Lords Sitting of 21 August 1940

Preamble
The House met at four of the clock, The LORD CHANCELLOR on the Woolsack.
NATIONAL EXPENDITURE.
Message from the Commons for leave for the Viscount Weir to attend to be examined as a witness before the Sub-Committee on Supply Services appointed by the Select Committee of that House.

BUSINESS OF THE HOUSE.
THE SECRETARY OF STATE FOR DOMINION AFFAIRS (VISCOUNT CALDECOTE): My Lords, I beg to move the Motion standing on the Paper in my name.
Moved, That Standing Order No. XXI be considered in order to its being suspended for this day's sitting and that Government business have precedence over other Notices and Orders of the Day.—(Viscount Caldecote.)
On Question, Motion agreed to, and ordered accordingly.

FINANCE (No. 2) BILL.
Order of the Day for the Second Reading read.
THE LORD CHANCELLOR (VISCOUNT SIMON): My Lords, I beg to move the Second Reading of this Bill. The measure has been in your Lordships' hands for some days and you will not, I think, expect or wish me to give any very extended explanation of it. It might be of interest and useful, however, to make a single observation on the subject of the totals of the money here involved. I will not trouble your Lordships with more than a couple of figures. When the war broke out, now nearly a year ago, the revenue which it was estimated would be gathered in during the then current financial year, the year 1939–40, amounted to £888,000,000. We have become accustomed in recent months to handle and speak about figures so monstrously large
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that£888,000,000 may seem quite a modest total, but in fact it is an enormous amount to raise in a single year by way of revenue. The figure I want to contrast with it is the figure which it is expected will be raised in a full year by the conjoint effect of the three Finance Bills which have since been produced.
There was the Budget of which I had the honour to be in charge, which was produced two or three weeks after war broke out in September last year. There was secondly the Budget of last April, and now comes the present Finance Bill. If we take these three measures together and consider what is the total they are expected to produce in a full year, the estimated amount is no less than£1,500,000,000. I would invite your Lordships to meditate upon that contrast. If we were not dealing with such unexampled totals of expenditure, everybody would realise that this increase in revenue provided for in less than twelve months represents a tremendous burden and a colossal effort. Certainly never in the history of this country—nor I believe any other country—has the revenue been increased by the will of the Legislature by nearly 75 per cent. in a single year. The fact that even this increase in revenue goes but a part of the way to meet the total expenditure we have to cover should not blind us to the further fact that it is in itself a noteworthy result.
It is not for me to anticipate the future of our war finance, but it is evident that just as greater and greater sums of money will be needed so greater and greater sums must be found, and revenue, which is the proper subject of a Finance Bill, must always be the first source to be drawn upon. But, as I have pointed out before both here and in another place, increasing revenue is not to be obtained by an automatic process to be worked, in relation to war expenditure, by the smooth and simple application of the Rule of Three. I believe that the present Chancellor of the Exchequer was perfectly right when he claimed the other day, in reply to a criticism that this was the result of three Budgets, that it was really necessary to give the taxpayer, faced as he is with this tremendous task, the opportunity of adjusting himself and of adjusting his affairs as best he can to this continually growing burden. If in a single year the

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taxpayer is to mount and to overstep so high an obstacle—and he is doing it, my Lords, with the greatest courage and determination, good temper and good will—there is nothing which deserves to be denounced as feeble or half-hearted in providing him with three steps by means of which to overcome this obstacle.
I do not think that it is the practice in your Lordships' House and it is not my intention to go through the Finance Bill in the way in which it is properly dissected in another place. Your Lordships will have examined its general scope, and you will have noticed that the Chancellor of the Exchequer has relied in large part on well-established fiscal expedients, increasing the dose but maintaining the medicine. I suppose that every Chancellor of the Exchequer receives a large postbag before, and still more after, he produces his Budget from worthy citizens who point out to him that in their view it would be far, far better to go in for some novel and ingenious exaction which they suggest. I do not imply at all that these proposals are designed to escape taxation; but it is natural for an ingenious mind, and for the citizen who is very much concerned with the subject, to look round to see whether there are not good alternatives. It has always been found, however, that there are certain advantages in relying mainly upon accepted—traditional, if you like—fiscal expedients, and for two reasons. In the first place, the taxes that we know are the result of experience and they are known by experience to be effective and profitable, to be calculated to produce considerable revenue and to be capable of being smoothly worked. In the second place, a new tax—I do not care what the new tax is—whatever be its merits and however strong the support which it receives, always introduces controversy.
Mr. Lloyd George a long time ago first proposed what was then called Super-tax. It was one of the matters which was at the time the subject of great and heated controversy. It is a strange reflection, looking back, to remember that this "abominable impost," so loudly denounced, amounted to the tremendous figure of an additional 6d. in the pound on incomes above £5,000 a year! The present Prime Minister produced the Betting Tax, and results fol-
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lowed which were quite different from the previous calculations of those who advised him. When the Purchase Tax was produced—and here I must not disclaim some share of responsibility—that, in its turn, attracted a good deal of criticism. So far as the "old stagers" are concerned, the well-worn traditional taxes, your Lordships will observe that the method is little more than taking most of them and increasing the charge.
As regards the Purchase Tax, your Lordships may desire to hear from me one or two further words. The Purchase Tax is a new tax, and is a percentage charge on the wholesale value of goods when they are purchased from the wholesaler. It is a tax which has two very considerable merits. I am far from saying that it is altogether a good tax; for my part, I doubt whether in the whole field of fiscal enterprise there is such a thing as a good tax! It has, however, two very favourable features, both of which are particularly attractive at this time. In the first place the Purchase Tax, if it is firmly and remorselessly applied, will produce a very considerable revenue, whereas many of the new suggestions are for taxes which, whatever be their other merits, would produce a mere trickle. The Purchase Tax, as framed in this Finance Bill, is expected to produce in a full year £105,000,000. There is a second reason why the Purchase Tax has special claims for favourable attention and support. It is one of those imposts which have the valuable effect of tending to reduce the civilian consumption of goods.
Inasmuch as the principal danger in financing a war like this is the danger that increasing purchasing power, largely arising from mounting wages, increased employment and long hours of work, will be set against a reduced supply of commodities for civilian consumption, with that danger staring us in the face, the Purchase Tax, apart from the revenue which it produces, may serve a second valuable purpose by reducing the demand upon available supplies. It has the effect—crude, I agree, in some respects—of making them more expensive. No doubt there are very strong social and economic reasons why the supplies that are most necessary, the essential supplies, should be exempt from the Purchase Tax, and that, of course, is the reason why, by the provisions of this Bill, the Purchase Tax does

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not apply at all to food, drink, fuel, and a certain number of other essential things.
For the same reason, if you take the range of goods to which it docs apply, which will be found in the Seventh Schedule, your Lordships will have noticed that they are divided into two classes and that there is a higher rate put upon goods which are either luxuries or at any rate goods which in the hard circumstances of the present time we can largely do without, or of which we can at any rate defer the replacement. And there is a second category of goods also taxed but taxed at a lower rate, largely personal and household goods, which cannot, generally speaking, be classed as luxuries and which require more frequent replacement, such, for example, as clothing, and kitchen and household utensils of various kinds. The higher rate is adding one-third—33⅓ per cent.—to the wholesale value of the goods; the lower rate is half that, one sixth—16⅔per cent. Those however, are the percentage additions on the wholesale value, and by the time that the goods have passed from the wholesaler into the hands of the retailer, who charges more for them, it is estimated that the addition to the price which will be fairly due to the Purchase Tax will be in the case of the more highly-taxed articles 24 per cent. and in the case of the lower-taxed articles 12 per cent.
It may be asked how the retailer is going to be restrained if, with this serious additional charge to be met, he seeks to make profit out of it. The answer is that the Prices of Goods Act, which is already on the Statute Book, is designed to secure, and I think will in practice very materially help to secure, that the retailer will not make any profit out of the tax. Another most important feature of the tax which I must not omit to mention is that no tax whatever is charged upon articles for export, which, of course, is manifestly right in economic theory and is essential for the most practical reason, in order to encourage our exports at the present time.
I have ventured to trespass on your Lordships' time to give that short explanation of the Purchase Tax because it is the first time that you have had the pleasure of meeting this particular impost face to face. The other burdens con-
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tained in the Finance Bill are known to us all in greater or less degree, and I am far from saying that this present Finance Bill represents the last word in the application of any of them. But I would ask your Lordships not to take an exaggerated or one-sided view of this matter. The burdens which are now by the assent of Parliament put upon the taxpayers of this country are burdens unexampled in magnitude. Without any question at all they very gravely affect the lives and prospects of all kinds of people, and a matter upon which we may take real pride in the midst of much that is serious and burdensome is that there has never been a moment when they have been more willingly accepted by the whole population. When we think of some of the sacrifices being made on behalf of us all by those who are so gallantly serving the country and the cause of liberty, as they were recounted only yesterday, I cannot doubt that the people of this country will be willing not merely to accept these financial sacrifices, but to prepare themselves to make any and every further contribution to the cause of victory that may be required. I beg to move.
Moved, That the Bill be now read 2ª.—(The Lord Chancellor.)
4.25 p.m.
LORD STRABOLGI: My Lords, I am sure every one of your Lordships agrees with the concluding sentences of my noble and learned friend and I can only re-echo them on behalf of my noble friends. I am sure every one of your Lordships, if I may say so with great respect, enjoyed the Lord Chancellor's speech. I know of no statesman who can make the extraction of large sums of money from the taxpayer's pocket appear so agreeable at the time as my noble and learned friend. On the last occasion when it was my duty to say a word about the Finance Bill, it was the child of my noble and learned friend and I said some hard things about it. I want to retract all that I said. My noble and learned friend was accused of not realising the implications of the war we were engaged in and not therefore framing a strong enough Budget. That was the accusation made. Well, he had an excuse because he and his colleagues in the then Cabinet believed most sincerely that the war would practically win itself, aided, of course, by our blockade and a German

