prevent repetition and to improve the methods of control. That was a useful service. We published several reports, but, as many of the matters were of a secret character, our efforts were devoted rather to private representations to the Departments and officials concerned than to drawing public attention to errors and waste. We also appointed two special committees in accordance with the terms of our reference, one of which sought to reform the whole system of departmental accounts so as to ensure a better Parliamentary control, to establish a system of cost accounting rather than the ordinary system of Treasury accounting. Treasury accounting had its origin and continues largely in order to ensure that money is spent on the purposes for which it is voted, but cost accounting is necessary in order to secure that value is received for the money that is spent. I need not go into that because it is carrying us too far into detail. Secondly we proposed various measures for improving and strengthening the control of the House of Commons itself over expenditure.

These are matters which I draw to the attention of your Lordships' House, although they are not directly within the functions of this chamber, because it is necessary that public opinion should be aroused on this matter in view of the definite refusal of the present Government to take similar action to-day. I trust that members of your Lordships' House will, where the opportunity offers, strengthen the demand that is being made for a similar body to exercise similar functions. Because that demand has hitherto been rejected, I must say that I view with scepticism the assurances that were given to-day by the noble Duke, although I have no doubt that they were most sincerely meant. If the Government were to take action of this kind, one would have greater belief that they are really ready to safeguard, in the manner that the times require, the interests of the public purse.

As for the Bill itself, I do not propose to trouble your Lordships with any observations on it except with respect to one specific point which arises indeed only indirectly and when we view the measure as a whole. The war effort of the country is not only, of course, military, but must also be economic, and the question of the prices of commodities plays a very large part in maintaining the efficiency of the nation for winning a victory. If prices rise too high it obviously lessens our available resources, in addition to which the rise of prices increases the cost of living, causes discontent among the masses of the people, leads to a legitimate demand for higher wages, which in turn, of course, leads to higher costs of production and therefore to higher prices again—what is called the vicious spiral. The specific point to which I wish to refer was raised by the noble Lord, the Secretary of the Board of Agriculture, Lord Denham, who in a most interesting speech a few days ago, on September 28, described to the House the great effort that was being made by the vital industry of agriculture to sustain and help the part that the country is playing in the war. These were his words: I want to assure your Lordships that my right honourable friend the Minister and the Ministry both realise how vital is the importance to the farmer of getting his raw material as cheaply as possible This Bill continues a number of taxes which in point of fact prevent the farmer from getting his raw materials as cheaply as possible and are, in fact, intended to keep high the prices of feeding stuffs and manures which are necessary to agriculture.

For example, oats in grain, when imported, are charged a duty of 3s. per cwt.; barley, 3s. 6d. a cwt. or 20 per cent. whichever is the greater; soya bean cake and oil, 20 per cent.; ground nut oil, 15 per cent.; linseed oil, £5 per ton or 15 per cent., whichever is the greater; superphosphate of lime, 10s. per ton or 20 per cent., whichever is the greater. I will not go through the whole list. There are other items; agricultural machinery, 15 per cent.; agricultural tractors, 15 per cent. or preferential 10 per cent. All these duties, which may or may not be necessary in peace time, ought surely to be suspended in war time. If it is vital to the farmer—and it is—that he should be enabled now to get his raw materials as cheaply as possible, how can we defend the imposition of taxes the very purpose of which is to prevent these materials being sold as cheaply as possible? Farmers continually concentrate their minds upon securing good prices for what they sell, but seldom pause to think about securing low prices for what they buy. But it is just as necessary that they should reduce the expenses of their businesses as it is that they should increase the receipts of their businesses. So I would urge to-day upon the Ministry of Agriculture and the Government in general—for of course it affects the whole nation and the whole Government—that these matters should be reviewed, that all duties which tend to raise prices of necessary raw materials should be suspended for the time being, subject to review at a proper time when the war is over.

As I say, I do not propose to speak on the Budget itself. I would only in a word say that I am inclined to agree with my noble friend Lord Strabolgi, who has just spoken, that it would have been better if the very heavy increase in the Income Tax had not been imposed at one stroke. There are arguments on both sides, and it is perhaps somewhat doubtful on which side the balance lies. For my own part, however, I am one of those who think that it was an error of judgment to impose at the outset an increase of 2S. in the Income Tax, and that the disadvantages outweigh the advantages; that 1s. should have been imposed in this Budget and the balance of the revenue obtained by other methods. If the war proves to be a long one, I think that that will later on be the general judgment. We shall all approve, I am sure, of the Excess Profits Tax. The fortunes that were accumulated in the previous war were a scandal and a disgrace, and I feel sure that the nation will not tolerate a repetition of them. The Excess Profits Tax and all other measures of that kind, such as steeply graduated taxation, are not a substitute, of course, for economy or a reason for tolerating waste, and my chief plea to your Lordships to-day is to urge safeguards against those evils.

4.3 p.m.


