Lords Sitting of 16 June 1942

Preamble
The House met, The LORD CHANCELLOR on the Woolsack.

PENSIONS (MERCANTILE MARINE) BILL.
Order of the Day for the Second Reading read.
VISCOUNT CLIFDEN: My Lords, the Pensions (Navy, Army, Air Force and Mercantile Marine) Act, 1939, which was passed at the outset of the war, authorized the Minister of Pensions to make schemes applying the provisions of the Naval War Pensions Order—suitably modified where necessary—to officers and men of the Merchant Navy and fishing fleets and other seafaring persons associated with the Mercantile Marine, such as pilots and members of the light vessels services, whose death or disablement was directly attributable to war injuries-sustained or detention caused by reason of their service in British ships. These persons may be granted compensation at the rates applicable to the Royal Navy, with whom they are so closely associated. The Act also authorized the Board of Trade, whose duties in this respect now devolve upon the Minister of War Transport, to make a scheme for compensating mariners and other seafaring persons for the loss of or damage to their effects as the result of enemy action. That Act, however, limited the cases in which compensation is payable by the State to those where the death or disablement or the loss of effects arose directly from enemy attack on ships or resulted from injuries sustained in combating the enemy or repelling an imagined attack by the enemy. Injuries caused by normal risks continued to be dealt with through the same channels as in peacetime, such as the Workmen's Compensation Acts.
Although the provisions of the original Act covered most of the field and the Minister of Pensions has been able to grant compensation for the great majority of cases where mariners have been killed or injured from causes arising from the war, experience has shown that some of the special measures which have been taken to afford protection to our ships
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from the enemy have increased the risk of accident arising from what would normally be regarded as marine perils. For example, the sailing of ships in convoy affords protection from submarine attacks by the enemy, but there is an increased risk of collision when a large number of ships sail close to one another and have occasionally to make a sudden change of course. The absence of the usual navigational lights and the absence of those warnings of navigational dangers which were issued in peace-time have also increased the risk of accidents. The stress of enemy attack on our sea-borne supplies is another factor that may lead to accidents at sea. The Government accordingly proposes that, where a mariner is injured through a normal risk of seafaring life being substantially increased by war measures, compensation should be paid by the State in the same way as if the injury had been caused by direct enemy action.
The main purpose of this Bill, therefore, is, as I have said, to extend on these lines the circumstances in which compensation may be paid by the Minister of Pensions under the Mercantile Marine Scheme or by the Minister of War Transport under the Compensation Scheme for War Damage to Effects; and Clause 1 of the Bill gives the necessary power to do this. The injuries, whether leading to disablement or death, which are now brought within the scope of the 1939 Act are set out in subsection (2) of Clause 1 of the Bill. They are, as your Lordships will see, injuries occurring at sea, or in harbours and tidal waters, which are attributable to the matters set out in paragraphs (a), (b) and (c) of the subsection. For instance under paragraph (a) injuries resulting from the collision of ships in convoy are covered. Similarly, if one ship goes to the rescue of another ship which has been attacked by the enemy, an injury sustained in the course of rendering this help will be covered.
Paragraph (a) will also enable the State to provide compensation where a seaman is injured at sea as a result of a fall due to the absence of a light which a ship would have carried, but did not, owing to the necessity of concealment from the enemy. Under paragraph (b), compensation will be payable in cases where a ship is stranded, or runs ashore, owing to the discontinuance of buoys, or radio beacons, or the absence of the usual lights

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from lighthouses, or where she runs into a wreck of which a warning would normally have been given by wireless or otherwise. Paragraph (c) covers cases where a ship is sent to sea with a cargo loaded in a manner which would be abnormal in time of peace and which involves possible danger to the ship or crew. This may occasionally happen owing to the extreme urgency of getting a particular cargo to its destination, and the seamen on board will then be covered in the event of their sustaining any injury as a result. Subsection (2) should, however, be read with subsection (3) which explains the circumstances in which an injury or loss or damage is to be regarded as "attributable" to the matters mentioned in paragraphs (a), (b) and (c) of subsection (2). Without some such definition as is given in subsection (3) it is doubtful what the meaning of "attributable" in subsection (2) would be.
The Court might very well interpret "attributable" as meaning "proximately caused by." This construction would be undesirably narrow; and would involve the Minister in the difficult question of determining whether a particular cause was, or was not, the "proximate" cause. Thus, if a ship were to go aground in a fog, at a place where there would normally be a light from a lighthouse, but where there was not a light on the particular occasion because of the war, it would be necessary to consider whether the proximate cause of the stranding of the ship was the absence of the light or the fog. Moreover, apart from such difficulties, there would be cases where it would be clear that the loss of a ship could not be regarded as proximately caused by one of the war measures mentioned in subsection (2). For example, a ship might be diverted from one route to another, and on that other route she might encounter a peril leading to her loss which she would not have encountered on the original route. In such a case, the diversion would probably not be regarded as the proximate cause of the loss of the ship.
It is to avoid these difficulties, and to make the test an appropriate one, that the Government propose that the question in all these cases should be whether one of the measures mentioned in subsection (2) has, or has not, substantially increased the risk of the peril which caused the
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injury or loss or damage. If this risk has been substantially increased, then the injury will be regarded as attributable to that measure. Compared with the difficulty of deciding whether one event or another has caused a particular result, this test will be simple to apply. In the instance I have referred to of a ship stranding in a fog at a place where there is normally a light but that light is out because of the war, it will be comparatively easy to determine whether the risk of the stranding is, or is not, increased by the absence of the light. The question whether the risk has, or has not, been substantially increased will, so far as it arises in connexion with the payment of compensation under any scheme made under the Bill, fall to be determined by the Minister of Pensions or the Minister of War Transport, according to whether the claim is one for compensation for disablement or death or for loss of effects. I can assure your Lordships that both the Minister of Pensions and the Minister of War Transport will give all cases the most careful and sympathetic consideration.
In addition to defining the types of injury for which compensation could be paid by the State, the 1939 Act also defined the circumstances in which the mariner was to be engaged at the time of the injury in order to be eligible for its benefits. In short, he could not normally be covered unless he was engaged in seagoing service on a British ship at the time the injury was sustained. Since the date of the Act, however, various changes have occurred in the conditions of service in the Merchant Navy, one of which has been the establishment of the Merchant Navy Reserve Pool from which mariners are drafted to ships to form part of the crew or to relieve members of the regular crew while they are on leave. Under Clause 2 of the Bill men engaged in relief duty on a seagoing ship will be eligible for compensation under the Mercantile Marine Scheme, provided they are normally persons who go to sea as mariners. Secondly, in order to facilitate the manning of ships built in Canada and the United States of America for British account, and to secure that ships sailing from ports on the other side of the Atlantic are not delayed because they have not full crews, the Minister of War Transport has set up a Manning Pool there, so that seamen may be readily available to fill any vacancies which

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occur. Clause 2 will secure that every seaman who sustains an injury for which compensation may be paid, while he is at the Manning Pool, or at any other place, in accordance with arrangements approved by the Minister of War Transport, or who is going to, or returning from, the Manning Pool or any such place, shall be eligible for compensation under the same conditions as if he had sustained the injury whilst on board a ship.
Now, it may happen that the seaman in the Reserve Pool or a Manning Pool is asked to serve on a foreign ship which has been employed in the transport of essential war materials. Under such circumstances compensation can only be awarded in such a case if the terms of the charter bring the ship within the definition of a British ship as laid down in the 1939 Act. This is not the case on many foreign ships now running on behalf of the Government, but it is only fair that a British seaman serving on one of these vessels should receive compensation on the same terms and conditions as his colleague on a British vessel. This Bill will enable the Minister of Pensions to include British seamen on such foreign ships in his scheme of compensation.
Clause 2 also authorizes the Minister of War Transport to provide compensation for loss of, or damage to, effects suffered by mariners in the cases in which the Minister of Pensions can provide compensation for death or disablement. I have previously mentioned that the 1939 Act enabled the provisions of the Naval War Pensions Order to be applied not only to mariners but also to pilots. It was, however, never the intention that pilots whose duty did not require them to go to sea. Should be eligible for the special rates of compensation for war injury laid down for the Royal Navy. For those whose duties are confined to canals or inland waterways, the normal civilian provisions remain appropriate. The opportunity has been taken to make this distinction clear in Clause 3, and the circumstances in which a seagoing pilot, or apprentice pilot, will qualify for compensation under the Act have also been set out more clearly in order to remove all doubt as to the power to pay compensation in certain cases which were perhaps not clearly covered by the 1939 Act. For example, a pilot who has to remain on board a vessel
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after ceasing to pilot her will remain eligible for compensation as if he were still piloting her.
Clause 4 of the Bill relates to persons who are regularly employed in salvage operations in or from the British Islands. These are persons whose employment normally requires them to work afloat, and they are, when at sea, exposed to as great a danger of being bombed, or torpedoed, or mined, as any other seafaring person. In such circumstances, they are substantially in the same position as the crew of the ship which is taking them to sea. It is accordingly proposed to bring these salvage workers within the general scope of the compensation schemes authorized by the 1939 Act and by this Bill, in respect of injuries or loss of or damage to effects sustained at sea.
The Government decided that, when they had responsibility for providing compensation in respect of war injuries, relief should be given from liability to pay compensation under the Workman's Compensation Act for such injuries, and that there should also be relief from any legal liability to pay damages in respect of war injuries where the liability was based on negligence, nuisance or breach of duty. Section 3 of the Personal Injuries (Emergency Provisions) Act, 1939, gives this relief to shipowners in common with other employers. As it is now proposed that the State shall accept liability for additional types of injuries, it is considered that a measure of relief from liability should also be conferred in respect of these other types. Clause 6 of the Bill accordingly provides for the application of Section 3 of the Personal Injuries (Emergency Provisions) Act, 1939, to an injury which is covered by Clause 1 of the Bill, and is one which the Minister of Pensions certifies to have been sustained by such a person, say a mariner or a pilot, and in such a case—for example, while a mariner is in the service of his ship—that the Minister is authorized by the Bill to provide compensation in respect of it. It is felt that this will provide an appropriate measure of relief from liability in respect of the injuries which it is now proposed to bring within the sphere of State compensation.
The House will appreciate that the proposals now made are the result of the experience which we have gained since the commencement of the war, and that

