HL Deb 25 June 1940 vol 116 cc663-89

Order of the Day for the Second Reading read.

4.29 p.m.

THE LORD CHANCELLOR (VISCOUNT SIMON)

My Lords, I ask your Lordships to give a Second Reading to the Finance Bill, which has now come from another place for your approval. Those of your Lordships who have had occasion to examine the text of the Bill will have remarked that it is of quite exceptional scope and dimensions. It is divided into five Parts, to be followed by eight substantial Schedules; it includes more than sixty clauses and covers more than a hundred pages of print. Indeed, the effect of the Bill is not incommensurate with its external appearance, for under this Bill there will be raised by way of taxation in a single year the largest figure ever drawn from the taxpayer in the history of this country. Even so, it has always been contemplated that we might have a further Budget before the financial year was out, and the Chancellor of the Exchequer in another place has announced that that is his intention.

This Bill, apart altogether from the proposed Purchase Tax, which would require separate legislation and is not included, is estimated to produce in this present year by way of taxation £1,234,000,000. That is an enormous sum. If I may be permitted the quotation of a single sentence of my own—because this is the first time, I think, that the occupant of the Woolsack has ever had to commend to your Lordships' House that which is partly his own production—I said, and I say again, that there is no limit to what we are prepared to spend for victory, and for that purpose we must raise the maximum possible sum by taxation. Of course the rest must be borrowed. What my noble friend Lord Strabolgi said just now about the manifest determination and undiminished courage in the outlook of the British people was well and truly said, and in nothing are those qualities more obvious than in their willingness to face these financial burdens. The British people, my Lords, are prepared to shoulder all financial sacrifices, on two conditions. The first is that the sacrifices should be fairly shared, and the second is that, side by side with the raising of these immense sums of money, the most strenuous efforts should be made to avoid and to restrict waste.

I do not think your Lordships would wish me to take you through this immense document clause by clause and feature by feature, and perhaps I shall serve your Lordships' House best if, as briefly and as clearly as I can, I state the broad effect of the clauses in each Part of the Bill. Part I provides for greatly increased duties on beer, spirits, tobacco, matches and so forth. Your Lordships will be well aware that if it is desired to raise great sums of additional revenue by means of indirect taxation, you must put your tax on articles of widespread use and consumption. Fancy taxes appeal to many ingenious minds and I do not rule them out, but they will produce, comparatively speaking, very little money I think your Lordships will be glad to observe that in this first Part of the Bill, which imposes increased indirect taxation, there is no additional tax on any necessity of life. There is no tax which will raise in the smallest degree the calculation of the cost of living, and the total revenue which will be produced in a full year from the taxes imposed by Part I of this Bill amounts to no less than £472,000,000.

Part II deals with the direct taxes: Income Tax, Surtax and the like. It brings into force the full rate of Income Tax of 7s. 6d. in the pound as a standard rate, which was planned in the Emergency Budget. I may perhaps remind your Lordships that the Emergency Budget, which had to be very quickly produced in the month of September last, was deliberately so framed as not to be limited to the remaining months of the financial year. It appeared much better—and it was generally agreed that it would be much better—to announce then and there in advance what would be the greater height of the standard of Income Tax, and 7s. 6d. was then declared to be that figure. Let no one suppose—and I do not imagine there are many in your Lordships' House who do suppose—that that figure represents any light impost. When you add to it the present and increased scales of Surtax, the effect is that the standard rate of Income Tax together with the Surtax raises contributions on the higher slice of the largest income to the figure of 17s. in the pound. There is another provision in Part II: Surtax next year will begin at £1,500 a year instead of at the present figure of £2,000. As your Lordships know, Surtax, as it were, always operates a year late, and it is necessary to make that enactment now in order that when the finance of the next year is framed it will be possible to impose Surtax as upon the lower figure. Part II of this stupendous Bill provides, then, for direct taxation which in a full year will produce £760,000,000.

Now I come to Part III, which deals principally with the Excess Profits Tax. This is a very complicated subject, and those of your Lordships' House who are specially interested in it have no doubt already examined the clauses with attention. I call attention to only two matters about the Excess Profits Tax. First of all, it has been decided that that tax shall be charged on the excess, not at the rate of 60 per cent., but at the rate of 100 per cent. of the excess duly ascertained. That change has been made since the Budget was introduced, and, as your Lordships will appreciate, is closely connected with the new powers which Parliament has granted over both persons and property, which make it for many purposes reasonable and right to make that change. There is, however, a second feature of Part III dealing with Excess Profits Tax to which I must draw attention in a word or two. If you are going to have an Excess Profits Tax, and especially if it is going to be at so high a figure of charge as 100 per cent., it is above all important that the standard from which you measure should be carefully and justly arrived at. In the hasty proposals at the end of last year it was recognised, and indeed admitted, that the standard had not been sufficiently worked out. If, for example, your Lordships look at Clause 27 you will now see the provisions—manifestly just, which I am sure will commend themselves to every sensible man—by which, when the figure of past profits of a company or undertaking would not set out a reasonable standard, another figure, carefully arrived at, may be substituted for it as the standard from which to measure.