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collapse. Since then the whole situation has changed, but the Budget has not. It is the same thing only a little more so, with the one exception of the Purchase Tax, of which my noble and learned friend was bold enough to claim parentage or partial parentage.
The criticism that we make of this Budget—not only ourselves, but a great many economists of all Parties—is that it is not a War Budget and that it does not represent an economy planned for total war. Indeed, it is admitted by my right honourable friend Sir Kingsley Wood and other Government spokesmen that this is yet one more interim Budget. My noble and learned friend said much the same thing himself. Sir Kingsley Wood talks about giving people time to turn round; my noble and learned friend, with a more classical style of expression, himself talks of allowing the taxpayer to adjust himself. It means the same thing. Our doubt is this. While we are giving our citizens time to turn round, will our enemies give this time to turn round? Because in the same series of debates centring on the Finance Bill, and in the general debate in another place on the whole economic policy of the Government, it was admitted by my right honourable friend the Minister without Portfolio, Mr. Greenwood, that we are not yet organised as a nation for totalitarian war, and I know my noble and learned friend with his intellectual honesty would admit it also.
That being the case, this Budget is really a peace-time Budget, with the old well-tried, established taxes stepped up, boosted up a little more, and a few new ones added, such as the Purchase Tax. This is what disturbs us so much. This is not a Party question at all. The criticisms I am going to make very mildly have been made with much more force and strength by the financial writers in such newspapers as The Times, the Daily Herald and the Manchester Guardian. They have all criticised the Budget on the same lines as I am going to do much more mildly. The point is this. We are faced to-day with Germany and Italy having 130,000,000 white inhabitants and we have a total scattered throughout the Empire of 75,000,000 white inhabitants. In addition to that there is a doubtful Spain, a doubtful Japan, and great areas of Europe inhabited by 100,000,000 people who are under Nazi
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domination chained as labourers to the Nazi war machine. Can we expect to triumph quickly over such a formidable array, in spite of the efficiency and bravery of our fighting men, unless we too plan our economy for total war? This Budget, with its taxes which my noble and learned friend described as well-tried measures, accepted and traditional expedients, is not a Budget for total war.
I should explain very briefly what we consider the fiscal and economic organisation of the country should be, an organisation which should be reflected in the Budget accordingly. Even taking it from the orthodox point of view—and I wish my noble friend Lord Arnold would explain this to us, as he can do it much better than I can—if all the proceeds of the taxes are gathered in and collected, using all the shifts and expedients for foreign exchange liquidations and so on, we are still "shy"—if I may use a colloquialism in the presence of the Lord Chancellor—of about £600,000,000 a year. That is the shortage of revenue and all the other means of raising money and paying for our needs as against expenditure. Therefore, from the orthodox point of view this Budget is a failure. That indeed is admitted. The excuse given is that the taxpayer must have time to turn round or adjust himself. What alarms me is that there is no sign that the War Cabinet as a collective body have yet discovered or decided on a war economic and fiscal policy. That is the alarming part of it.
I shall only quote a few examples. The Government and the Chancellor of the Exchequer advise the utmost economy and the cutting down of personal expenditure, just as my noble friend recommends the Purchase Tax to your Lordships because not only does it raise a very large sum of money but it reduces expenditure by the citizens. That has the effect of throwing men out of employment. It must do so. It was the argument noble Lords opposite used to use against new taxes introduced by Radical Governments, that they would throw men out of employment as they cut down the sumptuary expenditure of the citizens. These men who are thrown out of work are not absorbed into the war machine because there is not the organisation for doing that, and that is the centre of the criticism. Nothing is easier at the present time than to throw people out of

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work by taxes or appeals to economy or by closing down so-called luxury trades; but apparently it is extremely difficult to absorb them into work in spite of the fact that we are still short of munitions.
I was glad to hear my right honourable friend the Prime Minister yesterday informing us—and I think we had the same thing in your Lordships' House—that we have 2,000,000 men fully armed and equipped in this country to defend it. We shall want immense munitions to arm our new Allies whom we hope to obtain and the great teeming masses in our Empire. The manufacture of arms must be on a much greater scale than we have yet realised or, if we have visualised it, yet heard about. This is a very serious state of affairs. In certain parts of the country—I am speaking now as a manufacturer with close knowledge—we are short of steel workers, woefully short. In other parts of the country steel workers are engaged in non-essential industries. In still other districts steel workers are without employment; they cannot get any. Within the limits of their Departments my right honourable friends Mr. Bevin, Mr. Morrison and Sir Andrew Duncan have done their best. They have made a beginning. Mr. Bevin is very angry when he is told the Government have not got a plan. He says "Look at the plan I have put into force. If a certain port has to be closed down for strategic reasons I take the men from it and move them to another." Within the limits of his power, as I say, Mr. Bevin has done a great deal and there is no criticism of him within the limits of that power.
A start has been made with training, transference and dilution. Up to a point priorities are arranged as between the three Supply Services—the Navy, the Air and the Ministry of Supply—and the export trades, but only up to a point. Labour up to a point is controlled, but—now I come to the crux of the whole argument—industry is not controlled. My noble and learned friend, defending the orthodoxy of the Budget, is still looking for his main income to the profits from trade and commerce. That means you have to leave private enterprise to make its way as best it can, whereas what we declare—and this is not a criticism confined to any Party in the State; it comes
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from a great many informed people—is that you must control the whole of industry to-day. Then you can move your machine tools from one plant to another where they are more needed. You can take half a dozen competing industries, close down four and concentrate on two, and leave the remaining factories to produce for the export trade to pay for necessary imports. You cannot do it in any other way.
This orthodox Budget, with its orthodox reliance on the profits of commerce and industry, involves as a corollary that you must leave the entrepreneur free, you must leave the ordinary manufacturer free, to make what profits he can, haggle in the market and fight for customers, hold on to his skilled men, hesitate about training semi-skilled men, and so on. It is not fair to the poor manufacturer. He has a divided allegiance between his duty to his board and his shareholders and his duty to the State. You are putting him in a difficult position. What must be done if we are to organise this as a totalitarian war and if we are to win the victory for which the Lord Chancellor hoped in his concluding sentence in such eloquent language? We have to control the whole productive enterprise of this country and canalise it into the proper channels for totalitarian war, keep up our export trade, and give the maximum comfort to the general population so that they will not be discontented. There is no sign of this in this Budget, and that is what is so alarming.
I mentioned just now that the War Cabinet are apparently not able to tackle this question. That is not blaming the Prime Minister. I hope no noble Lord will think I am criticising the Prime Minister. The Prime Minister to-day is a kind of modern Captain-General, and is fully taken up with the war. He is running the war, and it would be too much to expect him to be responsible for these difficult and intricate economic problems. I am glad that Lord Beaverbrook has joined the War Cabinet. He has done a wonderful piece of work in stimulating the production of aircraft. He is apparently a man of ruthlessness when he wants something done, and I am glad, as I say, that he is in the War Cabinet. I am sorry to say the rest of the War Cabinet appear to be unwilling or unable to organ-