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owing to the provisions of the 1939 Act there have been cases of the type referred to under Clause I of the Bill in which it has not been possible to grant compensation. It is proposed by the Bill, however, not only to accept such cases as may occur in the future, but also to review any past cases as from the date when the Bill becomes law. In conclusion, I may say that the proposals in the Bill are welcomed by all the interested parties, officers, seamen and owners, and I am confident that they will commend themselves to your Lordships, who, I feel sure, regard with appreciation and admiration the gallant services which the officers and men of the Mercantile Marine, on whom the very existence of this country depends, have rendered. I beg to move.
Moved, That the Bill be now read 2ª.—(Viscount Clifden.)
THE EARL OF CORK AND ORRERY: My Lords, I am sure there is no member of your Lordships' House who does not welcome this amending Bill, extending as it does benefits and rights of pension to officers and men of the Mercantile Marine, and having also the great merit of being retrospective. It remedies certain injustices under which these men have been suffering. That these gallant servants of the nation—for they are now servants of the State—should have any legitimate grounds of complaint as to their conditions of service, is, I am very sure, the last thing that your Lordships would desire. It is to remove a hardship suffered by a small and unhappy section of these men that I beg the Government to introduce an Amendment on the lines which I am about to mention, and I ask for it the support of your Lordships' House.
Before I proceed with my remarks, I should like to say I have no wish to make any attack on the Ministry of Pensions. I quite realize that they are carrying out the law and their duties, but very wide powers have been conferred upon the Minister under the scheme. If your Lordships will allow me I will begin by reading a letter dated June 3, a fortnight ago, in answer to a merchant seaman who applied for a pension on the ground that he was suffering under a disability which was attributable to war conditions, in that he had contracted tuberculosis. The letter reads as follows:
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"Sir,—I am directed by the Minister of Pensions to acknowledge receipt of your letter of the 28th May, and to state it is regretted to learn of your disability.
"From the details given in your letter it does not appear that the disability has been brought about by enemy action, but by war conditions only.
"I am to explain that the War Pensions and Detention Allowances (Mercantile Marine, &c.) Scheme, under Section 34 of the Pensions (Navy, Army, Air Force and Mercantile Marine) Act, I939, provides for the granting of compensation in respect of war injuries as defined in Section 10 of that Act, war injuries being physical injuries caused by the enemy or in repelling an imagined attack by the enemy.
"It will be appreciated therefore that to be admissible under the above scheme, an injury must be directly connected with the circumstances already mentioned. In your statement as quoted above, you attribute the disability to war conditions only. It is regretted therefore that it is not possible to consider your claim under the scheme administered by this Department, but I am to advise you to appeal to the owners of the vessel for their sympathetic consideration."
Your Lordships will note that it was not even possible to consider the claim because in the words of the letter I have just read, "it does not appear that the disability has been brought about by enemy action, but by war conditions only."
The authority cited was Section 10 of the principal Act of 1939, which is the very Act which this Bill is designed to amend and extend, particularly as regard physical injuries. Much therefore depends on what is the definition of "physical injury." The letter I have just read was in answer to a claim by a man who had served fifteen years at sea and is now thirty-one years of age. According to his own statement he has never had a day's illness in his life before breaking down under tuberculosis under war conditions at sea. He is now an inmate of King George's Sanatorium for Sailors which is maintained by the Seamen's Hospital Society. In accordance with its charter, that society receives into its wards seamen of every race, colour and creed who are in need of medical attention. The patients are maintained there not only until they are cured of their illness, but through convalescence until they are fit to go back to their ships and once again face the rigours of sea life. The society is therefore very greatly interested in the question of seamen or seamen's injuries and disabilities.
The original Act of 1939 authorized application of any Naval War Pensions Order

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"to manners in cases where their death or disablement is directly attributable to war injuries sustained by reason of their service in British ships."
Immediately on publication of the Act of 1939 the Seamen's Hospital Society asked the Ministry of Health to give a still clearer definition of physical injuries. The definition given by the Ministry of such an injury was
"anything which occurred at a definite point o£ time."
That practically, of course, rules out all medical cases, but certainly tuberculosis, and it is as regards the latter that I desire to speak. I am not trying to pose as an authority on this subject, and I should have much preferred that someone else should bring the matter before your Lordships. Therefore I must ask your Lordships to bear with me while I try to make my case. What I say is not of my own knowledge but is based on what has been imparted to me by my medical friends and colleagues who are on the staff of the Seamen's Hospital and are gentlemen of standing in their profession.
The principal fact in regard to the case I am trying to make is that it would be impossible with any certitude to say when tuberculosis does start. No definite point of time can possibly be given, for different individuals are differently affected. The disease may take weeks to declare itself or it may take months. A seaman sufferer might not realize for some time that he had contracted it and he would continue in employment until he either broke down completely or met some medical man who diagnosed what he was suffering from. In fact, the man would not be recognized as a tubercular patient until the disease was firmly established. It can be shown that the incidence of tuberculosis amongst seamen is greater than it is among the population as a whole. This applies both to the Royal Navy and to the Mercantile Marine. It is inherent in the conditions of modern life at sea. I will not weary your Lordships with statistics which go to prove the fact, but it is generally accepted by medical men who have to deal with, and are interested in, seamen.
As evidence I would quote to your Lordships an extract from a letter written in 1936 by the medical officer of health of that maritime and industrial port, Cardiff. Referring to the state of health
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of the people in that City for which he is responsible, Dr. J. G. Wilson said:
"No industry in Cardiff, other than seafaring, specially predisposes to tuberculosis."
It has also been stated in an official report that of the deaths occurring among men within twelve months of leaving seagoing employment twenty per cent. are due to tuberculosis. What, then, are the causes that predispose seamen to this disease? Briefly the principal causes are the confined atmosphere in which they live, the restricted living space, the lack of amenities and opportunities for enjoyment and exercise as compared with the population who live on shore. That applies to conditions of rest. As regards their working conditions, there are many things that are conducive to lowering resistance to infection. In the report of the International Labour Office on Occupation and Disease, 1934, volume 2, there are given many reasons why men at sea are specially prone to tuberculosis. The cumulative effect of these conditions is very considerably to weaken the ordinary man's powers of resistance to infection, and men are exposed to great risks owing to the always present possibility of having among their number a shipmate already suffering from the disease.
Those of your Lordships who are not directly interested in this question may be surprised to hear that a sea life is not a healthy one, at least in regard to this particular complaint. Under modern conditions many men spend the whole of their working hours below and thus derive no benefit from the sea breezes which might otherwise counteract undesirable tendencies. The greater percentage of tubercular cases among seamen is composed of firemen and stewards. Even if a seaman suspects that he has got the disease he is reluctant to report sick for several reasons, the principal of which are that he does not wish to throw extra work on his shipmates—there are no spare hands in a merchant ship—and he does not want to risk being considered a shirker. Moreover, there is the ever-present dread of losing his employment, the possibility of being left behind in a foreign port, and, in any case, having no money at all to send to his dependants.
To prove that men are backward in coming forward to report sick of this disease I must inflict a few figures on your