Part IV deals with the extremely complicated subject of Estate Duty. It is very complicated at all times, and is, I am afraid, getting more complicated every year. To a large extent the provisions in Part IV are aimed at preventing the evasion of duty in various ways. I might perhaps remind your Lordships that when Mr. Snowden was Chancellor of the Exchequer in 1930 he introduced into the Finance Bill of that year provisions for preventing evasion of Estate Duty through the medium of the creation of private companies. The resources of ingenious people in this matter seem to be almost endless, and I may say that I have spent a good deal of time and of hard work in endeavouring both to understand them and to counteract them. This year, however, it has seemed to us right to make a new and most strenuous effort for the purpose of tightening up those provisions, which did not in the end prove to be completely watertight, and the opportunity has been taken in Part IV of this Bill to deal with some other methods of evasion which have come to light. I am sure that your Lordships will agree that the present time is the very last time when evasion—artificial evasion or deliberate evasion—of what the taxation is meant to produce should be tolerated by any honest and patriotic citizen.

I will not delay the House by dealing with Part V, but I should like to make a single observation on the relation of taxation to borrowing in times like these. It is not always appreciated that, try as hard as you may, you cannot make by the method of increased taxation alone so rapid an increase of revenue as is needed when revenue is being spent at the perfectly unprecedented rate at which it has to be spent in time of war. Undoubte lly the best course is that we should pay as we go and pay by taxation, that we should raise by taxes on the people, justly spread, what is needed to be expended within the year. It is quite impossible, however, to rely simply upon that abstract proposition when expenditure rises rapidly to these unprecedented heights; because, in spite of the most tremendous efforts to increase the rate of tax and to find new taxes, the extent to which you will increase your resources within a twelvemonth by that means falls far short, and always must fall far short, of the sum total that you may have suddenly to spend.

I therefore commend these propositions to your Lordships' House. It is essential at such times to increase the tax yield by every means in our power, both by increasing rates of tax and by finding new sources of revenue; but that is in order that we may reduce the needs of borrowing to a smaller figure than would otherwise be possible, and I do claim that the course of finance which is being followed by the Government, with, I think, the general approval of the country, is having the result of making borrowing distinctly easier. It must be a great satisfaction to your Lordships' House, as it is to everybody outside it, that we have reduced the governing rate for loans of medium length to 3 per cent. We are maintaining it at that figure, for the new loan which was announced in the papers yesterday—the 2½ per cent. National War Bonds—which is being issued and offered without any limit of time, is a short-dated security—five years or seven years—and to get loans for that short period at the rate of 2½per cent. is on exactly the same general interest level as was established by very strenuous efforts before the 3 per cent. long-term loan was issued.

Lastly, I think that we must take satisfaction in the most remarkable success of the small savings movement. We are deeply indebted to Sir Robert Kindersley and to my noble friend Lord Mottistone, who are the chief leaders in that effort throughout the country. It is an astonishing thing that by means of offering these Savings Certificates, in which it is possible to invest only £375, and by offering these Defence Bonds, which it is not possible to hold for more than £1,000, since the month of November last £235,000,000 has been raised by those means alone. When we recall that Mr. Gladstone never in his life saw a year in which we were spending, all told, £100,000,000; when we recall that the Budget of Mr. Lloyd George, which caused so much perturbation in your Lordships' House, was a Budget to raise rather less than £200,000,000; and when we recall that before the war of 1914 we had not overtopped that figure, is it not an amazing fact that from this single source alone, owing to the zeal and courage of small people all over the country and with the aid of splendid organisation, we have already got £235,000,000, and that the week before last, which was known as Savings Week, no less than £20,000,000 was subscribed?

I therefore recall the observation of the Leader of the House just now, when he said that this country was thrown back upon its own resources. I would not say that this country is thrown back upon its own resources, but this country and the British Commonwealth overseas between us have to fight this matter out; and at this sombre time in this grim hour, with these heavy burdens to be shared and borne, I proclaim that the financial weapon, fearlessly used in this country, will prove one of the resources by means of which liberty may be defended and a reasonable life restored. I beg to move.

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

4.49 p.m.

LORD STRABOLGI

My noble friends have asked me to follow the usual practice of making a few remarks on the Budget. The Lord Chancellor is aware that although we cannot amend this monumental measure, we at least think it necessary to examine it. First of all, I should like to ask my noble and learned friend a question, and I apologise to him for not having given him previous notice of it. Perhaps he would prefer to make the answer at a subsequent stage. My noble and learned friend the Lord Chancellor skirted over Part V, but it contains a small clause which affects merchant seamen and others engaged at sea in warlike operations. That is Clause 64 which extends to the estates of merchant seamen the exemption from Death Duties in certain circumstances granted to the estates of officers of the Army and Navy killed on active service. The particular point about which I wish to ask—and I do not ask for an answer from the Lord Chancellor now—is whether within the ambit of this clause will come those yachtsmen and other amateur seafarers who came forward—and many of them were killed—to evacuate the Army from Dunkirk. They were enrolled for one week; some were not enrolled at all. They came up in answer to the call, with their small pleasure cruisers and yachts and so forth, and they did splendid work. Do they come within the ambit of Clause 64? Ordinarily everyone of your Lordships would say, "Of course," but then the Lord Chancellor knows his Treasury, and unless it is made absolutely clear, some bureaucrat will raise a question, and these man, whom I am sure your Lordships would wish to see treated on all fours with other seafarers, will not have the benefit of this exemption.