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ise the economy and finances of the country for victory. There is some mystery about this, some stopping of the organisation which economists and informed people of all Parties say we must have if we are to organise this war in the way it must be organised for victory. There is also a great mystery as to the Chancellor of the Exchequer's future plans. This is admittedly an interim Budget and we know the old jargon that we cannot anticipate the Budget; but we want to know what the economic plans are. To organise this country as it must be organised an entirely new Finance Bill is required. It takes time, I agree, to do these things, but we are not satisfied with the start that has been made. I can only repeat that this is an orthodox Budget but this is not an orthodox time. I can find no clues to the Budget which will be required for the totalitarian organisation of this country for war.
4.40 p.m.
THE MARQUESS OF CREWE: My Lords, I have no intention of discussing the details of the Finance Bill; indeed I had not intended to take any part in this debate, and I shall only detain your Lordships for a very few minutes. I would merely wish to make one or two observations arising out of what the noble and learned Viscount on the Woolsack said and out of the enthusiastic speech to which we have just listened from Lord Strabolgi. The Lord Chancellor urged us to give the fullest consideration to this measure. I am quite sure we all have done so. Although Lord Strabolgi regards it as a very humdrum measure, yet it contains features which make us all consider very carefully not only what our own condition is, but what is the condition of a great many other classes in the country.
Now I am not one of those who complain of the fact that interim Budgets have succeeded each other instead of an attempt being made to produce a final measure by means of which the war would be financed satisfactorily and without excessive recourse to borrowing. I think people have to be prepared, more or less gradually, for the sacrifices they have to make, and have to be given a chance to change their ordinary lives in obedience to the necessities which they have to meet. Nor do I think it necessary to complain that in the main the principal
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taxes included in the Finance Bill are old friends, or, more strictly speaking, old enemies. There is a Spanish proverb to the effect "Better the devil that you know than the devil that you do not know." I think it is true that the heavy calls that are made through these well-established taxes on the whole are more readily accepted as necessary in the minds of the taxpayer than would be great categories of new and ingenious imposts.
Again, I am not in complete agreement with what fell from Lord Strabolgi as to the necessity, or indeed the possibility, of introducing at once a wholesale measure which would meet the needs of the war and the expenditure of the country which this measure certainly does not do. I do not see how any plan, such as apparently the noble Lord and his friends suggest, can be brought properly into operation on a vast scale. After all, planning is first cousin to compulsion, and the degree of compulsion which the country desires to accept would have, I think, to be most carefully considered. We cannot attempt to put into effect the processes favoured by the dictatorships to any great extent. We all, I am sure, have admired the manner in which the great trade unions have cheerfully accepted the departure from the rules and privileges which they have held and valued for so many years, and which they have been prepared to abandon for the time being at the call of duty; but I cannot help thinking that if an attempt was made to move the industries of the country and those who are working in them from place to place, like pawns on a chessboard, far from that enhancing or increasing the productivity of the country, a temper might be aroused which if not dangerous would at any rate lead to a diminution of activity rather than an inrecase.
I would only say one word about the Purchase Tax. I assume that the reason why that tax is going to be levied on wholesale rather than on retail goods is that if the latter course were adopted it would press very hardly upon the small purchaser. In France, the Turnover Tax, which was known as the tax on business figures, was tried and was found to create a great deal of inequality, and I think I am right in saying was abandoned altogether on those grounds. I

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should hope that those difficulties may be avoided by the method which His Majesty's Government have chosen to adopt. The revenue which it is hoped will be obtained is large, but not so overwhelmingly large as one would have supposed or, indeed, hoped. Certain exceptions were made in another place, notably the omission of books and newspapers and other articles of print from the tax, which I do not suppose affected the volume to a great extent. I think this is the only point which I feel prompted to mention, and I will merely express the hope that it may not be very long before a still more formidable Finance Bill will be produced in another place.
4.51 p.m.
LORD ARNOLD: My Lords, the noble Lord, Lord Strabolgi, was good enough to refer to me in his remarks and, as suggested by him, I will endeavour to address myself to the question of the deficiency or gap which the financial policy of the Government has not bridged. There seems to be an almost paralysing reluctance on the part of the Government to face the hard facts of the financial situation, and they are very hard. The question is, how inadequate is the Budget which is incorporated in this Finance Bill? That is a matter for conjecture, but looking at the matter all round it seems highly probable that there is a gap of between £500,000,000 and £800,000,000. The noble Lord put it at £600,000,000, but I am afraid it will be £800,000,000 or thereabouts. As yet the Government have not put forward any policy for filling this gap and the noble Lord, Lord Strabolgi, is quite right in saying that they do not seem to have a policy.
I am not speaking in any contentious spirit, but we want to get at the truth because it is a matter of supreme importance. How does the gap arise? It arises, of course, because of the difference in total expenditure in the current year and the total amount which the Government are likely to have at their disposal, including borrowing, taxation and capital assets. Let me deal with expenditure first. The Chancellor of the Exchequer in introducing this Budget estimated that the total expenditure might be £3,467,000,000. I do not say he bound himself to that figure. The Economist
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newspaper has estimated that expenditure may well be in the neighbourhood of £4,000,000,000 and that may prove to be correct. The cost of the war has been rising. Last week the expenditure of the country was £77,000,000. It is true that that was distinctly higher than in the previous few weeks, but on that basis the total expenditure for the current year will come out at about £4,000,000,000. The weekly expenditure, I am afraid, will increase before the end of the year, perhaps considerably. On the other hand, in the first four months of the year, up to the end of July, the expenditure was on an appreciably lower level. Taking the average into account, I am afraid the estimate of £4,000,000,000 may not be too high, and indeed it may be too low.
Let me take it at £4,000,000. Against this the Chancellor of the Exchequer expects that in the current year he may get £1,360,000,000 from taxation. Then he may get from capital assets—that is from the sale of foreign securities abroad and from gold sent abroad and also from some increase in the Dominion balances and so forth—in all a sum of perhaps £600,000,000. That is probably a liberal estimate. If that is added to the £1,360,000,000 of taxation we arrive at a sum of £1,960,000,000, leaving a deficiency of £2,040,000,000. Then we come to the question of borrowing. The average borrowing in recent weeks has not been much more than £20,000,000 a week, but let me suppose that on the average of the year the borrowings from genuine savings might be as much as £25,000,000 a week. On that basis the borrowings from savings—and that is what we are concerned with, it does not help the Government if they are borrowing something which has not been saved—it amounts to £1,300,000,000. Now £1,300,000,000 added to the £1,960,000,000 would come to a total of £3,260,000,000 against, as I have suggested, an expenditure of £4,000,000,000, leaving a deficiency of £740,000,000.
In support of what I am saying I would refer to a very valuable article written by Mr. R. H. Brand, which appeared in The Times on July 19. He estimated the gap at £800,000,000. Sir John Wardlaw-Milne—as we know a man whose words should receive much weight, the Chairman of the Committee on National Expenditure—speaking in another place, put the gap at £800,000,000.