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Lordships. They are taken from a very interesting and important article which appears in the current number of the British Medical Journal and which is the subject of an article in The Times to-day. The article in the British Medical Journal was written by Dr. J. E. Wood, who for many years has been the medical superintendent of the King George Sanatorium to which I have already referred. Out of the last 300 British seamen admitted to that establishment who came almost directly from the sea 24 were in the earlier stages of the complaint and 275 were in the advanced stage. Of these last, 161 were in the very worst class, the B 3 class. That means that 54 per cent. of the total number admitted were in the very lowest class. Of these 161 in the lowest class, 51 died in the sanatorium and 69 made no improvement under treatment. These are terrible figures, and they go to show that there must be very many men serving afloat who are carriers of infection among their shipmates. So far I have only alluded to British seamen, but something like 20 per cent. of the men in British ships are Lascars who are particularly prone to this disease. There is no lack of T.B. carriers among sailors whether afloat or ashore. Under war conditions there are likely to be more rather than less, because more time is spent at sea and there are fewer opportunities of seeking medical advice or of weeding out potential carriers.
If your Lordships will accept these statements as indicating that men are exposed to a considerable risk of infection—and I can, in addition, show you that, under war conditions, men's powers of resistance to infection are still further weakened—then surely my case is made out for allowing tuberculosis to be considered as an "injury" directly attributable to potential enemy action, which thereby confers pensionable rights upon these afflicted sailors. And this is not very difficult to do. War conditions entail many passages being increased from 30 per cent. to 40 per cent. in length of time owing to the indirect routes that have to be taken, in many cases at reduced speeds in order to conform to that of a convoy. At night ships are darkened; every aperture is closed to prevent light showing outboard. The circulation of air is further curtailed by every opening possible between decks being kept closed to make
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the ship as watertight as possible. During a war almost anything which will make a ship more watertight has to be done. When taking the northern routes in winter—and this applies particularly since we have had to go to northern Russia—the hours of darkness may number nineteen to twenty out of the twenty-four. In these latitudes it is impossible for these men, when off duty, to rest on deck, for there are almost perpetual gales, and ventilation of the ship is out of the question. I believe that if the records of that northern passage were fully understood by the people of this country, they would see that these petty restrictions are set aside so that these men should be properly looked after and provided for by the country which employs them.
In the circumstances to which I have referred men have nowhere to go but to their mess places or bunks, which, in heavy weather, are almost as moist as the deck itself. This entails close companionship with all their shipmates in cramped quarters for many hours of the day, and in a very bad atmosphere where one tubercle carrier among them may affect many others. Turns of duty are far more exacting whether on deck or in the engine room, whether in convoy or proceeding alone, and above all there is the ever-present danger of enemy action to which there is no let-up. On or off duty men are equally exposed and under strain. All types of members of a ship's company, including engineers and stewards whose normal duties would not entail having to work on deck, may be called upon to act as guns' crews, and such people must necessarily be even more susceptible to exposure than the regular deck workers. The officers' responsibilities are tremendously increased. They have very heavy periods of duty and they are under this perpetual strain owing to this ever-present possibility of instant enemy action. Nobody can take it easily or turn in and sleep with a quiet mind. Everybody has got to be prepared for instant action, and consequently there is this constant feeling of strain with no let-up. This feeling may be subconscious but it is always there.
This continual strain, mental and physical, must reduce powers of resistance to infection. Is it not self-evident that every influence that tends to weaken resistance to infection in peace-time is magnified

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many times under war conditions? Surely these conditions are brought about by
"the taking of measures with a view to avoiding, preventing or hindering enemy action against ships, or as a precaution in anticipation of enemy action against ships"—
words you will find in paragraph (a) of Clause 1 (2). The "measures" have no other object but to hinder enemy action and are directly responsible for the bad conditions which are created.
I am aware that already, in another place, the Solicitor-General and the Minister of Pensions have undertaken that "tuberculosis is to be considered as a physical injury for purposes of pension if it is due to war injury or anything of that kind." That brings us back to where we started, to the question, what is meant by "injury"? and we get no farther. There is no advance on the original Act. It is the question of whether there is physical injury that makes the whole of the difficulties. I do beg the Government to introduce some Amendment to this Bill which will allow of pensions being paid to these unfortunate men who are suffering from tuberculosis. I understand that proper safeguards against exploitation of such a concession will have to be created, but these should not be difficult to devise. What I am asking is that merchant seamen becoming afflicted with this terrible disease from causes that can fairly be attributed to war conditions, should be eligible for pension as a statutory right and should always receive the benefit of any doubt that there may be.
Men are breaking down with tuberculosis (mite apart from any physical injury. Mention was made of Part II of the War Pension (Mercantile Marine) Scheme, which is the authority under which the Minister exercises his rights. Under Part II, one of the objects of the scheme is given as being to see that there is certain equality of treatment between seamen of the Royal Navy and men of the Mercantile Marine who suffer from this disease. Let us see how this works out in practice. In the sanatorium which I have already mentioned men of both Services are received. The Admiralty send their patients there officially. Of twenty-six Merchant Navy officers and seamen now there, seven are of foreign nationality, leaving nineteen British, of whom five are pre-war cases, and not eligible. Fourteen are left who have contracted
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this disease during the war. There are thirty-six ex-Royal Navy patients and of these thirty-one are in receipt of pensions; three have not yet applied and in two cases only has the application been refused owing to the short period served before breaking down. Of the fourteen merchant sailors who were eligible, ten have applied for pensions and have been refused on the ground of "no injury by enemy action." Three have not yet received any reply and one has not yet applied.
So, out of thirty-six naval claimants, thirty-one have pensions and out of the fourteen claimants from the Merchant Navy none have pensions. The doctor who supplied me with these figures has worked almost entirely with merchant seamen thoughout the three years of war, and he writes:
"I have not personally come across any merchant seaman who has obtained a pension for tuberculosis although no doubt there must be some."
I feel that the country as a whole, quite apart from any question of justice, would like to make a generous gesture of gratitude for their past services to these unhappy sailors, many of whom will never see the sea again. Their duty as merchant seamen was done behind the scenes—the achievements of merchant seamen do not get much of the limelight—but nevertheless it is upon their work and their duty that is founded the ability on the British Empire to carry on this war.
LORD MOYNE: My Lords, I think that we should all be grateful to the noble and gallant Earl for drawing our attention to a fly in the ointment in relation to the matter which we are considering to-day. The Bill certainly has a generous appearance, but it is necessarily legislation by reference, and by reference not only to other Acts but to an elaborate code of Regulations and Royal Warrants, and so forth with which most of us are not familiar. The noble and gallant Earl read a letter to a sufferer from tuberculosis in which it was suggested that he was ineligible for pension because his disability had been due not to enemy action but to war conditions. If the noble Earl had not been so definite about this case being ruled out, I should have thought that it was just the kind of case which would have been covered by the new provisions, because Clause 1 of this Bill,

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which mentions that physical injuries are now to be compensated, gives a very wide definition of what I should have thought would be regarded as war conditions—namely:
"the taking of measures with a view to avoiding, preventing or hindering enemy action against ships, or as a precaution in anticipation of enemy action against ships"
and so on. That would seem to cover almost all the normal risks to health incurred on naval service, and it is really astonishing to learn from the noble Earl that sufferers from tuberculosis are to be ruled out. Surely tuberculosis is a physical injury, and it must often be quite easy to prove that it does develop from exposure, bringing on, perhaps, pneumonia, which turns to tuberculosis.
The noble Earl told us of another limitation, and I do not know whether this applies to the present Bill or to the conditions which this Bill is designed to improve. He said that a case had been ruled out because the injury, to rank for compensation, must have been incurred at a particular point of time. That is a very difficult definition. It puzzled me, and I referred with some confidence to my noble friend, the former President of the Board of Education, Lord De La Warr, to know what it meant. He was able to give me the definition of a point, as that which has position but no magnitude. Is it a point of time when men are exposed for weeks in an open boat, suffering from frostbite and incurring permanent physical disability? Will they be given compensation, or will they be excluded from the improvements which we understood were to be granted by this Bill? If there is such a distinction, it seems to me to be one which is in no way based on equity. In the last war, we all remember that those who suffered in health from serving in the Armed Forces received pensions, even if their health did not break down at the time. We know the difficulty of deciding afterwards how far physical disabilities are due to war conditions, but the Ministry of Pensions kept these cases alive for years by a machinery for rectifying errors. There is no such difficulty now, and it ought to be quite easy to determine in most cases whether a man who develops tuberculosis has developed it as a result of his months or years at sea under the exacting conditions of warfare.
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The noble Viscount who introduced this Bill mentioned the provisions of the Workmen's Compensation Acts, and I understand that some of these cases will be covered by them. Do the Government in these cases pay compensation, or is it left to the shipowners? If the men who contract tuberculosis come under the Workmen's Compensation Acts, is the compensation which they receive, by whomsoever it is paid, as generous as that which they would receive under the Royal Warrant, or under whatever machinery will disburse money under this Act? I hope that the noble Viscount will be able to tell us that the provision is equally generous. That would, of course, satisfy the claim; no one would ask that they should get both compensation under the Workmen's Compensation Acts and also a Service pension; but the provision under the Workmen's Compensation Acts should be made as generous as the Service provision, if merchant seamen are to be thrown back upon that system. I hope that the noble Viscount will make representations to the Minister of Pensions that he should not stand on any arbitrary distinction of this kind, but that he should recognize that the men of the Merchant Navy are facing just the same perils as the men of the Armed Services of older standing, and have an equal claim on public generosity and an equal right to proper compensation.
LORD ADDISON: My Lords, I should like to support the plea of the noble Lord opposite, that the Government should give very sympathetic consideration to the case advanced by the noble and gallant Earl, Lord Cork and Orrery. It cannot be open to question that war conditions must diminish the resistance of men to tubercle, and must also be likely to encourage its spread. The noble and gallant Earl has presented a very strong case. We recognize the difficulties with which the Ministry of Pensions may be confronted, but these difficulties can be overcome, as was done during the last war. In Clause 7 of this Bill, power is taken to make the compensation retrospective. It is clearly equitable that cases should be treated as if they had been open to compensation had this Bill been law in 1939, and should be entitled to benefit as if the Bill had applied to them, if they come within the classes of case referred to. The intention to make the Bill retrospective on any other basis