The noble and learned Viscount on the Woolsack said that it was a unique occasion for the same person to introduce a Budget in another place and also in your Lordships' House. That is not the only curious feature about this Budget introduced by my noble and learned friend. My noble and learned friend has introduced a Budget in your Lordships' House which on his own showing is already completely obsolete. In fact, the criticism made of this Budget in another place, and the criticism I would make here, is that it showed an utter failure by the late Government to appreciate the magnitude of our task in this war. That is the second curious feature of my noble and learned friend's speech to-day. But there is a third. My noble and learned friend is calling upon us to find this enormous sum in taxation—and the burden on the great estates of the country, which particularly affects members of your Lordships' House, will be crushing—to pay for a war which results (I am sorry to say what sounds a hard thing) from the honest and well-meaning mistakes of the same noble and learned Viscount, who was then Foreign Secretary, in 1932. In that year in which the savings bank lie of another of the noble and learned Viscount's colleagues, Lord Runciman, had destroyed Mr. Henderson, the Foreign Secretary, as a political force in the Labour Government, we saw the beginning of the destruction of the new system, the one great thing that came out of the last war—the new system of the League of Nations and collective security and a better means of settling disputes than by force of arms. The destruction of this great new system was begun by the Foreign Secretary of Great Britain, who now adorns the Woolsack in your Lordships' House.

LORD MANCROFT

I do not admit it.

LORD STRABOLGI

Of course, my noble friend does not admit it for a moment, but all over the world the failure to check the Japanese aggression in Manchuria is linked with the name of Simon.

LORD MANCROFT

Will the noble Lord allow me? On every possible occasion the Party with which the noble Lord is associated opposed the power of the Government in office to arm itself. They voted against Singapore, they talked about Imperialism, they put every spoke they could into the wheel of our effort to provide the necessary force to give effect to our policy.

LORD STRABOLGI

I have a complete alibi, because I was not in Parliament. I had gone down in the general débâcle, I had lost my safe seat owing to the savings bank lie. I am sure that the noble and learned Viscount on the Woolsack shares my pleasure—and the pleasure I am sure of all your Lordships—of seeing his colleague, with whom he could not see eye to eye, Mr. Stimson, once more as a Republican in high office in the United States of America. What a remarkable turn of the wheel of history—unfortunate history. It will never be forgotten that the Japanese delegate to Geneva congratulated the present Lord Chancellor of Great Britain on being a better advocate for the Japanese case than he could have been himself.

THE LORD CHANCELLOR

Will the noble Lord allow me? He never did anything of the kind.

LORD STRABOLGI

I accept that at once. He could have said it—put it that way. I am glad to know that the Japanese representative at Geneva did not say that, but it has been current and has been accepted as true all over the world. This is the first time that it has been denied.

Now for the future. We are all aware that all our resources are now going to be required, and that not only is this Budget completely out of date but a new system altogether of financing the national effort will be called for. We shall be lucky if we end up with an iron ration all round, soldiers and sailors and civilians alike, but with our country victorious as a champion of justice and freedom. My noble and learned friend on the Woolsack made some remark about financing the war effort by loan. May I make this observation? Since this Budget was drawn up by the Treasury and my noble and learned friend, it has been announced that the banks of this country are now controlled—and the Bank of England of course has been controlled in effect for a long time. Are we to continue to pay interest on the money, which we create ourselves, or rather allow the banks to create, on the national credit? In other words, are we to create a new national debt? I am not talking about the savings of the small people, which, I agree, have been magnificent. That is something quite different. But are we to continue to create a new national debt, on which we shall have to pay interest in the future, out of the use of our own credit, using the banks which are our servants as the channel, and paying interest to them for the privilege of doing it?

Some noble Lord may speak of the dangers of inflation. There is no real substance in this danger of inflation. My noble and learned friend knows better than anyone that the Treasury have a scientific method of preventing inflation. You do not need to inflate at all. What, after all, is the wealth of the country? It is the natural resources of our country, and, as the Lord Chancellor said just now, there is a great Empire behind us, exploited and developed by the labour, power and skill of our people. That is the real wealth of the country, and the only way we can carry on the war effort is by exploiting those great natural resources and that immense labour reserve and skill of our people. And actually victory at the end of this war, as at the end of the last war, will see us richer in the things that matter. We shall have a better cultivated land, we shall have a greater power of production, finer factories and machines, more skilled workers and, I hope, a more frugal and industrious spirit and less of the spirit of pleasure for pleasure's sake. We can come out of this war not only victorious, but also wealthier in the things that matter to a nation than when we began. I must explain to my noble friend on the Woolsack that when we speak from these Benches on the Budget year after year—my noble friend Lord Snell in his turn has done this—we always take the opportunity of expounding a little of the pure milk of Socialism, because that is what we are here for.

May I ask one further question? It is a war question, and it is a very serious one indeed. May I ask the Lord Chancellor particularly this? If he cares to reply now or later, it does not matter. Is the Treasury system of checks and counter-checks on expenditure now loosened? We all agree with what the noble and learned Viscount said about the necessity of preventing waste. None of us wants to see avoidable waste, but the habit for a generation of Treasury civil servants in always finding reasons, from the Treasury point of view, for not spending money at all in any direction if it could possibly be avoided, which was their duty in peace-time, can be very hampering to our war effort to-day. It leads to delay if nothing else. We are told that this Treasury control has been much loosened. I hope that is really so. In other words, can the problem be solved of preventing avoidable waste and extravagance without at the same time checking, hindering, and slowing up our war effort? It is a very difficult problem, and I am not putting this question at all, as in some of my earlier remarks, in any critical sense. I am putting this in a sympathetic way. Is this problem being solved? Because I suggest that on our success in solving it a very great deal of the war effort we are now making, and will have to make in ever-increasing volume, will depend.

5.2 p.m.

LORD GAINFORD

My Lords, we are fortunate in having on the Woolsack not only an eminent Lord Chancellor, but also one who is so conversant with finance as our late Chancellor of the Exchequer. We have listened to a speech on the Budget which is of very great interest, but it has been short. The reason it has been short no doubt is that your Lordships in 1910 thought it prudent to throw out the Budget of chat year and thereby lost the power by which this House could criticise freely and amend the Budget and Finance Bill of the country. We are in a position, however, of being able to ask questions, and there is one question I have risen to ask.