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But suppose that is too pessimistic. Suppose the gap is only £500,000,000—and it seems very unlikely to be less—even so, the outlook gives cause for much concern. The question is, how is the gap going to be bridged? I think that is a point on which we are entitled to some information from the Government. Unless something substantial is done by increasing taxation and decreasing consumption—and the latter would mean that more money would be diverted into savings—it is difficult to see how the Chancellor of the Exchequer can balance his accounts except by inflation.
I say something must be done by increased taxation and decreased consumption. As regards increased taxation, burdensome as present imposts are, still more money can be got, especially if the Chancellor of the Exchequer will recast the Income Tax and carry it down to lower levels. We talk about increased expenditure and we arrive at figures which are perturbing, but it must always be remembered that although the expenditure of the country has increased, so has the income increased. The money which the Government obtain, either by taxation or by borrowing, is not thrown into the sea; by far the greater part of it is paid out to the people of this country for goods or for services. Actually a very large amount is paid in wages to munition workers and others, and many of these people are very much better off than they were before the war. So far as the higher ranges of income are concerned, I do not hold any brief for the Surtax payers, but it is only fair to say that, as the noble and learned Viscount on the Woolsack has pointed out, if you took away from the Surtax payers the whole of the income now remaining to them after Income Tax and Surtax have been paid—to use a common phrase, if you took the lot—it would finance the war only for a few days. I think that that is very pertinent. It must be borne in mind that, with the Excess Profits Tax at 100 per cent., money cannot be made out of the war by industrialists and others as it was in the last war; in fact, there can be only a small percentage of the richer classes whose income has materially increased since the war. On the other hand, many of the workers are, as I have indicated, obtaining much higher wages than formerly.
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One of the great defects of the Budget is that it does too little to increase the Income Tax of those at the lower end of the scale; yet in fact, as the noble and learned Viscount has pointed out, about two-thirds of the consumption of the country is on the part of people with incomes of less than £250 a year. It is therefore perfectly plain that there cannot be any big reduction in consumption unless this class makes a substantial contribution to this end. I suggest that these considerations point to the conclusion that the Income Tax ought to be recast, and that direct taxation ought to be carried down so that all shall pay something, apart from those whose standard of life is so low that it should not be further reduced. Any plan of this kind would be easier of accomplishment now that the Government have begun in this Finance Bill the method of deducting Income Tax from salaries and wages. Up to the present time, one of the great objections to lowering the Income Tax exemption limit has been that it has been scarcely worth while to do so because of the very large number of people who in the end would pay nothing and drop out altogether. Taking the last available figures, those for 1938–9, out of 10,100,000 persons liable on the face of it to Income Tax no fewer than 6,200,000, or nearly two-thirds, in the end paid nothing at all. The labour of going through all the returns and adjusting the abatements and so on for a result of that kind is enormous, and the waste of official time very great. I think, however, that that could be avoided to a large extent now that the plan of deducting Income Tax from salaries and wages direct is going to be put into operation.
It is quite certain that not very much more can be done to reduce the consumption of the country, which must mean reducing the consumption of the very large class in the lower ranges of income, unless the Income Tax system is recast and unless there is a tax on wages going down to an appreciably lower exemption limit than that at present in force. There is in fact a great deal to be said on other grounds for a simplification of Income Tax, because at the present time the psychological effects of the tax are serious, and the position is very misleading. We have a standard rate of 8s. 6d. in the pound, but actually no one will pay 8s. 6d. in the pound, because there are

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so many abatements and so on. Let me give your Lordships one or two illustrations. A married man with two children below sixteen who earns £500 a year does not pay 8s. 6d. in the pound, but only is. 4½d. A man in the same position but with an income of £1,000 a year pays at the rate of 4s. 2d. in the pound, and even if his income is £2,000 he pays only at the rate of 6s. in the pound. The effect of the tax is therefore, as I have said, misleading, and on those grounds alone I think that there is room for reform in the Income Tax system, now that the standard rate has become so high.
But taxation is not the only factor in reducing consumption; another factor would be the control of wages. It is not easy to understand upon what equitable ground the soldier receives 2s. 6d. a day and his keep and his wife's allowance, while on the other hand, judging from letters to the Press and so forth, no small number of munition workers are receiving from £8 to £12 a week—in many cases far more than they have ever had before or ever thought that they would have. It is difficult to understand on grounds of equality of sacrifice how those differences can be justified. It has been suggested in an article in The Times that wages should be controlled, and a powerful case can be made out for that. In any event, munition workers who are making these big wages ought to pay more in taxation than they are doing at present. There has been a very big increase in the wage bill of the country.
The point that I want to make is that this gap of £800,000,000 can be closed only if those whose income has materially increased lend the increased part of that income to the Government, or else have it taken from them by taxation, as is done under the Excess Profits Duty. One of those two things must be done, because if neither of them is done and, on the contrary, as the noble and learned Viscount pointed out, the higher wages lead to an increased demand for goods of which there is already a smaller supply, it is perfectly obvious that prices must rise. On that account, and by reason of the gap of £800,000,000 which on the present showing the Government can bridge only by the creation of credit, there is danger that we have already begun to descend the slippery slope of inflation, for in these cir-
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cumstances inflation is bound to come; it cannot be stopped. Once the process of inflation has begun, no one can say where it will end. Unless something is done to face this situation and to deal drastically with it—because for all we know the expenditure may be more than I have indicated, and it may be considerably more than £4,000,000,000 a year before long—serious inflation is unavoidable. Probably there is a certain amount of inflation in operation already.
I need not emphasize in your Lordships' House the evils of inflation; it is not necessary to do that. The evils of inflation both to the community and in relation to the problems which we are considering to-day can really scarcely be over-stated. In speaking as I have done, if I may make a personal reference, I put aside other considerations and views and have endeavoured to deal with this matter simply from the financial and economic standpoint, and I would ask the Lord Chancellor, who has always been very helpful and courteous in financial as in other debates in your Lordships' House, if he would address himself to this question of the gap, and tell us what is the policy of the Government for bridging it. What is the policy of the Government for avoiding inflation? What is the policy of the Government for making the circle meet without inflation?
5.11 p.m
LORD MANCROFT: My Lords, I think your Lordships will agree that the noble Lord opposite has performed a valuable service in drawing our attention in definite terms to the terrible danger of inflation. If your Lordships will allow me, I should like to deal with that point in consonance with what he has said, and especially so because my noble and learned friend on the Woolsack explained to us at some length the reasons for the Purchase Tax. He told us that it was now being discussed in this House for the first time. He made use of an expression which I welcome because it gives me a further peg on which to hang my remarks; he said that it would have a valuable effect in reducing the consumption of goods and that the principal danger is the increase of purchasing power as against the reduction of supplies. What my noble and learned friend has said and what the noble Lord, Lord Arnold, has said are in accord. This

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measure is, of course, a Treasury measure—I do not want to be facetious in saying that. It is intended by the Treasury to raise money for the war; but it is also intended by taxation to reduce consumption so as to keep off inflation—although my noble and learned friend, and I thought rightly, avoided using the jargon word "inflation."
I do not know whether it was meant seriously, but once or twice I have noticed—and I have read the whole of the reports of the debates in another place on this Bill—the question has been put by a member there: What is inflation? I cannot think that people in these days do not know what the explanation of inflation is. It was given by the noble Lord opposite and also by my noble and learned friend on the Woolsack. I take it to mean the pressure of an increasing volume of purchasing power—increasing demand—upon a reduced amount of supply. The result is that you have what in jargon is called inflation, that is a rise in prices, which brings about a rise in the cost of living. That is a cruel and savage burden upon the very poorest. It reduces the purchasing power of his wages. It is not the rich who feel the burden of inflation; it is the poor; and the poorer a man is the more he feels inflation. It should therefore be the aim of all of us—and I think it is, except for those who do not understand what the implication is in relation to the cost of living—to strive to do everything we can by legislation, or by persuasion or explanation, to avoid bringing about infation.
People who want to know what inflation means can see an explanation to-day in the United States. The greater part of the gold of the world is in America, but it is kept unused, so that it may not go into currency or become a basis for credit. The Americans are terrified that the use of it as currency or credit and purchasing power may cause inflation, that is, may put up the cost of living, put up the price of everything, lower the purchasing power of wages and bring misery and trouble on the whole nation. If people ask again what inflation means, let them look at what happened in 1919 and 1920 in Britain—the difficulties which the high cost of living brought on our people, and moreover wrecked our opportunity of restoring our export trade, by putting up the cost of production. And if they want
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to go further for an object lesson they can see what deliberate inflation, carried by the German Government to extremes, meant. It brought starvation in Germany; starvation and death to old people, tuberculosis to the middle-aged and young people; and rickets, tuberculosis and death to children. That is what uncontrolled inflation meant. Therefore we should, with all the means in our power, try to keep away inflation. And yet this Purchase Tax, we are told—and I believe it is so—is intended to do something towards preventing a rise in prices, that is to say, inflation, by preventing consumption.
But what is the Treasury doing in this galley? How can the Treasury do it? That is the essence of what I desire to lay before your Lordships. The Treasury comes along with a Purchase Tax to prevent increased consumption as well as to raise revenue. We know very well that when men are taken from civil occupations and put into munition occupations, they reduce, by the absence of their labour in civil occupations, the production of civil goods, which they usually buy, and, after all, the working people are the biggest buyers of goods in this country and every other country. So prices must rise. You will have increased pressure of purchasing power on reduced production giving rise to increased prices by the mere fact of the transference of men from civil production to war production. But on the top of that there is a factor which will aggravate the rise in prices. Then this Purchase Tax, which will bring in revenue, will not keep down an increased inflation. It only plays the part that a cough mixture does for the man who has tuberculosis; it does not keep off or prevent the tuberculosis. The way to keep it off is to deal with the causes and conditions which bring about tuberculosis. This tax is a financial expedient of the Treasury, and I say that the Treasury is out of the picture. I think this development must have been in the mind of the Lord Chancellor when he made a speech some months ago as Chancellor of the Exchequer. The Treasury is out of the picture.
The Treasury cannot prevent inflation as conditions now are. The prevention or causing of inflation now lies with the Ministry of Labour and the Supply Services and I will proceed to show why