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would not be just in its incidence; it ought to apply to all cases to which it would properly have been applied had these extended provisions been the law. I hope that the Government will consider very sympathetically the case put forward by the noble and gallant Earl.
LORD SOULBURY: My Lords, I shall not venture to detain your Lordships for more than a few moments, but the case made by the noble and gallant Earl appeals to me, as a former Minister of Pensions. He has drawn attention to what is an almost fantastic position; I cannot understand how it is that there should be any difference whatever between members of the Mercantile Marine and of the Royal Navy, based on the figures which he gave us. There is one point on which I should like to have an assurance from the noble Viscount who is to reply. It arises on Clause 1 (2). I should like to be sure that the words here cover all forms of sailing; in other words that there is no loophole, owing to the existence of which a man may sail the seas and incur the disability to which the noble and gallant Earl has referred, and then find that as a result of these words, he is not eligible for a pension. It seems to me just possible that the words as they stand at present might preclude a merchant seaman sailing in a convoy from being eligible for a pension if he incurred the disease, and I should like to be certain that these words are wide enough to cover every possible form of occupation in which a seaman may be engaged.
I am hoping also that in cases of this sort the utmost consideration will be given to the seaman, and if he incurs disease, even within a comparatively short time of his serving, he will get what has been referred to as the benefit of the doubt; because, as the noble and gallant Earl has pointed out, this disease can manifest itself in a very short time, and it is perfectly possible for a man, free of the disease before joining his ship, in certain circumstances to develop it a comparatively short time afterwards. I know that when I was Minister of Pensions we had in the public interest to be very careful indeed not to make eligible for pension a man who in all probability had incurred a pensionable disease before joining. The system then—and I have no doubt it would apply now—was that a man would be pensionable in a degree for an aggravation
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of a disease. I presume that is covered by this Bill. But in the case of tuberculosis itself I entirely agree with the noble and gallant Earl that it can manifest itself very quickly indeed, de novo as it were from the time when the infection presented itself—in this case in the early stages of serving in a ship. I would like to be absolutely sure in my own mind that service in the Mercantile Marine will render the seaman eligible for a pension in all circumstances, and that this particular clause covers every conceivable service afloat in which he may engage.
LORD MARCHWOOD: My Lords, I would like to congratulate the Government on this further effort to improve the position of the Mercantile Marine. Letters have reached me since the Bill was introduced showing great satisfaction on the part of seafarers and their relatives, and the amending legislation has given undoubted evidence that the whole definition of war injuries has been widened. But I would appeal to the Government to treat the matter with even more sympathetic consideration. The cost would not be great, and compared with what is being paid every day on war expenditure is infinitesimal. I ask the Minister if he can give us some idea of what the cost of this would be to the nation. The principle governing the award of pensions in my opinion should be that if a man has suffered any serious deterioration in health as a result of his service in the war he should be compensated. The distinction between injury to a leg and injury to a lung is an unwarrantable differentiation. Either consequence is serious to the individual and the disability will remain with him for the rest of his life. A man goes into the Merchant Service with two sound legs, and if he loses one of them he gets his pension; another man goes in with two sound lungs and if one is affected he may be told it is not a physical injury inflicted by the enemy and he finds his claim rejected. Such a position is absolutely untenable.
I cannot understand why a leg blown off by an enemy is more deserving of compensation than a lung ruined by exposure in the case of a man who possibly has been torpedoed, who is on a raft for many days and suffers great trials during that time and is permanently disabled. In my view, such injury is

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equally the consequence of service on behalf on the country and I would appeal to the Government to take a more generous and humane view of such circumstances. The victim of tuberculosis is deserving of even more sympathy than the sufferer from physical injury. The loss of a leg or an arm does not necessarily involve incapacity for work, but a sufferer from tuberculosis has a much smaller chance of being able to continue in industry. Medical science has produced artificial limbs which are at least in part substitutes for the natural limbs, but medical science cannot fit a man with new lungs or an artificial lung. That being so, I cannot see why the Government should differentiate between the two cases in awarding pension.
It is well known that men on board ship are compelled to live in conditions which shore workers do not have to undergo. They are therefore more liable to these respiratory diseases. The noble and gallant Earl, Lord Cork, has quoted a letter from the Minister of Pensions which defines war injuries as physical injuries caused by the enemy or in repelling an imagined attack by the enemy. The sailor who takes to an open boat in the rough sea after his ship has returned the fire of an enemy submarine and as a result of exposure contracts tuberculosis has surely done his part in repelling, not an imagined but an actual attack. It seems to me that the definitions are full of anomalies. If two sailors in the same boat get tuberculosis from exposure and one had a physical wound as well it would be a glaring injustice that one should be eligible for pension and the other ineligible. Yet that would appear to be the consequence of a strict interpretation of the definition. At the same time, reading the debates in another place, I see that the Government are exercising a certain amount of elasticity in interpreting these various injuries and it is for that reason that I welcome this Bill. But I do want the Government to go further.
I support whole-heartedly what the noble Viscount said when he moved, that some steps should be taken by the Government to support these poor fellows who contract tuberculosis. How is it possible for a man to decide or define when he contracted the disease? Sailors, do not like to give way to their feelings and sometimes
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do not even know that they are ill until they are struck down by this foul disease and can continue their work no longer. I asked at the beginning of my speech if the Government would let us know what the cost of this could be. Is it a matter of a great amount, which we cannot afford when we are pouring out so much money in this devastating war? Let us remember that without the help of these men we could not live in this country. Let us be generous to them. If the Government approach the matter in that way, I feel sure they will do what is right, and the men and their dependants will be ever grateful.
THE MINISTER OF WAR TRANSPORT (LORD LEATHERS): My Lords, the Minister of Pensions and I regard this Bill as a very important one, and I would like to express my appreciation of the manner in which the House has received it. The noble Viscount who introduced the Bill has covered all the salient points in the clauses and has left very little for me to refer to; but I think I should emphasize that the proposals which we now have before us are the result of the experience we have gained since the war began. That experience has shown that the Act of 1939 does not go far enough. It shows quite clearly that we cannot decline to recognize compensation in cases which, while not being directly the result of enemy action, are related to it in various ways. We have to take a number of measures to reduce the dangers of the enemy attacks on our shipping and it is those very measures that bring about added marine perils. It is really to cover all that kind of accident and injury that this Bill has been introduced.
Ships are called upon to sail in convoy, lighthouses and other navigational lights are extinguished, and broadcasts which in normal times would warn ships of special dangers are not now made. These measures in themselves result in increased collisions, strandings, and other perils, and the main purpose of the Bill is to bring within the Government scheme cases where disablement or death results from these increased risks. The officers and men must be covered in the Government scheme, not only when they are attached to British ships, but also when they are standing by the Manning Pools. They must also be covered, as has already been said, when they are serving on Allied and