As I followed the Lord Chancellor's figures, he said this Finance Bill was raising £472,000,000 by indirect taxation in a full year and £760,000,000 by direct taxation—the two sums amounting to £1,232,000,000. But he informed us at the commencement of his speech that the total amount to be raised by this Finance Bill was £1,234,000,000. There is therefore only a difference of £2,000,000 between Part I and Part II and the sums to be raised. I wish to ask my noble and learned friend if he would tell us whether that £2,000,000 is going to be secured by the taxation in Part III, which raises to 100 per cent. the tax on excess profits, and the National Defence Contribution, and includes also the evasions which are to be met by Part IV. There are, of course, other miscellaneous provisions, but if he could inform us whether this £2,000,000 covers the whole of Part III and Part IV it would be useful to the country to know, because these figures as explained from the Woolsack do not seem to me quite to cover the position.

I could say a good deal in regard to Treasury control, having desired at one time to get a good deal of money for education, which was refused owing to Treasury control. I was also aware of great extravagance during the war of 1914–18 through Treasury control not being sufficiently exercised. To-day I realise that Treasury control is still of great importance, but I agree entirely with the noble Lord who has just resumed his seat that it must not cause delay of expenditure essential for the carrying on of the war on land, on sea, as well as in the air. In sitting down I desire to say that I realise the greatness of the contribution now being generously made by the taxpayer. He is finding enormous sums. He recognises how important it is that we should not borrow more than is necessary. At the same time he has paid willingly, and is doing his utmost to pay the money that is asked from him in taxation. I am quite sure every citizen is determined to-day to do his utmost to find the money to carry the war to a successful conclusion.

5.8 p.m.

LORD ARNOLD

My Lords, the limits of order in your Lordships' House permit a wide latitude in discussion. I could not help thinking, however, that some of the observations of my noble friend Lord Strabolgi were very remote from the Finance Bill. I should like to thank the noble and learned Viscount on the Woolsack for his extremely lucid exposition of the provisions of this Bill. It is true that the discussion of the Finance Bill in this House is generally more concerned with broad problems and considerations than with detail of individual taxes, and in the brief remarks I have to make I shall follow that usual custom. There is all the more reason that that should be done to-day because, as the noble and learned Viscount indicated—and other Peers have referred to this—we all know that this is an interim Budget and that another Budget will be introduced before long.

There are two or three matters upon which I should like to touch purely from the financial aspect, leaving aside other views and considerations. Looking at the financial situation as a whole, whereas there is much that gives cause for grave concern, there are, in fact, some features which legitimately permit of a more optimistic outlook. The Lord Chancellor touched upon the question of borrowing and the low rate of interest which has been achieved in that regard. That is very important. The National Debt is now about £9,000,000,000, and, as the noble and learned Viscount said, long-term loans have been borrowed at 3 per cent. and the short-term five-to-seven-year National War Bonds now being issued bear interest at only 2½ per cent. Actually the Government are borrowing at a much lower rate than that. This is, of course, because the Exchequer rates income at 7s. 6d. in the pound on all the newly created loans. That is often overlooked.

Indeed the position is slightly better than that, because account has also to be taken of Surtax on the individual holdings of war loans by people in the Surtax class. In fact, looking at the matter as a whole, it is probably no exaggeration to say that the Exchequer gets back Income Tax of 7s. 6d. and perhaps an average of a further 6d. in regard to Surtax, as I have explained, making a total of about 8s. in the pound. If that is so, and I think it is about right—it cannot be far wrong—that means that they are getting back two-fifths of the interest costs, and that means that these National War Bonds will not cost the country 2½ per cent. but will cost the country only 1½ per cent. That is a very low rate indeed—very much lower than anything which was achieved in the last war. On that basis you can borrow £1,000,000,000 for a net annual charge of £15,000,000 a year and you can borrow £5,000,000,000 for a net annual charge of £75,000,000 a year. When you are dealing with a Budget of £1,234,000,000 apart from war expenditure, there is nothing very affrighting about an additional charge of £75,000,000.

The next point on which I wish to touch, endeavouring to take, as far as it is permissible to do so, a more optimistic outlook than some people take in these days, is this. We are constantly told that the cost of the war is about £7,000,000 a day, and that that figure will soon be largely exceeded. It may be exceeded now—I dare say it is considerably —but it must be remembered that the figure of £7,000,000 a day or a higher figure is a total figure which includes the pre-war expenditure interest on Debt, Civil Services, Social Services and so on. These come to about £2,000,000 a day and are included in the figure which is so frequently quoted. Therefore the actual cost of the war itself is always about £2,000,000 less than the figure which is given. That is a point which it is worth bearing in mind.

Now I want to speak finally, and at rather greater length, about a vital problem which I do not think the Government have yet sufficiently faced, nor have the people of the country sufficiently faced it. It is that if the war is to be financed, it is absolutely necessary that the standard of life of all in the country, except the very poorest, should be reduced a good deal more than has yet been done. That is a hard doctrine, but I think I can prove it. The national income of the country last year was probably about £4,800,000,000. Now in this year, the current year of 1940, the income will be higher, though how much higher it is impossible to say. Prices are higher. On the other hand, overseas trade is reduced, and there are losses in various other directions. It is very difficult to say. A figure was given in another place suggesting that in this current year the total national income, including war debt interest, would be about £5,500,000,000. Let me take that figure. It may be too high or it may not be high enough, but I will take it. It seems not unreasonable taking into account all the circumstances. To this should be added a sum of let me say £300,000,000, which may be available to the Government during the current year from gold and from the sale of foreign securities. That is from, what I may call for short, capital assets. On this computation the total amount available for the country during the current year would be £5,800,000,000.