My Lords, this afternoon in addressing your Lordships' House I feel disposed to crave your indulgence, because it is somewhat more than two years since I have been prevented by illness from taking part in the debates here, and to do so is a somewhat unusual experience for me after so long a lapse. I feel, however, more than justified in taking part in the debate this afternoon because we have before us what is without doubt the biggest piece of war legislation which has so far been presented to the country, and it raises a number of important and interesting points which certainly should not go by without being discussed in this House.

I rise, not to criticise the Government and the Chancellor of the Exchequer for this Budget, but on the contrary to praise them. I think that the Chancellor in particular is very much to be congratulated on the bold and constructive way in which he has handled the financial problem with which he has been faced. I disagree with both the previous speakers that it was wrong to go ahead at once with large increases of taxation. On the contrary, I believe this was the vital moment and the psychological moment at which to do it. When the blood is warm, at the beginning of war and before all the early stages of war-weariness have come upon the nation, it can stand a shock of this kind very much better than if the pressure is gradually applied over a long period. What has been done will not only encourage our Allies and inspire confidence in neutral countries; it will also come as a very considerable shock to our opponents. I believe that to increase taxation largely at this stage and to avoid the case of the last war, in which we borrowed far more heavily in the first year and then increased taxation slowly, was right and proper and based upon the experience which we gained on the last occasion.

Certain other criticisms were raised by the noble Lords who preceded me. Both of them carried us over a wide area of discussion, not all of it wholly directed to the Budget. Both of them, as is so likely to happen nowadays, proposed the setting-up of new committees. Such experience as I have been able to gather in the first month of this war would lead me to give directly the contrary advice to the Government. I should strongly advise against setting up any further committees at the present moment. There are already far too many, and every new committee set up, however excellent the intention with which it is created, will be bound to cause delay. The check of war profiteering, the broad survey of the economic effort of the country, are both admirable objectives; no one could quarrel with them; but I should certainly not at this stage set up two new committees to interfere with the ardent work of government in the present prosecution of the war. Every committee you set up means someone else to be consulted before a decision is given. What one requires in war-time is decisions. Some of them may turn out to be wrong ones. They may also turn out to be wrong even if they are put to a committee before they are taken; but the great thing is to have decisions taken and have them taken promptly.

Another point upon which I think the Chancellor is to be congratulated in dealing with this Budget is that he has, while going for the Surtax payers in perhaps rather an extreme fashion, at the same time taken another step which is somewhat inclined to be overlooked. The Surtax payer is always rather the spectacular figure of Budgets. People are attracted by large figures and are inclined to concentrate upon them; but as a matter of fact the present Budget provides for a very considerable broadening of the basis of existing taxation. The man with the income in the neighbourhood of £500 a year, the married man with two children—his taxation has been increased from £8 a year to, I think I am correct in saying, £20 a year—a very substantial increase. That is an increase over a very wide area, which will bring a very large revenue to the country. One can see in such a step the fact that remissions to the small taxpayer in past years of peace time have in their own way provided a great war reserve of finance upon which the Chancellor of the Exchequer has on this occasion very widely drawn. That broadening of the basis of taxation could only be justified by a substantial increase in the taxation of the higher levels of income.

If I might offer any consolation at all to those of your Lordships—and there must be many—who have large obligations not easily set aside, considerable establishments in the country which have to be maintained in some shape or form, I should like, if I might, to refer to a personal experience of mine some years ago in the unfortunate and doomed City of Warsaw. I had the pleasure of lunching with a noble family, and in discussing the life of the country my host said to me "Of course we don't keep anything very valuable in my country houses. One, you see, is situated near the German border and one is situated near the Russian border, and over the course of many centuries our family have found that they are sacked every fifty years." On this occasion, tragically enough, I suppose they have both been sacked in less than twenty-five years. That is an experience which does not come to us, thank God, in this country, and if we are called upon to make large contributions in money to prevent such a disaster, any contribution we might make is so much less than the worst that might befall, that I think we may bear it cheerfully and well.

I now come to just a short review of the broad aspects of the finance of the country as shown in this Budget. Taking round figures for the sake of easy calculation, we can say that we are faced with a Budget of about £2,000,000,000, about one half of which will be raised by taxation, and one half of which will be raised by borrowing. That is the situation in which we have placed ourselves immediately instead, as has been suggested from the other side of the House, of dragging the proportions on much more to borrowing and much less to taxation in the early period of the war, as was done on the last occasion. If one looks forward for a period of years—and I am one of those who do not expect the war to terminate rapidly—if one looks forward to a period of three or four years and to a Budget of that order, we shall increase the National Debt of this country by £2,000,000,000, £3,000,000,000 or £4,000,000,000, and the service of that can be very easily provided for by a proportion of the new taxation this year. The present increases give us £226,000,000, and an addition of £3,000,000,000 to the National Debt at 3½ per cent. means only £105,000,000 a year. Therefore one can say that the burdens which we have to face, though large, are not entirely beyond the compass of our means, and I am encouraged by these considerations to believe that we need not fear so steep a rate of increase in future years.