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other foreign vessels, because in these cases we refer to ships carrying essential war materials. I should like, if I may, to refer to one point raised by the noble and gallant Earl, Lord Cork. As I made a note here, he said that when seamen are left behind sick, they have nothing by way of funds to send to their families. That is not now the case.
THE EARL OF CORK AND ORRERY: I was referring to ordinary conditions of service. I said that what would prevent men coming forward would be the fear of being left behind in a foreign port unless it is under war conditions. I believe the shipowners are responsible for a man left behind in a foreign port.
LORD LEATHERS: They really are responsible for his treatment in other than war-time while he remains sick in hospital abroad, but that has been rectified during war-time. His pay now continues for twelve weeks, and the allotments are paid to his family at home during those twelve weeks. I thought it as well to make that quite clear. As your Lordships have been informed, the proposals contained in this Bill have been discussed with the representatives of the officers and men and with the shipowners, and these proposals are welcomed by all. They will secure better treatment for the men of the Merchant Navy to whom we owe such a tremendous debt for the gallant and faithful service they have rendered since the outbreak of war, and which they are performing still under the increasing risks involved—additional almost every month—and I am very grateful to the House for the sympathetic way in which the measure has been received.
VISCOUNT CLIFDEN: My Lords, the letter which the noble and gallant Earl, Lord Cork, read seems to be one written with regard to the 1939 definition of "war injuries." If tuberculosis is the result of the matters mentioned in Clause 1 of this Bill, it will be covered. If it is not, and it is only due to "war conditions" in the general sense of the tern, it is not covered; but neither is any other civilian workman covered for tuberculosis arising in this way. There is no requirement that the tuberculosis must start at a point of time. I would emphasize that tuberculosis and any other disease will be pensionable if it can be shown to be the result of the matters
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mentioned in paragraphs (a), (b) and (c) in Clause 1.
THE EARL OF CORK AND ORRERY: Will that be put clearly in the Bill?
VISCOUNT CLIFDEN: It is already in the Bill.
THE EARL OF CORK AND ORRERY: Is tuberculosis mentioned?
VISCOUNT CLIFDEN: Not exactly; it is implied. To go further would mean it may be due to the general stress and strain of their life. That would be to do more for them than is done for other war workers. Many people are working under very hard conditions which may expose them to tuberculosis. The policy of the Government is to cover tuberculosis if it is due to the matters mentioned in Clause 1. A case arising from exposure on a raft, following an incident mentioned in Clause 1, would be covered. With regard to the question raised by Lord Moyne, the Government pay compensation where the injury is within Clause 1. It is within Clause 1 when it is the result of the matters there mentioned. When it is within Clause 1, workmen's compensation will not be paid. If it is not within Clause 1, then workmen's compensation will be paid if the case comes within that Act. The Government cannot cover a case because it is not covered by workmen's compensation. The latter is different both in kind and amount from Government compensation.
With regard to the point raised by Lord Addison, I would say that all injuries within Clause 1, whenever occurring after September 3, 1939, will be covered as from a current date. With regard to the point raised by Lord Soulbury, the circumstances mentioned in paragraphs (a), (b) and (c) are the result of the most careful consideration, and represent all cases which are regarded by the Government as meriting compensation because of their connexion with the war. With regard to the point raised by Lord March-wood, there is no differentiation between legs and lungs. Both are covered, if they are damaged, by the matters mentioned in Clause 1.
LORD MARCHWOOD: I should like to know if they are covered in the same way.
VISCOUNT CLIFDEN: Yes, I understand that they are covered in the same way.
LORD TEVIOT: Having listened carefully to the debate, it does not seem to me that the point raised by the noble and gallant Earl, Lord Cork, has really been met. I am wondering whether the Government cannot accept the Amendment which I believe the noble and gallant Earl has prepared for the purpose. Really it boils down to this, that every ship that goes to sea to-day is a warship. They are all armed, and every man on these ships is really a sailor in the same way as are our sailors in the Royal Navy. The noble Lord shakes his head, but in effect, in my view, that is so. I hope the noble Viscount (Lord Clifden) will be able to meet the point raised by the noble and gallant Earl.
LORD BALFOUR OF BURLEIGH: My Lords, are not these Committee points, and are we not getting away from the Second Reading?
On Question, Bill read 2ª, and committed to a Committee of the Whole House.

FINANCE BILL.
Order of the Day for the Second Reading read.
THE LORD CHANCELLOR (VISCOUNT SIMON): My Lords, I move the Second Reading of the Finance Bill. Our finance under conditions of war involves figures so gigantic as to be almost beyond human comprehension, but it may be useful briefly to observe the relation in which the main totals stand to one another. The outline of our national finance in the present year, as it seems to me, may be discerned by comparing the following figures. It is estimated that our total national expenditure this year will amount to £5,286,000,000, of which about £4,500,000,000 is war expenditure. This does not include the invaluable aid which we are receiving from the United States under the Lease-Lend arrangement which, as your Lordships know, is available to others of the United Nations also. The problem, therefore, before the Chancellor of the Exchequer, which he seeks to solve in part by this Finance Bill, is how to provide in the present year for £5,286,000,000 of expenditure.
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The Finance Bill, together with other tax enactments which do not require to be annually renewed, is expected to produce a total tax revenue of £2,361,000,000. It is the first time that our tax revenue in a single year has topped £2,000,000,000. Last year the tax revenue worked out at £1,962,000,000, I think. If we add to this proposed tax revenue certain non-tax revenue, including a very welcome contribution from the Canadian Government of £225,000,000, as to which I am sure that all your Lordships would wish our deep gratitude to be expressed, we reach a total revenue of £2,627,000,000, almost exactly 50 per cent. of the expenditure we have to face. Now that is a most remarkable achievement. It is an achievement which far exceeds the proportion raised from revenue in the last war, though the totals then were so much smaller. Perhaps—I do not know—these monstrous figures may become more easy to comprehend if the proportions are stated, not by reference to the whole year, but by reference to the average day, or, if you like, to the minute. So stated then, our total national expenditure is estimated at nearly £14,500,000 per day, of which tax revenue will produce over £6,000,000 a day, or, if we are to reckon by what Kipling calls each "unforgiving minute," then our national expenditure this year is at the rate of £10,000 a minute and more, of which the revenue provides nearly half.
So much for figures. The principles which govern our financial policy during the war were laid down at the beginning and they have been strictly applied ever since. The Chancellor of the Exchequer's Budget this year is the fifth Budget since the war began, because there was an emergency Budget, also immediately followed by another Budget in the spring of the next year, and we are now in a position to judge whether the principles to which I referred were not well-founded and are not justifying themselves by experience. What are those principles? I would briefly state them under four heads. First, there is this principle. In view of the fearful expense of the war, and of the adjustment which war imperatively demands between public and private expenditure, it is essential to impose the heaviest possible taxation. It is only by that means that a sufficient proportion of our war expenditure can be met out of revenue. But the process

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has a second and even more valuable result. This very heavy taxation is a method of severely restricting private spending and thereby of drastically curtailing and reducing the demand which private citizens might otherwise attempt to make on supplies which are necessarily restricted under war conditions and which are more than ever required by the Government for the purpose of carrying on the war.
High additional taxation, therefore, is the first line of defence which we have erected against the insidious assaults of inflation. When the tax gatherer has done his best, or his worst, amongst us all, we shall not have much left to spend on the things that we ought to do without. That is the first principle. The second, I think, is this. In spite of high taxation, even so, it is impossible that the whole expense of a war like this can be raised by taxation. Therefore it is essential to pursue a borrowing policy at a low rate of interest. I recall that when at the beginning of the war we aimed at a series of loans at a rate not exceeding 3 per cent., many people, remembering the very different experience of the last war, were somewhat incredulous. But it has been done. Up to the present, at any rate, the performance is better than the promise. Loans for a medium period raised by the Government are carrying interest at 2½ per cent., longer loans are being raised at 3 per cent., and thus, notwithstanding the enormous amounts that have to be raised, the annual charge is kept down to the great advantage of the country, not only during the war but in the years to come. And in further confirmation of the success of this policy, I would point to the comparatively small extent to which we have recourse to short-term borrowing from the market. The Chancellor of the Exchequer and the Government will persist in these endeavours, and the Treasury will do its utmost wherever possible even to improve our record in these respects. That then is the second principle.
And what is the third? The third is this. In order to make the fullest use of borrowing all that can be spared from the savings of citizens after they have paid their taxes, there was set on foot from the early days of the war the National Savings campaign, which has
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continued to produce week by week great sums. Adequate national loans are not to be raised merely by applying to financial institutions with money to lend. There is a mass of money to be saved and lent in the cause of victory which comes in small amounts week by week into the countless hands of the mass of the people. The Government's loan policy in this respect has followed the advice of Tennyson's Northern Farmer who, you would remember, advised that you should not marry for money but you should go where money is. The country owes its warmest thanks to the Savings Movement over which my noble friends Lord Kindersley and Lord Mottistone preside. Besides mentioning the chiefs, I would in your Lordships' name express our thanks to all those who give their help, to those immense organizations all over the country, men and women, children too, who by their energy and devotion and ingenuity are constantly finding fresh means to present this appeal in every area of the country. I would only add that there must be no slackening in this effort or in the appeal of personal economy. Especially in the field of saving still greater efforts are needed if we are to maintain our sound finance.
Lastly, on these four principles I would make this point. It is not enough for financial policy in time of war to be limited to purely financial considerations in the narrow sense—in the estimating of expenditure, in exploiting resources of revenue and in producing the national balance sheet. Financial policy should at all times be the partner of wider economic policy, and most of all is this the case under war conditions. Let me give an example. Food supplies, as we know, are controlled and rationed in order to distribute fairly the limited quantities which can be made available in view of the other claims on our shipping resources and other modes of supply. But the Exchequer has provided ever since the early days of war a very large amount of money in order that the machinery of food control can at the same time be used to subsidize the prices of essential foodstuffs. Milk, meat, bacon and other supplies have been by this means kept down below their actual cost; Exchequer subsidies for this purpose now amount to something not far short of £150,000,000 a year. That is what I mean by combining with our strict financial policies broader economic consideration.