The next point to be considered is how much is spent by the people of the country in private consumption—that is, for their own living. It is very difficult to say. The figure must be, to a certain extent, a matter of guesswork, but it seems probable that in the last year the amount so spent was about £3,200,000,000. That is apart from indirect taxation, the balance being accounted for by the Government's national expenditure and by savings. In this year of 1940, with the restriction on consumption that has taken place, the amount to be spent by the people on private consumption might appear to be appreciably less than £3,200,000,000. On the other hand it has to be remembered that prices are generally higher than last year, also that many of the workers are receiving better wages. Taking everything into consideration, I think it is better to keep the figure of £3,200,000,000. If it is too high it will leave something in hand to set off against items on the other side which may not be perhaps sufficiently allowed for.

Now taking the figure for private consumption as £3,200,000,000—and that must come out of a total sum of £5,800,000,000 for national income and realised capital assets—in the current year there is left a balance of £2,600,000,000 for war expenditure, and no more. This Budget, which for this purpose we may take as war expenditure, though it really includes other items, contemplates an expenditure totalling £2,667,000,000, but everybody knows that that amount will be exceeded in the current year, perhaps largely exceeded. In the debates in another place the figure was put at £3,000,000,000 and £3,200,000,000 and one of the financial papers went so far as to say we ought to be spending £10,000,000 a day. If that were done the total expenditure would be £3,650,000,000. That is indeed going to a very high figure. How far the cost of the war may be lessened owing to the withdrawal of troops from the Continent, or, on the other hand, how far it may be added to in view of the prodigious efforts which Great Britain will now make, are matters for speculation, but I will assume—and I do not think it is unreasonable in all the circumstances having regard to the various factors at work—that the expenditure during this current year will amount to £3,000,000,000. It may well be more, but I will leave it at that.

I have already suggested that the total amount available of national income and assets is £5,800,000,000, and if the national expenditure on the war and so forth is £3,000,000,000, then there will only be available for private consumption £2,800,000,000. That is £400,000,000 less than the figure which I have suggested. If I am right, or anything like right, there is, so to speak, a deficiency of £400,000,000.

LORD STRABOLGI

May I ask a question? I am very interested in this. Will my noble friend deal with the point that I ventured to make? If we increase our production as we are doing, that automatically increases our income. We produce goods which we buy from ourselves, so to speak.

LORD ARNOLD

My reply to the noble Lord would be that I think I have allowed for that, because I have increased the national income from £4,800,000,000 to £5,500,000,000 this year. I think that is probably enough. That is the position as I see it. These are matters for argument I know, but I think my figures are not unreasonable. If I am right and there is a deficiency of £400,000,000, national consumption will have to be reduced in the current year or else you cannot make the accounts balance. You cannot take more out of a pint pot than is in it. If nothing more is going to be done than has been done to reduce private consumption it seems to me there are going to be very great difficulties in financing the war before we get to the end of the current financial year. That is the point I am putting. Without the reduction I have indicated, if the various figures I have given are anything like right, there will be a very difficult problem for the Chancellor of the Exchequer and the Government to face. There is one qualification which I think is rather important. There may be more, but I only mention this one. It may be, of course, that more than £300,000,000 could be realised on gold and sale of foreign securities. I have no doubt that in the last resort to some extent those resources could be drawn upon, but that would be at the expense of the future. If the war is going to be a long war, to assume that you will draw about £300,000,000 a year from those two sources I think not unreasonable and probably prudent.

These figures which I have been giving, or something like them, it seems to me go to the very heart of the financial problem. Yet when not very long ago someone suggested that the Income Tax payers getting from £5 to £12 a week would have to pay more—or words to that effect—I do not think I am exaggerating when I say that that statement was received with howls of protest. But of course it really represented the simple truth if you are going to reduce national consumption. I believe I am correct in saying that in Germany the tax on wages, which is really Income Tax, begins at a little over £1 a week. That is a very different state of things from Income Tax paying in this country. The need for those with less than £5 a week to reduce consumption, except the very poorest classes, becomes I think all the more evident in view of the figure which the noble and learned Viscount on the Woolsack gave in another place when he was Chancellor of the Exchequer. He said that two-thirds of the consumption of the country-is on account of those with less than £5 a week. I repeat that because it is so striking: two-thirds of the consumption of the country is on account of those with less than £5 a week.

It is quite true that the noble and learned Viscount, although he said that, could not substantiate it by any official figure because there is no official figure. I have several times commented in your Lordships' House on the lack of official figures in this country in regard to certain vital matters. I should be surprised if the noble and learned Viscount did not take them from an article by Mr. Keynes in the December number of the Economic Journal. I have the greatest respect for Mr. Keynes, but it does not necessarily follow that his figures are right. He is rather more an economist than a statistician. Probably, however, this figure is not very far wrong and it is a very arresting figure. Conversely it means this, that if it is right, or about right, those with incomes of more than £5 a week are only responsible for one-third of the consumption of the country. It must mean that.