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I think so. It is the aggravating factor to which I referred a moment ago. As quickly as a tax like the Purchase Tax is constructed by Treasury to check consumption and keep down prices, or a subsidy like the present food subsidy is put on to keep down the cost of living, the Minister of Labour—and I am not going to question his right; I am talking merely about an accounting operation; I do not wish it to be said that I want to control wages—comes along and gives an increase of wages. And this on top of the transfer of labour from civil employment to munitions employment, is an intensification of the causes of extra purchasing power. Then comes further the automatic sliding scale of increased wages to meet the extra cost of living. That is as a prudent economic policy all wrong. I suppose in the next Budget we shall have the Treasury still not recognising, as it apparently has not yet recognised, that it has lost the power of controlling or preventing inflation and that it has let that power get into the hands of the Ministry of Labour, and we shall see it trying a stronger dose of financial methods to neutralize the inflation set going by the Ministry of Labour and the Supply Services. We shall have the Treasury saying "You must give larger food subsidies to keep down the cost of living and we must increase the Purchase Tax to prevent consumption. That is a pill to cure earthquakes. The Treasury pill is useless to cure the Ministry of Labour's wage earthquake.
Do your Lordships realise that since last July, 1939, in rough figures—I think my figures are right—about 5,500,000 people have received wage and salary increases amounting to £1,000,000 a week? Why, I do not know. What is the ethical justification? Our soldiers, sailors, and airmen are not getting any increase of wages of that kind. These increases of purchasing power make still further demands on the reduced supply of necessaries and so increase the cost of living. Then, someone asks this question in the other House, is there a proper control on Government expenditure? Control upon what? Control upon fraud, so that a manufacturer may not charge for something he has not delivered? I agree that should be done.
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Control upon prices? What does that control mean? Prices which are controlled are prices based on the cost of production, and the cost of production is, to the extent of 80 per cent. at least, the cost of labour. What are you controlling? It is an empty phrase. You are powerless when 80 per cent. of your productive cost goes up without your taking steps to keep it from rising.
During the Great War we were told, "You must not touch wages." We saw the result. The Labour Party were horrified when we said we must keep an eye on inflation of wages. I do not suppose the noble Lord, Lord Arnold, would have dared to say in the House of Commons what he has just said: that wages must be controlled. We who were manufacturers said then that the high wages were going to paralyse us in making dear goods because we could not sell them abroad. The wages also put up the prices at home against everyone, poor or rich. I say now, "You must not touch wages," but I say it in a different way. I say it to these 5,500,000 people who are getting a million pounds more a week in wages and salaries. I say to them, "You must not touch the wages of your brothers, who earn wages and salaries. You are injuring them by putting up the cost of everything they need to buy. You are taking unfair advantage of the 10,000,000 or 15,000,000 other other workers. You must not touch their wages by reducing the value of them."
To sum up, this is the thought I venture to lay before your Lordships' House and before the noble and learned Viscount on the Woolsack. Although he did not use the word "inflation," I am certain he had it in mind. I trust he will give some thought to my point. That point is that the Government should recognise that the power of preventing or controlling inflation rests no longer in the hands of the Treasury. Inflation cannot be controlled by financial legislation such as this, because while the Treasury put on a tax designed to reduce consumption, to keep down prices, you have the Ministry of Labour and the Supply Services putting up the wage cost of labour and defeating everything the Treasury has tried to do by a financial curb or device. If we are to keep down inflation, with its savage taxation of the poor, because that is what it

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means, the Minister of Labour must review his wage policy. And he must ask the trade union leaders to prepare the way for him to put it into effect. I should not like Government or any employer or anyone who could be called a capitalist to take any hand in this matter of wages. Leave it to the trade union leaders. There must be a large number of very prudent men among them. If it be brought to their notice that the wage question is at the bottom of any rise in the cost of living of every one, and that it rests with them to save the country from this cancer of inflation, they will help to avoid the further rise in prices which injures the whole community.
5.27 p.m.
LORD BALFOUR OF BURLEIGH:My Lords, the noble and learned Viscount on the Woolsack will hardly be able to claim that the Finance Bill of which he has moved the Second Reading has had a very favourable reception in your Lordships' House. I do not think a single speaker has had very much to say in its favour. The particular point on which I wish to say a word is that which has been referred to by the two noble Lords who spoke last. I was rash enough in February of this year to put down a Motion on the subject of wages and prices because at that time the then Prime Minister had made a declaration to the effect that the policy of the Government was to avoid inflation. As it so happened, two days after I put that Motion on the Paper of your Lordships' House the then Chancellor of the Exchequer who now adorns the Woolsack made a speech in the same sense. We know it has been, from the start, the policy of that Government and of this Government to avoid inflation. The noble and learned Viscount on the Woolsack has had to listen to some very critical speeches to-day, and it is only fair that he should have the pleasure of answering them because, after all, he is, if not the father, at any rate the grandfather, of this Budget. The hereditary principle runs through the strain of Budgets we have had and there is no noticeable difference between father and son.
I want very much to ask the noble and learned Viscount this question. Last February, when we were discussing the rise in prices which had even then taken place, we had the advantage of the
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presence of Lord Stamp, and he assured us out of the wealth of his great experience that the rise in prices which had taken place up to that date could not rightly be regarded as an inflationary rise. He said it was caused by the increased costs due to war conditions and that it could not be regarded as being inflation. The question I wish to ask the noble and learned Viscount is whether he is perfectly satisfied that that can be said to-day. Is he perfectly satisfied that there is, as yet, no element of inflation in the rise in prices which has taken place? I shall be very glad indeed if he can help us on that point and if he can assure us that he feels that the Government's policy of avoiding inflation is still as hopeful of success as it was last February.
This question of inflation cannot be laboured too much. The noble Lord opposite, Lord Arnold, who put his figures in the most lucid way—I do not always agree with the noble Lord and it gives me very great pleasure to pay a tribute to the lucidity and force of his remarks to-day—said the only possible remedy was more taxation. I think there is another possibility and that is the establishment of some system of deferred pay on the lines indicated by Mr. Keynes. We have talked about that in this House and we have been told that no decision has been come to about it. One cannot help feeling that opposition to a policy of that kind may easily develop from the representatives of the trade unions. All I want to say about that is that if that is so they will be making the greatest possible mistake. Inflation, as the noble Lord pointed out, bears most hardly on the poorest members of the community and particularly on the wage-earning class. Inflation is from their point of view much the worst way of paying for the war, and, from that point of view, if the Labour leaders could be brought to give real consideration to the matter I cannot myself escape the conviction that they would find that in the long run some system of deferred pay, or some system of making a portion of present wages only realisable at a discount, is not only a way of cutting down spending power and so avoiding inflation but also of really serving the best interests of the working class.
It is impossible to escape the feeling that in this Budget and in its predecessor lie the seeds of very great financial