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Who can doubt that such joint measures to avoid cause for anxiety on the part of wage-earners, either about their food supplies or about the level of the cost of living, are of inestimable value in preserving a healthy atmosphere for the great efforts which they are making in the great field of war production?
Such, my Lords, are some of the principles which underly our financial policy in this war and which help to explain the provisions of this Finance Bill. You will hardly wish me to expound the contents of the Bill, for it is so devised as to rouse and to stir the lively attention of everybody. You will remember perhaps the reply of the gallant rescuer of a Scotsman who fell into the water and was drowned. When he was asked by the Coroner—I think in Scotland they call him the Sheriff-Substitute—whether he did not do something to resuscitate the victim he replied with indignation, "Well, I searched his pockets." The Chancellor of the Exchequer has followed this wise principle. As your Lordships may have noted, my right honourable friend has decided to leave the Income Tax at the standard rate of 10s. in the pound. When Surtax is added the curve of effective charge mounts higher and higher until, when it reaches those rarified heights where the richer Surtax payers live and move and have their being, the Chancellor of the Exchequer takes from the topmost slice 19s. 6d. out of every pound. But those provisions are due to earlier Budgets, and it is not surprising that on the present occasion my right honourable friend has concentrated on those indirect taxes which fall on goods and services which, although in common demand and widely enjoyed, ought not to be regarded as necessaries of life—on beer and spirits, wine and tobacco. There are also increased duties on entertainments and on a wide range of luxury goods. Your Lordships will note also in the Bill the adjustments that have been made in regard to the taxing of farm profits, and married women's earnings, and also changes in the taxation of weekly wage-earners which have been made the subject of a White Paper.
If on the subject matter of the Bill any of your Lordships desire further information I will do my best to supply it in any reply at the end of the debate, if reply is needed. In reviewing the stupendous efforts which the country had made in the
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cause of liberty and victory, and in dedicating ourselves afresh to the greater efforts that still have to be made, we may, I think, fairly claim as a nation that whatever may be the burdens to be borne and the set-backs to be righted before the cause of the United Nations triumphs, the financial policy which we are following in this country is a potent contribution to ultimate success. That policy, so strenuously pursued by my right honourable friend the Chancellor of the Exchequer, is embodied in this bulky Bill which is now before your Lordships. It is no longer the fashion or the practice of Parliament for speeches to be embellished by classical quotations, but I would venture to say of this bulky Bill what Homer wrote of the bulky form of Achilles:
"There you lie, huge in your hugeness." With this measure before us, we can surely claim that our cause will not fail either from want of courage to impose taxation upon the people or from want of willingness on the part of the people stolidly, and even cheerfully, to bear the burdens put upon them. I beg to move that the Bill be read a second time.
Moved, That the Bill be now read 2ª.—(The Lord Chancellor.)
LORD ARNOLD: My Lords, I do not propose to detain your Lordships for more than a few minutes to-day. There are other speakers who wish to take part in the debate on the Finance Bill, and there is also other business upon the Paper. The Bill has been introduced by the noble and learned Viscount who sits on the Woolsack with one of those clear statements which we expect, and always receive, from him. As a matter of fact, so far as the Bill itself is concerned, I think he will agree that he has not had a very difficult task because its main features are so very simple. Indeed, so far as its main features are concerned, it is, I suppose, one of the simplest Budgets on record. A certain amount of additional revenue had to be got and it is practically to be got this time from indirect taxation—chiefly by means of an increase in the Beer Duty, an increase in the Spirits Duty, and an increase in the Tobacco Duty.
The Beer and Spirits Duties were increased by £63,000,000, bringing up the total in a full year from drink to

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£271,000,000. The Tobacco Duty was increased by about £90,000,000, bringing up the total in a full year to, I think, £304,000,000. That is a total from drink and tobacco taxation in a full year of £575,000,000. I think that probably the total expenditure—not in taxation but on the commodities themselves—by the public in a full year on drink and tobacco will now be £1,000,000,000, which is somewhere about one-seventh of the total national income. It is impossible to say what the total national income is—the White Paper published with the Budget gave it for last year only—but it is probably not far short of (and indeed some authorities put it higher than) £7,000,000,000. Incidentally, it is interesting to note that the tobacco duty alone of £304,000,000 in a full year is about three times as much as the whole national expenditure of the country some fifty years ago. That is a very remarkable result.
I am not going to discuss these taxes in detail. They have been accepted by the country and they conform to the sound principles of taxation. They are equitable and sound, and they are certainly productive. I propose to leave them there. But I do want to say that there appears to have been in some quarters an idea that, because the Chancellor of the Exchequer went almost entirely to indirect taxation this year, the resources of direct taxation are exhausted. That is not so. The noble and learned Viscount who sits on the Woolsack made passing reference to Income Tax and to the figure of Income Tax. Now it may be—we do not know—that Income Tax, at 10s. in the pound, has reached the limit so far as the standard rate is concerned. Time alone will show. But there is a big reserve in the allowances which are made to all taxpayers, and which could be, and, I expect, as time goes on, will be, tapped. For instance, last year the personal allowance was cut down from £100 a year to £80 a year and the exemption limit was reduced from £120 to £110 These two reductions together were responsible for bringing in a sum of about £75,000,000, and the change in the earned income allowance, taking a full year, brought in about £50,000,000. Paraphrasing what the noble and learned Viscount who sits on the Woolsack said, and adapting what is, to use a very overworked word, a slogan: "If you want money you must go where money is." Most of the taxable
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money now is in incomes below £500 a year. The total of those incomes is about £4,500,000,000. So that there is a lot of money there in possible reserve for further taxation by way, as I say, of allowances and so forth.
I do not hold any brief for the wealthy classes at all. So far as I am concerned, in my own small way, I wish to do all that I can for the small wage-earners. But it is only right to point out, as the Chancellor of the Exchequer pointed out, that when you come to the wealthier classes, to the Surtax classes, after they have paid Income Tax and Surtax there remains to them a sum of only £213,000,000 against, as I say, about £4,500,000,000 representing incomes below £500 a year. In fact, the Chancellor of the Exchequer went further and pointed out that if you allow what remains to them which is below £2,000 a year and take that which is over £2,000 a year less Income Tax and Surtax, there remains only a sum of about £30,000,000 a year. In present conditions you could not carry on the war for very long on that. The truth is that about 85 per cent. of all personal incomes now are below £500 a year, and that does reinforce what I have ventured to emphasize to your Lordships that there is a reservoir which by means of changed allowances can be, and no doubt, in due course, will be, tapped.
The noble and learned Viscount who sits on the Woolsack also referred to the National Debt which has increased during the war by about £5,700,000,000 and now stands at approximately £13,000,000,000. But, as the noble and learned Viscount said, the rate of increase in the debt charge is less, considerably less, than might have been expected before the war began, more particularly—and this is a point which he did not mention—if you take into account the fact that very nearly all the interest on War Debt of whatever kind, Income Tax, and to a certain extent Surtax, has to be deducted and comes back to the Exchequer. Indeed, it has been calculated that the net charge, taking that into account, is about 1 per cent. If that is right, then the increased charge for this £5,700,000,000 is not more than £57,000,000 a year. Moreover, all the interest comes back in one form or another to the people of the country. It is not taken from them by taxation and thrown into the sea; it does