Now let me go right to the other end of the scale, to the rich classes, or to those who are regarded as rich, the people in the Surtax class. I do not hold any brief for them, but it is a fact that if the whole of the income remaining to them after deduction of taxation was taken away from them—the whole lot of it, if I may use the common but expressive phrase of the day—the resultant sum would only finance the war for about ten days. That is all that would happen. It is no use looking to a source which in fact cannot do a great deal because it has been already reduced to such a small volume. As regards Income Tax payers in general, let me make this point. I hope that the noble and learned Viscount will make a note of it. There is nothing very new about it, but nothing has been done so far. It was to this source, very largely, that in the economic crisis Mr. Philip Snowden, then Chancellor of the Exchequer, went for a year or two in order to get through the very difficult times of those days. The point I want to put is that quite apart from any alteration in the standard rate of Income Tax—which probably will be raised and I think is almost certain to be raised—a very considerable sum of money can be got by an alteration in the abatements. I do not say in all of them, but there are a good many abatements—the personal allowance, the exemption limit, the married person's allowance, the children's allowance, the earned income allowance and so on. So many people are affected by those abatements that a great deal of money can be got in that way.

The necessity to reduce private consumption must, I submit, be more boldly faced, but I am not saying that all that is needed can be done by taxation. Taxation is one weapon and a very powerful weapon, but it is not the only weapon. In any case the question arises what are the limits to which the country can go in reducing consumption; that is, in reducing the standard of living. I will speak only of two limits. The standard of living should not be reduced below the point which would adversely affect the productivity of labour. I think we must all agree about that. If it is reduced below that, then what is necessary for the maintenance of the civilian population and for the conduct of the war might not be forthcoming. The other limit, to which personally I attach great importance, is that as regards one class of the community, numerically very large, the poorest class, there should be no reduction in the standard of living, because their circumstances are such that if you go below the level of subsistence on which they have to live you are doing an unwise thing, something which would have harmful effects on the workers and their efficiency and productivity and particularly on the next generation coming from them.

I think it is very regrettable, in view of the consideration I have just been advancing, that this Finance Bill makes sugar and tea—and for the poorest class tea is virtually a necessity—dearer to the; extent of nearly £20,000,000 than they were two years ago That is a very large sum, and of it no small proportion will be paid, and has to be paid, by the poorest section of the community. We all know that sugar is a vital food, especially for children; and to raise its price to the very poor may be expected, without exaggeration, to have harmful effects from the health point of view. We have been told again and again, and it has never been seriously disputed, that 40 per cent. of the population are not properly nourished. If that is so, to make sugar dear must adversely affect the efficiency and fitness of those people.

Moreover, I should like to put this point to the noble and learned Viscount; I am not putting these matters forward in any controversial spirit, but I should be very interested if he could say something about this. Sugar enters into the cost of living, and a high sugar tax therefore enters into the cost of living. Consequently it tends to increase some wages because of the rise in the index figure, and to affect the vicious spiral of higher prices. As I understand it, it was in the endeavour to stop that sort of thing from happening—prices following wages, and particularly the figure for the increase in the cost of living—that the noble Viscount introduced the policy of subsidising some foodstuffs. That may be a good thing in war-time, but it is a little difficult to reconcile the subsidising of some foodstuffs with the putting of high taxation on other foodstuffs. If we could have a little light on the seeming irreconcilability of those two policies, it would be of value. Taxation is not the only weapon for reducing consumption. It is a powerful weapon, but it ought not to be used to raise the cost of vital foodstuffs. All taxation should be equitable, economically sound and productive, and to make vital foodstuffs dear, especially for the very poor, is not economically sound.

5.34 p.m.

LORD MANCROFT

My Lords, I hope I may be forgiven if I detain you for a few minutes in dealing with two or three points—not more than three points—which have come to my mind One of the more important was raised by the noble Lord, Lord Strabolgi, and another by the noble Lord, Lord Arnold. I have followed the whole of this debate in the other House, and have read every word of the OFFICIAL REPORT, and the noble Viscount's speeches and those of the Chancellor of the Exchequer. I do not propose to deal with the Rill as a whole, as I am in support of it; but first with the point made by Lord Arnold that the cost of living of the poor should not be allowed to rise, I agree. One thing should be done to prevent that: it is a very moderate proposal. I am of the opinion that the general cost of distribution of the things required for the living of the poor is much too high and that it has never been properly investigated. I have made during the last few weeks, with the help of members of my family, investigations into the variations of prices of the things required for my table as sold in the West End of London. I have been amazed at the differences in prices of similar things. Your Lordships are aware that there are in Britain large stores like Whiteleys', and, going down from them, shops of every size to the small shop in the small street. There are altogether something in the neighbourhood of 600,000 shops, large and small. When you divide those shops up amongst 40,000,000 of population you get one shop, large or small, for every eighty persons. That is to say, if every family consists of five persons, you have a shop, large or small, for every sixteen families. Such numbers of shops are superfluous, and the cost of distribution must be, I think, made excessive by that superfluity of distributors. Therefore the first point I suggest to the noble and learned Viscount on the Woolsack is that some of our young men, perhaps from the Cambridge Economics School or the London School of Economics, should be set to work to find out whether there is not some flaw in the shop system by which we arrange our distribution.

My noble friend opposite, Lord Strabolgi, made use of the words "Treasury control." Treasury control has become a cliché; it has become rigid in meaning; it is taken to mean something, but we do not pause to think what it means in operation. Someone comes along and suddenly says "Treasury control," and we may remind ourselves of the children's story of the Emperor's clothes which everyone said were very fine, until the small boy came along and said that he had no clothes on at all. What is this Treasury control; who are the skilled controllers operating it? I do not find fault with the Treasury control; I do not blame it or deal with it in a hostile manner, but I think it has become rigid and formal, and that its machinery is out of date. We do not reflect enough on how it works. It is sometimes inadequate, that is certain, to stop waste; because we have seen two instances reported by the National Committee on Expenditure of the other House recently. It evidently failed entirely in the two quoted cases. Why it failed I do not know. It may have been hoodwinked; it probably was hoodwinked. I put no blame upon it. But what is this control system that did not stop the waste on the two quoted sets of operations? We should be more certain of the technical knowledge of the controllers which failed to detect the waste which actually occurred.