But what will be vital in this matter will be the rate at which the Chancellor of the Exchequer provides for his borrowing in the future. And it is in regard to that that I would like to make a suggestion which I think merits serious consideration at a time like the present. I do not think it will be to the advantage of any one, either the investor, or the Government, or the country in general, if these borrowings are made in the usual form of what might be called finding the level of the market at a competitive rate of interest. I think if the rate of interest is regulated to a reasonable level the finance will be forthcoming, and it will be more important to maintain the total capital structure, the total level of Government loans in this country, rather than to cause them to fluctuate by finding a market rate which is bound to be an increasing rate.

With that in view, I must say there is one financial step which I do hope the Government will take, and that is in connection with the bank rate. It was raised to 4 per cent. quite unnecessarily, it was reduced almost immediately to 3 per cent., and I believe it should be further reduced to 2 per cent, or 2½ per cent, at the earliest opportunity. But that is bound to have a big bearing on the matter which I have raised, the matter of raising the very large sums which we shall have to borrow, and which are in no way beyond our means at a reasonable rate of interest—reasonable to the investor, and reasonable to the taxpayer who has to pay the interest on them. I think that is a point of very grave importance to the country.

There is only one further point I would like to deal with. The noble Lord opposite said something about armament profits—always a very delicate subject—and I think myself, from what I have seen of this matter, that most of the firms in this country are anxious to avoid being classed as profiteers. I have found in industry a very different spirit from that which existed during the last war. People are anxious to make their contribution, are anxious not to take undue advantage of the country's crisis and the present emergency. But that should not be confused with the economic fact that in certain circumstances prices must rise from purely economic reasons. There are two ways of rationing. One is by sheer rationing and the other is by alterations of prices, but such a rise in price does not necessarily mean profiteering. It may be that all the profit out of that rise in price goes to the Treasury, or that arrangements will be made later on for that profit to go to them. But I think the country can rely on industry playing its part and doing everything it can to avoid taking undue benefit from the country's need.

4.16 p.m.


My Lords, the debate has not been of great length, but I think it has been of very considerable value. I can assure noble Lords who have spoken that every point which they have raised will be most carefully considered. The noble Lord opposite, Lord Strabolgi, raised the question of the wisdom of these heavy immediate rises in taxation. I can only inform the House that my right honourable friend was actuated by two motives in deciding on these heavy immediate rises. One was the immense gap which exists now between expenditure and revenue, which is unlike the position in the last war, where our war effort began, as it were, gradually. At present our armament expenditure is already on a vast scale and the expenditure has leapt up far more rapidly than it did in 1914. The second motive was the necessity for restricting from the outset unnecessary civilian expenditure in directions which do not help the immediate prosecution of the war.

We have had some very interesting suggestions from the noble Lord opposite and from the noble Viscount, Lord Samuel, on the subject of an Economic General Staff and the planning of the economic effort of the nation generally, and I am sure those representations will receive most careful attention. Whether the method of a Committee which has been suggested is the best method of securing that the economic effort of the country is most wisely applied, it is hardly for me to say, but I can assure the noble Lords who have spoken that the Government have got this matter under very careful review. What is required is, it seems to me, not so much a new Department, which would cause delay and inevitably cut across other Departments, but an organisation to ensure that nothing is overlooked as between Departments. It is already the business of some existing Department to supervise each particular aspect of the nation's economic activity. What is important is that nothing should be overlooked, and that there are no inconsistencies between the policies being pursued by the different Departments. As I think the noble Lord, Lord Strabolgi, said, exports may be of vital importance in order to maintain our purchasing power abroad of essential war materials, and it is important that even the needs of the Services should not be allowed to interfere with what may be an absolute essential. The Government are endeavouring to ensure that economic effort shall be properly co-ordinated and that the supervising of these various aspects of the economic policy of the country shall be efficiently carried out.

The noble Viscount, Lord Samuel, raised the question of the duties on agricultural feeding stuffs and the raw materials of agriculture. I can assure him that those duties are, and will be, under careful review. I would remind the House that these duties were not imposed out of spite against the farmer, or with any idea of making his task more difficult. They were imposed for the specific purpose of protecting the home and Empire markets, and at this time, when our foreign currency requirements may prove to be crucial, I should be reluctant to hold out any immediate hope that, for instance, American agricultural machinery is likely to receive any substantial remission of taxation. I can assure noble Lords that the question of the cost of feeding stuffs is, and will be, kept under constant review. I have now dealt with most of the points raised, and may I say in conclusion how glad I am to see my noble friend behind me (Lord Melchett) back in the House, and how greatly I appreciate his commendation of the Budget I have had the honour to place before the House?

On Question, Bill read 2a: Committee negatived.

Then, Standing Order No. XXXIX having been suspended, Bill read 3a, and passed.