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come back to the people of the country. The same thing applies almost entirely to our enormous national expenditure. Hence it is that some people are better off owing to the war, although some people are worse off. Those who arc better off are mainly the wage-earners.
That brings me to the question of wages, and to the question of possible inflation, on which the noble and learned Viscount touched. The continual rises in wages are a source of anxiety from the point of view of inflation. It has been claimed by the best authorities, including, I think, the Chancellor of the Exchequer himself, that there has been very little inflation so far, and I think that that is true. The Chancellor of the Exchequer has in various ways battled manfully to stop inflation; nevertheless, as he dramatically said in his speech, the enemy is still there. He has, as I say, done much, and the Government have done much, but there is one thing which they have not yet done: they have not yet evolved a real and effective wages policy. We have discussed this matter before, but this is a suitable opportunity for raising it again. I speak as one who wishes the wage-earners to have the highest wages possible, but the question is, what are the highest wages which are wisely possible? That is a point which has to be carefully borne in mind. We read in the Press of youths receiving £3 or £4 a week in munition works. That is often due, no doubt, to overtime, but soldiers do not get any extra pay for overtime, or for going abroad and facing incredible hardships and wounds and death. But, in view of the high wages which munition workers on the whole receive, it is not surprising that one industry after another should press for higher wages.
Last year the general over-all increase in wages rates was approximately 6 per cent., while the rise in the cost of living was 1 per cent. I am referring to the last financial year, from April to March. The cost of living, as we know, has been kept down in no small degree by the Government's policy of subsidies, subsidies which now amount to about £125,000,000 a year, and which have been very useful in keeping down the cost of living; but, with these demands from one industry after another for higher wages, we are
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getting nearer and nearer to what is called the vicious spiral of inflation. So far as wages are concerned, however, the Government seem to stand by and do little or nothing. If I am wrong there, the noble and learned Viscount will correct me. I speak only as one who looks on from the outside. I do not think that that is a good attitude for the Government to take.
I have a great respect for the Minister of Labour, Mr. Ernest Bevin, but I question whether he is the right man to be Minister of Labour. He is first and foremost a trade unionist, and it does not appear likely, on the probabilities, that he can very strenuously resist demands for higher wages. I think that the whole matter needs more systematic attention from the Government than it has yet received. The Chancellor of the Exchequer is quite alive to the danger, because in his Budget speech last year he said:
"It is clear that the persistence of the tendency towards rising wage rates, which necessarily increases the cost of production at every stage of the productive process, would compel abandonment of the stabilization policy."
I think that that is very true, but is it equally true that the Government are doing all that is possible to secure stabilization? I cannot feel that in this matter of wages they are doing all that is possible.
In the last war, Mr. Lloyd George did a great deal in various ways by his wonderful power of appeal. He appealed to the workers not once but many times in regard to various matters, and he got them to agree to a great many things. Has our present Prime Minister made any such public appeal with regard to this matter, or with regard to the possible dangers of inflation? I suggest that he might point out that rising wages can be too dearly bought, and that, if inflation should come, it is the wage-earners, the old-age pensioners and the poor who will probably suffer most of all, although all will suffer. The munition workers themselves, those who are now getting the high wages, will suffer. They will feel then that their policy has not been a wise one, and that they have been at any rate one of the causes of bringing hardship upon themselves and upon others.
When the demand is made that all workers must be relatively as well off as before the war, the reply should be that

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a not inconsiderable number of members of the community are not so well off as before the war—nothing like so well off—and that therefore it cannot be accepted as a principle that people must be as well off as before the war. That principle cannot be laid down. Mr. Oliver Lyttelton, I think, has stated that we are now spending, in one way and another, about 60 per cent. of the total national income on the war, and I think he said that we may regard 70 per cent. as probably the utmost limit which could possibly be reached. When we have that state of affairs, it is clearly impossible for everybody to live as they did before the war.
On this subject of inflation, the noble and learned Viscount on the Woolsack spoke some time ago of the danger of the boat being over the weir almost before it was realized that that was the position, or words to that effect. Well, I do not say he was taking a gloomy view; he was pointing out the danger. As far as I am concerned, I am not taking a gloomy view, I am merely pointing out the danger. So far, as I have indicated, the position has been largely held. True, there is a scarcity in certain articles, but scarcity is not inflation, and inflation is not scarcity. The two things are different. I repeat, the position is being largely held. The Government and their advisers know a great deal more than was known in the last war about inflation and about how to avoid it, and if we could have a definite wages policy the position could be faced with, I think, small perturbation. After all, in Germany the disastrous inflation which came after the last war need not have come; it could have been prevented. It really was almost a deliberate policy, under the pressure of the big industrialists and of Reparations.
Just one word in conclusion, and it follows on something which the noble and learned Viscount has said. He referred to the National Savings Committee, and I think there is a special responsibility in this matter which rests upon the Government and upon the National Savings Committee. We see advertisements from time to time stating that the capital is quite safe. A lady spoke to me about an investment she had made in some War Bonds. "Of course," she said, "the return is not high, but at any rate I know it is perfectly safe." Yes, so far as the
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pound is concerned, that is true. The question is, is it going to be absolutely safe so far as purchasing power is concerned? That is what matters. And that is the problem to which the Government ought to give their urgent and their constant attention.
LORD WARDINGTON: My Lords, I should like, if I may, to add a humble note of my own to the general chorus of congratulation which has greeted the Chancellor of the Exchequer. He has had a tremendous task. He has budgeted for a tax-derived income of about £2,400,000,00—more than a third of oar total estimated annual income; and he has done so with the approval and consent of all, in disregard of the old fundamental rule that taxes should only be imposed for the purpose of obtaining revenue, and not for social, political or any other object. Steps have been taken to control the purchasing power of the people and also to keep down prices, not only by taxation but by the control of prices, by rationing, by subsidies and other methods, and he has been successful in checking inflation, the danger of which the noble Lord, Lord Arnold, stressed with great logic. It is idle to suppose that that danger has disappeared. It still lies manifest and growling almost on the threshold, but we have the Chancellor's assurance that he is keeping his eye focused constantly upon it and he is prepared to take measures to check any menacing activities. That he has been largely successful in his efforts so far is shown by the figures which he himself has given. The cost-of-living index figure is only one per cent. more than it was the previous year: 29 per cent. over the pre-war level as against 28 per cent.
One of his chief difficulties, as far as I see it, is that 85 per cent. of the purchasing power of the people is in the hands of those, as Lord Arnold has already reminded your Lordships, with incomes of less than £500 a year—the very class you would like to spare if it were possible. The question is to what extent it can be possible in the future. Those in the higher category of Surtax-payers are still dealt with severely, not to say brutally, as many of your Lordships may be painfully aware. I doubt whether it is equally recognized by the public generally, but these so-called rich, after paying their rates and taxes and other inescapable commitments—now I am going

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to say something which will be regarded perhaps as a fantastic exaggeration, but which I believe is literally true—these so-called rich, after paying these liabilities from which they cannot escape, will not have a penny of free income left with which to buy a crust of bread. I think that should be starkly stated and frankly recognized. In acquiescing without a murmur in legislation which has brought this about, your Lordships have committed voluntary financial suicide.
I do not suppose that you want me to utter any protest on your behalf, but it is a fact, and I believe it is without precedent in the history of this country or in the history of any country in the world. It has been brought about not only by the high level of taxation itself, but also by the fact that it frequently happens that the tax on a high income of one year has to be paid out of a much smaller income in the year following, and those who have given up large incomes derived from business in order to serve the country in various ways are deserving of the greatest gratitude for their patriotic action in so doing. It cannot be charged against any of these gentlemen that they ought to put on one side sufficient out of the good years to pay the appropriate tax when it became due, for this reason among others, that the imposition of increased taxation is not known in advance, and without any prophetic powers that makes the difficulty of forming a domestic budget all the greater.
This incidence of postponed liability of Income Tax weighs heavily also on the shoulders of those with humbler incomes, and I could have wished that the Chancellor of the Exchequer had been able to see his way so to conduct matters that tax would have been deducted from wages at the time of receipt. We know he was sympathetic with that idea and looked into it carefully, but after due consideration he came to the conclusion that it was not practicable. It is sometimes argued that there is no need to waste sympathy on those with the highest gross incomes because they can still live on their capital. Those who have long advocated a capital tax now find their wishes to a large extent gratified, and one hears the comment, "I only wish I had half their complaint." But it is not always possible to live on capital. A man's capital may be in assets
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which are not easily realizable, and he cannot pay his taxes in kind; or they may be tied up in trust, where they cannot be touched. And in any case the process cannot go on indefinitely. I should like to ask the Lord Chancellor if he could give any figures showing the outstanding unpaid Surtax. My own guess would be that it would amount to a substantial figure. If that is so, I cannot help thinking there is something wrong with a tax which it is not always possible to pay, and which is incapable of complete collection.
In reading the Official Report of the debate on the Finance Bill in another place and statements which have been made in this House recently, also articles and letters in the Press, it would seem to be suggested in some quarters that the Chancellor of the Exchequer's great task was a matter of supererogation. I have been struck by the recrudescence of popular catchwords and phrases like "Money doesn't matter," "Cut out the financial foolery," "Costless creation of credit," and so on. People who believe in these facile cries fortify their belief by saying that banks can do all that is necessary, and create all that is required, merely by making entries in a book. It is true that they have had some confirmation for these statements from economists, even from the Reports of Committees, and one member quoted the Encyclopœdia Britannica—I have not verified the quotation—to this effect, that banks lend by creating credit, and create means of payment out of nothing. After making this quotation he went on to say that the money which a bank lends is not depositors' money, implying therefore it is money of the bank's own creation.
This idea arises from an exaggerated interpretation of the formula—at best only partly true—that every loan creates a deposit. It is only partly true because it is not true when the man who obtains the loan passes it on to someone who uses it to extinguish his own overdraft. It is not true when it is paid to a man who prefers—as many do prefer at the moment—to keep it in cash rather than entrust it to a bank. If banks did not enjoy the confidence of the public, no loan would ever create a deposit. A curious thing is that those people who are fondest of using this formula never miss any opportunity of trying to belittle the banks and to destroy public confidence in them.