There is a well-known nursery story of a mother of children saying "James, go upstairs into the nursery, see what Mary is doing and tell her she musn't." That is not the way Treasury control should be run. It should be run by very competent men who know exactly upon what the money is to be spent and how and why it is to be spent. It should not only ask for regularisation of accounts so that when they come before the Public Accounts Committee it can see at once what they mean. The inner meaning of the whole expenditure must be looked into, because it is quite possible that, while you may prevent waste or excessive expenditure, or expenditure which is not within the intention of Parliament, in respect of something which should be spent control may have the effect of discouraging initiative and valuable experiment. The Treasury may even deflect policy by exercise of control. I am not criticising the Treasury control in an unfriendly spirit, because I have seen myself how it is worked; it is worked by devoted men doing their best. But I think the system perhaps of impersonal action ought to be reconsidered and reorganised to meet difficulties in war preparations which have been disclosed by the House of Commons Committee.

There is another thing I should like to say, and I hope that its reasoning will appeal to my noble and learned friend on the Woolsack. I have spent part of my life in a great provincial industrial city, so I have seen how much better off the poor and the lower middle classes have become—and thank God for it. I have taken part in the Kindersley lending scheme and seen how easy it has been to get people to subscribe. The noble and learned Viscount on the Woolsack congratulated himself and us—and we accept that congratulation because it is well founded—on the ease with which we have recently raised large sums of money. What is the reason? The reason, in my opinion, is this, and I hope the Lord Chancellor will bear me out. Let me give as an instance an argumentum adhominem, so that I can make myself clear. A manufacturer goes and borrows from his bank £5,000 and pays interest on it. In the course of a year or two that £5,000 enables him to put up more working sheds, he sells more goods, and in the long run, at the end of a few years, he has found that that £5,000 has created more earning assets for his business which earn for themselves enough to pay the whole interest on the sums borrowed. He has made profits and saved them, as represented in increased assets. In other words, he has "squeezed out the water," as they say in America.

I believe that the noble Lord, Lord Arnold, talks about the National Debt being £8,000,000,000 or £9,000,000,000; be it so. When we left our accounts in 1918 we had a debt of £7,000,000,000 or £8,000,000,000. But I firmly believe—and I hope the noble and learned Viscount on the Woolsack will be able to find it is correct, for it will give us reassurance, because in the strength of our finance lies one of the safeguards for our victory, and it is important that the increased soundness of our finances should be more widely known—that since 1918 we have made and saved out of our foreign trade and general trade at least £200,000,000 a year. That is to say, we have squeezed out water from the National Debt to the amount of £4,500,000,000, since the last war ended. We have by our savings in trade added to our earning assets, as did the manufacturer in the illustration which I gave. We have reduced the burden of debt of nearly £8,000,000,000 by adding saved assets amounting to £4,500,000,000. We are to-day better off by £4,500,000,000 than we were when the last war ended. The earnings on these savings are now coming into beneficial play. If that point is well founded, and I do not think that it has been made sufficiently often, I offer it to your Lordships in the hope that if brought to the attention of the taxpayer it will go far in reassuring public opinion and in preventing people from worrying too much about the fresh increase in the National Debt. Give us peace, and we can soon earn, save and pay off much of what we have borrowed for this war.

5.41 p.m.

THE LORD CHANCELLOR

My Lords, I may perhaps be permitted a few words of reply after this short but interesting debate. My noble friend Lord Gainford took down two figures which I mentioned when I moved the Second Reading, and noted an arithmetical coincidence which I had not noticed myself, but which, if you will excuse me for saying so, led him to a false conclusion. I happened to give two figures of what would be the yield in a full year of the direct taxation imposed by this Finance Bill and of the indirect taxation. As your Lordships know well, the amount which is raised in the first or current year from additional taxes is by no means the same as that which will be raised in a full year. Indirect taxes have to be imposed from the day when they are made, and that is not the beginning of the financial year. As regards direct taxes, it frequently happens that you do not get the full flow of the tax for, it may be, a twelvemonth. I therefore gave two figures, £760,000,000 and £472,000,000, as being two figures which would be found, according to my estimates, to be true when we had a full year of the existing taxation; and it does happen, as my noble friend acutely observed, that, added together, they come to £1,232,000,000. That is a coincidence, and has nothing in the world to do with the other proposition, that the total amount of revenue expected to be raised from this Finance Bill this year is £1,234,000,000.

There are other sources of taxation mentioned in the Finance Bill besides the two to which I referred; for instance, there is the Excess Profits Tax, which I did not include in my estimate at all, and there are other taxes. If you take the whole list together, and limit yourself to what these different taxes will produce this year, the estimated grand total will be £1,234,000,000; but it is nothing more than an arithmetical coincidence—an in- genious one, perhaps—that if you take two of the principal items and, instead of seeing what they will produce this year, ask what they will produce in a full year, you find that they will in a full year produce almost the same amount' as all the taxes put together will produce in this year. I am sure that my noble friend suspected that there was some such explanation, but it is very right that we should get our arithmetic correct on these occasions.