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danger. Sufficient evidence of it even without the debate in your Lordships' House would be found in the universal articles which have appeared in the financial Press. The matter is of the highest possible urgency because we all know that this war is going to be financed somehow to victory, and our concern is that it shall be financed in the way which will cause the least damage to our economic structure. Public apprehension is so great on this subject that I venture to hope that the noble and learned Viscount will be able to give us some reassurance. I can assure him that there is, as he must know, real public apprehension on the subject, and if he can say anything to reassure us nothing will be more welcome.
5.32 p.m.
THE LORD CHANCELLOR: My Lords, the powers of your Lordships' House in matters of finance are constitutionally restricted, but that is a very different thing from saying that the debate which we have had to-day and the observations made by those who have spoken are not of great public value; and for my part, and I am sure I can say the same for the Chancellor of the Exchequer and the whole Government, I feel sincerely grateful that so much care and thought should have been given to the subjects which are suggested by the present Finance Bill. I say the subjects suggested by the present Finance Bill because I do not know if your Lordships would agree with my noble friend who has just spoken in his conclusion that this Finance Bill or its predecessor is a bad and ill-considered measure, and that that is proved by the undoubted fact that there is a great deal of criticism and anxiety expressed in financial and other quarters in regard to it. The anxiety arises from the fact that we are faced with a perfectly unparalleled burden of expenditure, and the anxiety is likely to continue to the end of the war. If I may make the bold assumption and imagine that His Majesty's Government was composed entirely of Archangels the anxiety would not be resolved, because the expenditure would still be there, and it is a matter of the very gravest consideration how it can be met.
Noble Lords have had the privilege of demanding that there should be different
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and better principles applied without very clearly explaining what these principles are. My noble friend Lord Arnold discoursed about the gap. I at least may be acquitted of any indolence or indifference on this subject, for from the very first day of the war it was the topic of many discussions in which I took part. If anybody cares to look back at the speech I made three weeks after the beginning of the war on the Emergency Budget, he will find that most of the propositions connected with inflation were very carefully and, I hope, correctly stated by myself. This matter, I agree, is very closely related, as has been said, to the subject of wages and profits. If I may be permitted a personal reference I may tell your Lordships that when I was Chancellor of the Exchequer, early in the war, I went to a special meeting of the Trade Union Congress and the Employers' Federation, and I made a speech in which I put the arguments as to the relation of wages and profits to the immediate problem of the gap. The real truth is this is a most difficult problem to deal with satisfactorily. All of us have our views as to what ought to be done, but do not let us fail to realise the fact that it is very difficult to see a cut-and-dried solution, and make the mistake of thinking that the Government have not devoted and are not devoting the utmost of their thought and mind to it.
Now about the gap. The noble Lord, Lord Arnold, presented his own estimate and mentioned a particular figure which he thought would be £800,000,000. The gap is at any rate the result of an operation of subtraction. On the one hand you have to take what you estimate to be the total war expenditure in the year, and on the other hand you have to set against that the resources which you think you can tap, whether by taxation, or whether by getting loans from genuine savings, and then what is left is a deficit. I must make it quite plain in order that there should be no misunderstanding hereafter—and what is worse than misunderstanding—that the Government accept no responsibility for the figure which the noble Lord mentioned or, for the matter of that, any other figure. And it is quite right we should refuse responsibility, because before you can arrive at a correct figure you must among other things put down a figure for our capital assets.

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You must put down a figure which represents what may be the expenditure on the realisation of those assets abroad, and there are very few things which a certain class of speculator would like to know better in Wall Street, as well as in other places, than what is the rate at which we hope to be able to dispose of those resources. It follows therefore that I must deal with this particular point without mentioning any particular figures.
I agree, if I may say so, with Lord Arnold, in thinking that there are other resources from which this great danger of an increasing gap may be met or may be mitigated. I do not think he and I really differ. I have always found his economic ratiocinations to be as perfect as can be, but he omitted them for simplicity and in order to make his case quite plain. If you find that your revenue is going to leave you with too large an amount to meet by genuine borrowing during the year that is a very serious situation, but there is a whole series of efforts which you must make. Most of them have been mentioned incidentally in the course of the debate. It would be a very useful contribution to a solution of the problem if there was no waste at all in expenditure. Great as is the effort that is being made, he would be a bold man who would say that he could not see in this vast expenditure, I hope not too many cases but certainly some cases where money is being spent which could be saved or reduced. All that goes to reduce the gap.
Then again, it is an enormously important matter that there should be a reduction of consumption. We have not rationed the supplies of various things at the present time in the country merely because we feared that otherwise we might later on go short. The process of rationing may be justified also, as regards motoring, for instance, as a definite means of trying to reduce the extent to which the civilian population is using its spending power. In the same way it may be necessary for us to face the realisation of assets to a greater extent than we have yet thought necessary. There are a great number of steps which might have to be taken. The noble Lord, Lord Arnold, and the noble Lord, Lord Mancroft, both of them—I would say with courage—referred to the fact that one of the things which would cause
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anxiety in connection with this problem would be an unrestricted rise in wages. That is undoubtedly true. If you look back to the last war, when in the end we had terrible inflation, there were really two causes, broadly speaking, which were operating. There was the rise in wages, which was very substantial, and there was also the very considerable rise in profits. The profit-maker contributed to inflation in the last war in addition to the rising rate of wages.
We have tried—you see traces of it in this present Finance Bill very clearly—in various ways to restrict the blow which the profit-maker might otherwise inflict upon our financial system by regulating profits in every way we can. There is a very much better system in regard to supply services than existed in the last war, beyond all question. There are some arguments that may be used against the 100 per cent. Excess Profits Tax, but there is at least this argument to be used in its favour, that a 100 per cent. tax is a very important element to prevent the unlimited use of surplus purchasing power by the profit-maker. That reflection was in mind when it was thought well to drop the proposal which would have limited the amount of dividends to be paid on the ordinary shares of a public company.
I think I should put the situation as I see it in this way. I avoid as far as I can the use of the word "inflation" because it is really one of those words which so easily fall into common speech. Although I am far from suggesting that in your Lordships' House it has not been used correctly, still I have heard it made to cover a multitude of fiscal inaccuracies. I should say that our object ought to be—and I am sure it is the object of the Government in this war—to avoid any serious reduction in real wages, that is to say, in the amount of essential things that money will buy. Sometimes we have been criticised because we have used public money to subsidise and therefore cheapen certain essential articles such as bread and milk. I do not apologise for that at all. I think it is a most valuable way of helping to avoid a reduction in real wages by keeping the amount that can be bought by actual wages, as far may be, steady. There are other arguments, but in connection with the special needs of the poorest of the population, particularly those with children, what I

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say we ought to do is to try to avoid any serious reduction of real wages—that is to say of the amount of essential goods which money wages will buy—and so avoid the cumulative rise of money wages. As I pointed out, the 100 per cent. Excess Profit Tax undoubtedly has the effect of curbing spending power that might otherwise arise in the case of the profit-maker.
I cannot answer as expressly as I would like to do the question put to me by my noble friend the noble Lord, Lord Balfour of Burleigh. I remember the earlier discussions very well and I have done my best to keep myself acquainted with this subject at close quarters ever since, but it is very difficult to say to what extent any actual inflation—using the word in its proper sense—has taken place. But of this I am confident that there would have been a far greater amount of inflation—palpable, undoubted, indisputable inflation—by this time if it had not been for the series of steps taken by the Government and the Treasury, sometimes in small ways and sometimes in great, to stop it if they can but to slow it in any event. If I may use a metaphor I would ask your Lordships to imagine a man in a boat above the falls of Niagara. He is some distance above them and the current is running down, but he is able to control, to a large extent, the course of his vessel. He will not be able to row upstream, but at least he can keep the boat in check and if necessary guide it where it is safe to go. But there does come a moment when that man will get so close to the falls and the stream will be moving so rapidly that he can no longer control the boat, and if he cannot control it disaster will occur. He will plunge over the falls.
We have before us the sad story of what happened twenty-five years ago and the effect it had on all sorts of people, most of all on poor people. All I can say is that we have had that spectacle and that experience in mind, and we have worked at it and studied it and endeavoured to take advantage from it—I will not say from the day the war started, but long before, because it has always been realised that if we got into war it would be essential to know how far we could put restrictions on what might otherwise lead to fearful disaster. I am well aware that what I have said falls far short of what some of your Lordships
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might desire, but I must not detain the House longer. My own thoughts and reflections on it are of a detailed character, and would take a long time to expound. But I make the claim with great confidence on behalf of the Government. It is quite true, as the noble Lord, Lord Mancroft, said, that this is not exclusively a Treasury matter. I think it is quite true that other Ministries besides the Treasury are involved—the Ministry of Labour and the Ministry of Supply. I make the reflection that while everybody in the War Cabinet is doing his duty the Chancellor of the Exchequer is not likely to get off scot free from public criticism, but, all the same, it does not follow that he is not doing his duty.
I must say a word in reply to the vigorous speech made by the noble Lord, Lord Strabolgi. He too expressed some measure of dissatisfaction, and quite naturally. He said that he would like to see a planned economy for total war, and he said that he did not detect in the actions of the Government anything which would show a war economic and fiscal policy. If I understood the noble Lord correctly—because he did not on this occasion, of course, have the time to make any very extended and detailed proposals—he takes the view that things would be much better if we gave way to his objection—I have taken down his words—"to profits of commerce and industry." I must not get into controversy with any of my Ministerial colleagues, but I would venture to make, most humbly, this observation. If it is desired to obtain a considerable revenue by means of the Finance Bill, Income Tax is not an unimportant source; but Income Tax, I would venture to observe, is paid on profits. While there may be a great deal to be said in theory for getting rid of the profits of commerce and industry, I cannot help thinking it would involve an extremely large reduction in the amount of Income Tax, and how much difficulty and confusion it would introduce in the middle of the war I think it is not altogether unimportant to consider.
But I certainly would not agree for a moment that the present Government have not taken steps of the kind to which my noble friend referred. I have before me declarations made by two members of the Government on August 7 last. Mr. Arthur Greenwood said:

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"…the Government do not intend to allow the limit of its prosecution of the war to be anything less than the whole of the resources of man-power, industrial capacity, finance and foreign assets at our disposal"
I need hardly remind your Lordships that Mr. Arthur Greenwood speaks with exceptional authority, because he is especially responsible for our economic policy. In the same debate Mr. Bevin, the Minister of Labour, gave examples to show that as far as labour is concerned there is planning, and that planning is working; indeed, one of the first acts of the present Government, and one which, I know, gave great satisfaction, was to pass a measure which would enable them to take control of the productive industry of the country.
These are very large conceptions, but it does not at all follow that they can be applied in detail and at short notice with all the precision and with all the beneficial results for which it is natural to wish. By all means let us plan our economy for total war, but in the meantime let us gather all the Income Tax that we can from the profits of commerce and industry. Let us at the same time prevent those profits becoming so large as to operate to increase the risk of inflation, and let us do so by taking not 60 per cent. but 100 per cent. when the limit has been reached. I am quite certain that whatever may be the course of the war—and there are bound to be ups and downs—there will not be, during such a time of struggle and strain as this, a completely satisfactory financial situation. We shall carry through, as our country has always carried through, although there has never been an occasion when there have not been many critics of the efforts that were made in the way of finance in the time of a great war. Much that has been said this afternoon contains, of course, suggestions of value, and I am sure that they will be closely studied; but I invite your Lordships now to pass this Bill and to make it part of the law of the land, realising that, whatever may be anyone's view of its shortcomings, it is a strenuous and indeed a formidable effort, greatly increasing the burdens thrown on the people, but none the less accepted by our countrymen as one of the contributions which, taken with many others, will eventually lead to victory.
On Question, Bill read 2ª; Committee negatived.
Then, Standing Order No. XXXIX having been suspended, in pursuance of the Resolution of August 15, Bill read 3ª, and passed.

ISLE OF MAN (CUSTOMS) BILL.
Order of the Day for the Second Reading read.
5.57 p.m.
THE LORD CHANCELLOR: My Lords, I move the Second Reading of this Bill. Your Lordships are very familiar with the necessity for this measure, in order that we may keep the Customs and Excise revenue on the Isle of Man in step with our own. I do not think that you will require me to explain the terms of the Bill. I beg to move.
Moved, That the Bill be now read 2ª.—(The Lord Chancellor.)
On Question, Bill read 2ª; Committee negatived.
Then, Standing Order XXXIX having been suspended, in pursuance of the Resolution of August 15, Bill read 3ª, and passed.

HOME-GROWN OATS (STANDARD PRICE) ORDER, 1940.
5.58 p.m.
THE JOINT PARLIAMENTARY SECRETARY OF THE MINISTRY OF AGRICULTURE AND FISHERIES (LORD MOYNE): My Lords, the purpose of this Order is to raise the standard price of oats for the current season from the 9s. which was fixed last February to 11s. 6d. The standard price is the basis from which the deficiency payment can be fixed. Hitherto the deficiency payment has not come into force because the standard price has been below the average market price, but, in view of the rising costs of farming and the new level of wages, His Majesty's Government feel that this guarantee of a higher standard price is necessary. I beg to move.
Moved, That the Special Order, as reported from the Special Orders Committee yesterday, be approved.—(Lord Moyne.)
On Question, Motion agreed to.

GERMAN INTERNEE (NORMAN MALTZAHN).
5.59 p.m.
LORD CLWYD LORD CLWYD
had given Notice of the following question: To ask His Majesty's Government whether they are aware that Norman Maltzahn, a Category C German internee of proved integrity and loyalty to this country, who was interned on 25th June last and released on 13th July last by the Home Office for work in the Forestry Commission, is still being held in an internment camp in Canada, and whether an assurance can be given that his release will be implemented without delay and that he will be returned to this country for the service of the Forestry Commission as arranged.
The noble Lord said: My Lords, in putting the question standing in my name on the Paper, perhaps I may be allowed in one or two sentences to supplement the facts which are indicated in it. First of all, there is no doubt as to the loyalty and the integrity of the internee, Norman Maltzahn, who is mentioned in the question. His mother is British born, and was re-naturalised British on the death of her husband ten years ago. Norman Maltzahn, the internee, settled in this country many years ago, and has for some time been at work in the City. He was anxious to obtain work of national importance, and on June 15 last he approached the Forestry Commission for that purpose. As a result of the examination of his record, his services were accepted. The next date is June 24, when he was informed by the Forestry Commission that arrangements had been made in regard to the location of his work for the Commission, and that it was desirable for him to start work as soon as possible. He went to the Home Office on that day for the purpose of getting his papers through, but owing to the very large number of applicants there on that date he was unable to get this done, and on the morning of the next day, June 25, he was interned. After that there followed a series of occurrences in regard to which I have the fullest information here. I will not weary the House by referring to these details but I may summarise what happened afterwards.
First, every possible effort was made during the ensuing two or three weeks to secure his release; but owing to the confusion, probably inevitable, arising out of the adoption of a general order for the
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internment of all aliens in the country it was impossible to find out where he was. On July 13, however, a letter was written from the Home Office stating that they had requested the War Office to release this man, and naturally after the receipt of that communication it was anticipated that his release would be only a matter of a few days. Our next date is July 24. In reply to further inquiries made as to his whereabouts a statement was received from the Home Office on that date that his release could not be implemented as the internee was lost. As your Lordships will see, I have assumed in my question that he was deported overseas and that he is now in Canada. What I would like to have explained, if possible, is how it came about, in view of the communication from the Home Office dated July 13 that he was released, that he was sent to Canada—if my anticipation with regard to that is correct. The purpose of my question is to ascertain the facts as to where he now is, and to obtain if possible an assurance that he will be released with as little delay as possible in accordance with the statement on the date mentioned.
A week ago we had an opportunity in this House on a Motion moved by the noble Lord, Lord Newton, of debating this whole question of what took place as a result of the general order for the internment of aliens in this country, and there was, I think, general agreement as to the extent and seriousness of the problem which has arisen in connection with that decision. I fully recognise that we are at war and that it is impossible always to avoid mistakes of this kind. But I would like to press the point, which was put by a number of noble Lords a week ago in this House, that the time has come to deal more expeditiously with the large number of cases of men and women who have been unnecessarily interned through the general order to which I have referred. We are aware of all that has already been done by the Government to expedite the matter—the appointment of the two Committees, for example, and the addition of eight members to the staff of the Aliens Department of the Home Office. I value those decisions, but in view of the very great extent and seriousness of this problem there should be a fuller recognition of the advantage, or rather the necessity, of using further than we have done in the past the services of

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men of judgment and experience outside the public Departments, who I believe, if those services were made use of, would help materially to expedite the release of these many men who have every right to be free, and whose services would undoubtedly be of value to the State.
6.7 p.m.
LORD WARDINGTON: My Lords, may I ask the noble Duke if in giving his reply he could give your Lordships, who like myself often receive particulars about individual cases, some advice as to how we ought to deal with them. I have in my humble way tried to get some cases dealt with of persons who I was sure, as far as all my information went, did not deserve internment. I have applied to the Home Office and been received with the greatest courtesy; I have been referred to the Asquith Committee, and the Asquith Committee referred me back to the Home Office with equal courtesy; finally I was referred to a Committee I have not heard of before, whose functions and terms of reference I was ignorant about, a Committee presided over by Sir Percy Loraine. But we have all had many appeals from what we believe to be deserving cases, which in the interest of justice ought to be met, and I do not know what the machinery is, what wheels can be set in motion, to see that that injustice, if it can be proved to be injustice, is remedied.
I hope that the noble Duke can help me, and others of your Lordships who are in the same position as myself, in getting a move on, so that these cases can really be dealt with expeditiously. I have one case in mind, which depends on a speedy decision. The man has the highest credentials from all sorts of people in this country, and he has the offer of an educational appointment in America. He has all his papers and everything is in order, but he cannot get his case tried. Unless he is tried within the next week or two, he will lose this opportunity of taking up this appointment, and he is really suffering not only present disadvantage, but great disadvantage in the future.
6.11 p.m.
THE PARLIAMENTARY UNDERSECRETARY OF STATE FOR INDIA AND BURMA (THE DUKE OF DEVONSHIRE): My Lords, I am glad to be able to tell the noble Lord opposite that
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arrangements have been made for Mr. Maltzahn to return to this country as soon as possible and, on his return, for him to be released for employment with the Forestry Commission. It is very unfortunate that this man was sent to Canada at all. He was interned on June 25, and on July 1 the Forestry Commission applied for his release. On July 13—not an unduly long delay—the Home Office decided to release him, and so informed the Forestry Commission. Unfortunately, it was found that on July 3—the Home Office did not know about it, the military being responsible—he had been sent to Canada. That is a most unfortunate thing, but, as I have told the noble Lord, arrangements are being made for his return as soon as facilities are possible, and he will be released on his return.
LORD CLWYD: My Lords, may I, in a sentence, express my thanks to the noble Duke for his reply, and my very great satisfaction at the information he has given?
THE DUKE OF DEVONSHIRE: With regard to my noble friend behind me (Lord Wardington), as to what steps can be taken in the case he mentioned, the only advice I can give him is to apply to the responsible Department, which is the Home Office. He will realise that, in spite of the increased staff which has been taken on, delays are almost inevitable. My honourable friend the Undersecretary, with whom I deal, has somewhere over 100 letters a day dealing with this awkward question, and delays are, as I say, almost inevitable. That is the only advice I can give to my noble friend—to apply to the Home Office. It is very important he should not apply to me, because it has nothing to do with me at all.