Then I must express my indebtedness to my noble friend Lord Arnold, who made, as he usually does, a very closely-reasoned speech. Some of his figures I hardly dare to say that I should like to look at myself, but I should like to invite the Chancellor of the Exchequer to look at them with attention. There are two points that he made on which I will just touch. He observed—and it is a very forceful observation—that since unquestionably it is necessary to get so large a part of the total that is raised by taxation from the prosperous working class and the lower middle class, because of their enormous numbers, therefore one method by which a considerable change could be made in the yield of Income Tax is an alteration in abatements—the abatements for marriage, for children, for earned income and so forth. I have no doubt that my noble friend has observed that very important changes of that kind were made in the Emergency Budget last September. If he will examine that Budget, he will find that they were made so as to begin to operate only in the present financial year; and in fact he was quite right when he said that this is a very fruitful source of additional revenue, for, if those changes had not been made, the yield of Income Tax this year, would not be by any means what it is hoped that it will be.

The other observation of his to which I would make a brief reference is his comment that it seemed to him inconsistent that at a time when we were raising revenue by indirect taxation on a number of articles, including sugar and tea, we should at the same time be finding very large sums by way of a subsidy for the purpose of cheapening other articles of primary consumption. I recognise that there is a certain logical force in that argument, but the noble Lord will of course appreciate that what is moving the authorities in reaching their decision is this. There are certain articles of food, such for example as bread, regarding which it is so enormously important that nothing should happen to alter the price that one would willingly forego a reputation for consistency if something could be done in that direction. One of the curious facts about bread, as your Lordships know, is that the actual amount of bread which is consumed is very little affected by the price of bread. In the case of most articles of food, if the price goes up the consumption goes down. That, however, is not so in the case of bread, and the explanation is, of course, that even the poorest household, when they find that things are getting, more expensive, tend more and more to use their slender resources at least to make sure that they obtain their provision of bread. On the other hand, if bread becomes exceptionally cheap, we never hear anyone say "Bread has gone down in price; let us go and have a burst on bread" The amount of bread which is consumed in the country is extraordinarily stable, and it is therefore most important to keep its price down even at the cost of a subsidy. Another example is that of milk. While I feel the force of the argument about tea and sugar, I can hardly think that there is any commodity in regard to which a Government would be better justified in using their resources for the purpose of keeping down the price than milk, which is so enormously important for infant and child welfare. I shall not this afternoon deal with the other matters mentioned by the noble Lord. I was deeply interested in some of them, and I shall have the opportunity of reflecting upon them. I have noted the points made by the noble Lord, Lord Mancroft.

Lastly, I want to say a word or two about the points raised by my noble friend Lord Strabolgi. He asked me first, as a matter of interpretation, whether in Clause 64 of the Finance Bill the reference to relieving from Death Duties the masters and members of crews of ships could be safely understood to include, for example, yachts which helped in the Dunkirk evacuation and small craft of that kind. I will give a perfectly confident answer if he will take it, and I feel pretty sure it will be accepted elsewhere. The word "ships" does not necessarily refer to vessels of any great size. The noble Lord should bear in mind that the yachts were only lending assistance in the crisis at Dunkirk for a few days. But the answer to him is that Clause 64 relieves people of Death Duties if they lose their lives in the service of the Crown. I know that there were cases where lives were sacrificed at Dunkirk, and I do not imagine that there will be any difficulty in applying the clause to the limited number of cases of yachtsmen, yacht masters and yacht crews who died in the evacuation operations.

There were two other observations made by the noble Lord to which I must refer. First of all, in his pleasant way he informed us that this Finance Bill was obsolete. I assume that the noble Lord like other people, is going to pay his taxes, and if he has that intention he will soon find out if it is obsolete. This is the instrument—and it is the only instrument—which is going to raise this enormous sum by taxation. What I think the noble Lord has in mind is a criticism of quite a different point—not, I venture to think, a well founded one, but quite a different criticism. The criticism is not that the Finance Bill is obsolete but that the calculations which were available as to what we might want to spend in the course of the year will need substantial revision. As a matter of fact I said they would myself, and I said that the thing that principally governed it was the man-power available, and the extent to which we should organise production. I must observe that the Finance Bill and the Budget are not instruments for the purpose of spending money—that is easy. They are instruments for the purpose of raising money, and though I am sure, as I have said, that we may expect another Finance Bill before the year is out, I do not think it will be found so singularly easy to multiply the amount that this Finance Bill produces by any very enormous figure. The real truth is that the greater expenditure becomes, the more it is necessary to raise all you can by taxation and, for the rest, to accept the burden of borrowing on which, it seems to me, noble Lords, Lord Arnold and Lord Mancroft, made some very admirable observations just now.

Lastly the noble Lord—and I take it with complete good humour—made a reference to the policy of His Majesty's Government in the Far East in the years 1931 and 1932. It was hardly necessary for him, after that, to explain to me that he makes a habit on these occasions of doing all he can for Socialist propaganda—that was entirely obvious.

LORD STRABOLGI

No, that referred to my economic argument.

THE LORD CHANCELLOR

I cannot deal with the matter now in a debate on the Finance Bill, but if the noble Lord will do me the kindness of reading a document which I shall have the pleasure of sending him, I am sure he will see that as a matter of fact I have not been treated very generously by my critics. This, however, is a very long way from the subject we are dealing with to-day, and I am certainly not going to pursue the matter. But when one considers how the British Navy was reduced in power, how the building of Singapore was not proceeded with, how year after year the Estimates for the Forces were voted against, how, when a proposal was made to increase our Air Force, a Vote of Censure was moved by the noble Lord's Party in another place, well, I say it with all humility and all respect, but I think it requires either a very short memory or a very thick skin to make such a criticism.

On Question, Bill read 2a: Committee negatived.