CHANNEL ISLAND EVACUEES: INCOME TAX LIABILITY.
6.14 p.m.
LORD PORTSEA LORD PORTSEA rose to ask His Majesty's Government whether it is a fact that persons evacuated under war conditions from the Channel Islands are free from liability for British Income Tax on certain war and other investments and in spite of this that all persons evacuated from the Islands have been notified that

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Income Tax is due from the moment of landing in this country.
The noble Lord said: My Lords, while I do not propose to put the first question standing in my name, with reference to the bombing of Guernsey aerodrome, I would ask your Lordships to give me a few moments' attention on the point in my second question, although I am aware that it is a very unfortunate moment at which to ask for anything in the nature of a remission of taxation. But this is a case that deserves attention, and I have no hesitation in bringing it before you. I am not one of those who for a moment would deny that there are tax-dodgers everywhere; but if there are tax-dodgers, I maintain that it is the fault of this Government, and the Government should deal with them. The tax-dodger is not an islander. The islanders do not care for the tax-dodgers in their islands because they only increase the price of everything and disturb the financial position. But there is no question they exist. The fault, as I say, is the fault of the Government, and it is their fault in this way. After the last war the Government had to raise large sums of money, and they raised them in a multiplicity of loans. They characterised some of the loans so that no one who was not resident in the United Kingdom for three months in the year, or was not domiciled in England, should pay Income Tax in respect of them. That was done, of course, to attract huge sums from the Dominions and from the islands, from the States and from foreigners generally.
The islanders are poor. There are few rich islanders. They have, I believe, a certain quantity of this non-Income Tax paying loan. At the request, it appears, of the Government a certain number evacuated—and here I should like to say they are not refugees, for a refugee is a person who flies to a foreign country; these persons are evacuees or migrants from Guernsey in large numbers, and from Jersey in smaller numbers, at the request of the Government. On their arrival here they find they cannot draw the money they have in London banks because it is money coming from an enemy-occupied territory. They find that the interest on this loan of which I am speaking and other loans is to be cut at source from the moment of their arrival in England. This seems a breach of faith,
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and unfair. If these people have not even the money to buy themselves food, they must fall on the resources of this country, so that in every way it is a mistaken policy. It only requires a little generosity—I am sure it will get it—and investigation from my noble friend who is going to reply to find that this tax should be dealt with according to the promise made when the money was subscribed.
6.17 p.m.
THE LORD CHANCELLOR: My Lords, my noble friend Lord Portsea, who has already more than once engaged the interest and sympathy of your Lordships for the Channel islanders, raises a question now of a financial and taxation kind which I will do my best to answer as clearly as I can. The Income Tax is necessarily a complicated machine. It is altered in some way or other in every Finance Bill. There is nothing in the Income Tax which makes special provision for the Channel Islands. They come under general provisions which I shall briefly describe. The simple way to regard these questions is to keep in mind two propositions. The first is this. Income that arises from a source inside the United Kingdom, broadly speaking, pays Income Tax wherever the recipient, the owner of the income, is situated. As the noble Lord has indicated, there is an exception in this sense. If you take 3½per cent. War Loan, or if you take 3 per cent. War Loan which is redeemable in 1955–59, there are special provisions which exempt it from being subject to tax if the beneficial owner is a person who is not ordinarily a resident in this country. The second proposition which one has to remember is the familiar one that, of course, a resident in the United Kingdom—again, broadly speaking—is called upon to pay Income Tax on the whole of his income wherever the income comes from. There again, there is an exception which I had better just mention. If the individual is not domiciled here, has not his real home here, or if, again, he is a British subject but not ordinarily resident here, then he is not asked to pay on the whole of his income wherever it comes from, but only on so much of his income as is actually received in this country or remitted to him in this country.

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That is the scheme. It applies to everybody alike. There is nothing special about the Channel islanders which does not apply equally to persons in any part of the world. My noble friend will be glad to be assured that it follows that if his Channel Island friends have come here, and are not what can be described as ordinarily resident here, but on the contrary no doubt want to get back to their own homes as soon as circumstances permit—if that is the situation, then such persons would not be liable to have Income Tax deducted in respect of these Government loans which I have mentioned. As a matter of machinery and method it may be that something has to be done which delays the adjustment. It cannot be assumed in every case that that would be so, and it would be necessary to establish the facts. The bankers or other people who have the business of paying out of course have a duty, generally speaking, to stop the amount for Income Tax and to pay out only what is left. But I can assure my noble friend that in cases such as I have described (and I think those are the ones he has in mind), there is not any intention at all to depart from the general principle of the law, and that in cases where the individual is not ordinarily resident here but has come here temporarily he will enjoy the exemption which the law allows.
I know that some difficulty may have arisen in certain cases because, as a matter of machinery, it has all to be worked out and adjusted, but I hope very much that there will not be undue delay. I hope what I have said will give the noble Lord and those whose interests he so stoutly champions in this House, some relief and encouragement, and on the side of the authorities he may be assured that there will not be any unnecessary delay in adjusting doubtful cases.
LORD PORTSEA: My Lords, I tender my humble thanks to the noble and learned Viscount for his very clear and explicit statement.

AUXILIARY MILITARY PIONEER CORPS.
6.22 p.m.
LORD DAVIES: My Lords, I beg to ask the question standing in my name.
[The Question was as follows:
To ask His Majesty's Government if they can state whether any members of the Auxiliary Military Pioneer Corps are now interned in the Huyton Camp; whether these men served with the Corps in France and are subject to military law and discipline; whether they are still in uniform; and if they can state the reasons for their internment.]
THE DUKE OF DEVONSHIRE: My Lords, the answer to the first part of the noble Lord's question is that no member of the Auxiliary Military Pioneer Corps is or has been interned at Huyton or at any other camp; so the second, third, fourth and fifth parts of the question do not arise. I think what my noble friend has in mind is that eight persons describing themselves as members of this Corps were interned at Huyton. These individuals were among the refugees who arrived at Liverpool from France early in July. They were all of enemy nationality and were interned pending inquiries in spite of the fact that they were wearing British battle dress. It was found when inquiries were made that they had in fact been serving with the French Army as "Prestataires" or members of the French Foreign Labour Corps, and that they had acquired their British clothing by methods which remain obscure. Seven of these men have now been released and are serving with the Auxiliary Military Pioneer Corps. The eighth declined the opportunity which was given him to enlist and is still interned, but he is no longer wearing British uniform.
LORD DAVIES: Arising out of the answer, is the noble Duke aware that these "Prestataires" who were employed by our military authorities in France had signed a contract in regard to their services and that they were under the command of British officers? Is it not, therefore, extraordinary that when these men arrived in this country they were not handed over to the War Office authorities to be dealt with, instead of being placed in a civilian internment camp? Can the noble Duke give us an assurance that all the "Prestataires" who were employed by the British military

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authorities in France and came to this country will have their cases looked into and dealt with at the earliest opportunity?
THE DUKE OF DEVONSHIRE: I will certainly bring what the noble Lord has said to the attention of my right hon-
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ourable friend and his Department with a view to any cases that there are being looked into and investigated as soon as possible.
House adjourned at twenty-five minutes past six o'clock.