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It is a wonder to me to see the amount of mystery which can be woven round a perfectly simple business. When a bank makes a loan it goes though exactly the same process as any one of your Lordships would do if he were kind enough to lend an impecunious friend £5. Nothing new is created. There is merely a transfer of purchasing power in the form of cash or cheque from one individual to another. It is exactly the same with a bank. A bank lends what it has got to somebody who wants it, and if a bank has not got it it cannot lend it. There is no creation of money for the purpose.
The analogy between the private lender and the banker is still more complete if the private lender, in order to oblige his friend, borrows the £5 from somebody else first, just as a bank borrows from its depositors. As long as private individuals or the banks can continue to borrow, they can continue to lend. I really am ashamed to trouble your Lordships with what must appear elementary in the extreme, but there is so much misconception over a perfectly simple matter, and so many false deductions have been drawn from it, that it is desirable to say something on the point. I crave your Lordships' forgiveness if I appear to give a very primitive lecture on some banking aspects, but they have a real bearing on the whole of our national finance. If people get the idea that banks do, and can, create money out of nothing, it raises false hopes that there is an easy solution for all financial troubles, whereas the truth is, according to my belief, that the restoration and continuance of our prosperity do not depend on any effortless method of that kind or on any purely monetary juggling.
To make a simple matter still plainer, I would ask any one of your Lordships to imagine you are going to become one of those much maligned and mysterious animals—a banker—setting up in banking business. The first thing you have to do is to provide the necessary capital with which to start. Having, I hope, successfully overcome that initial difficulty, you will apportion it more or less as follows. You will use part of it to purchase premises in which to conduct your business. You will retain a certain amount in cash for your daily requirements and, for the sake of simplification, let us suppose you invest the remainder in first-class Government securities. You then open your doors, and sit down and wait for a customer.
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Supposing the first customer wishes to open a current or deposit account with you, that is easy. You take his money, retain a certain proportion of it to meet all ordinary withdrawals, and invest or make loans with the remainder.
Here there is no difficulty; but supposing your first customer, instead of wishing to deposit money with you, wishes to borrow. What arc you to do? Remembering that all your resources are tied up in the way I have enumerated, it is no good offering him part of your premises; the cash you want for your own requirements; and he does not want your investments. What are you to do? "Nothing easier," says the theoretical amateur banker. "All you have to do is to create money out of nothing by the magical process of banking, and you can then lend to your heart's content and to the satisfaction of all your customers." What a delightful business! Why is not everybody in it? I am not a sufficiently competent authority on natural history to say which came first, the hen or the egg, but in banking matters I am quite certain that deposits must come before loans. The Chancellor of the Exchequer was abundantly right when he said, in answer to a question, that the money out of which banks lend is, broadly speaking, derived from the deposits of their customers, and there is no question of banks creating money for the purpose of lending to the Government. All I can say is if he was not right bankers have been wasting their time all these years, and no bank need ever have failed.
It has been truly said that an expert is one who succeeds in making the simple appear complicated. I would like to say just a further word on another cognate subject, which seems to worry a good many people, in connexion with the very large increase of deposits in the banks' hands on the one hand and the correspondingly swollen investments on the other. They seem to think there is something wrong and improper in the situation. It is quite true that deposits have increased very largely. In June, just before the war, they amounted to £2,218,000,000. At the end of last year, they had increased by £1,100,000,000, and stood at the figure of £3,329,000,000. That has all come about by the action of the Government in placing large contracts for the manufacture of war materials of all kinds. Money is paid

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out in payment of those contracts, the contractors pay it out to the suppliers of raw materials and in wages to their workmen, and they in turn pay it out to the butcher and baker, and through hundreds of channels it comes back eventually again to the banks. The more the Government borrow from the public the more the process continues. Open operations on the market by the Bank of England when they buy investments have the same result.
While the deposits have increased, as they did in the last war, so also, it is true, investments have increased. In June, 1939, the investments of the clearing banks stood at something over £600,000,000, and at the end of last year they had increased by nearly 2400,000,000, making £1,000,000,000 altogether, and all but a small proportion of these investments are in Government securities. But what is wrong or improper with that position? It surely cannot be contended that banks ought to keep all their depositors' money in cash instead of lending it to the Government for war purposes. It is true that it would be much better if the depositors who have money available instead of keeping it with the banks were to invest it direct with the Government, for this reason, that as long as the depositors keep the money in the banks it remains potential purchasing power under their control, and can be drawn out and used with inflationary results; but if they take it out to invest it themselves, instead of leaving the banks to invest it for them, then it is put out of harm's way from that point of view.
There was another misconception in the debate in another place which has a bearing on banking matters, and, if I am not wearying your Lordships, I should like to mention it. The speaker was addressing the House on the subject of Excess Profits Tax and the possible effects of that tax on reserves of industry and commerce in the country, and he tried to estimate what the amount of industrial reserves was. He took the £2,000,000,000 deposits in the hands of the banks, and, on the assumption that private individuals are not in the habit of having large credit balances, he argued that practically the whole of that £2,000,000,000 belonged to industry and represented its reserves. But what arc the facts? Various bank Chairmen have at different times announced what
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the average balance of their deposits was. They are very similar in the case of all banks. In the case of the bank with whose figures I am familiar, the average credit balance in 1939 was £220, the average deposit was £286. At the end of last year they had risen in both cases to £300. What does that mean? It means that instead of that huge sum of £2,000,000,000 belonging to industry, or to a comparatively few very rich concerns, it is divided up among so many millions of different individuals and companies that their average balance is only £300.
But he made another false deduction in his argument, because even if that £2,000,000,000 had belonged to industry, it would not necessarily have represented its reserves. A company may have a very large credit balance and yet be insolvent; and, equally a company may be very prosperous and entirely solvent and yet be overdrawn at its bank at any particular time. True reserves consist of course in the excess assets—the balance of assets over liabilities after allowing for capital—and they bear no relation at all to the state of a company's banking account. I would have liked to say a great deal more about the Excess Profits Tax, but I take it that is really a matter which, if it is raised, ought to be raised in Committee. I will conclude, therefore, as I began, by congratulating the Chancellor of the Exchequer on the skill with which he is extracting from the pockets of his more or less willing victim the immense sums which he has envisaged.
VISCOUNT BENNETT: My Lords, after the very illuminating speeches to which we have listened regarding the financial structure of the kingdom, I am sure it is with great reluctance that you listen to one who is proposing to say a few words regarding a grievance, this being, I believe, the appointed time and, with certain limitations, the appointed place, in which you can make reference to grievances. The grievance to which I refer is that which taxes the royalties of inventors as income. My attention has been directed to it by friends of mine who have been interested in inventions for a very long period of time. When you find the whole of the resultant royalty from the use of the invention being treated as income, it seems to me that a very great hardship is being done to the inventor, and, inasmuch as we are tremendously interested

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in encouraging inventions in every possible way, it would appear to me that this might be an appropriate time at which to direct attention to it.
In the ultimate analysis an invention is merely an idea in the mind of a man. Just what causes the idea or makes him think of creating something that has not been in existence before is another thing altogether. But he determines that he will make something in a concrete form that will give evidence of the idea that is in his mind. The idea is the creating of something to accomplish a given purpose. He therefore works at it, sometimes for years. He may be a man of very limited means. He may indeed work at it in his spare time, and usually he spends all the money that he has himself or that he can induce his friends to lend him. In the end he secures a patent for his invention. That is recognition by the State that he is entitled to a monopoly of the use of that invention for a period of years—I believe some sixteen years at present. In the first years he finds it difficult to interest the public and that involves the expenditure of money for advertising and other purposes. In the latter years his invention is steadily depreciating in value because it will become the property of the public at an early date. Therefore he has to secure by way of royalty a sum that will compensate him for all those years of effort and the capital he has put into the effort to secure the invention—the capital being the time and money expended. He may sell his patent, that is he may sell his property, because it has now become property. He may dispose of it for a good sum and invest that sum as he pleases. His capital has now become invested, say, in war bonds and he has to pay Income Tax on tire return he receives from his investment.
But it may be that he desires to retain the patent. He is always confronted with the likelihood of someone improving on the patent. It is a very strange circumstance of history that when a man has placed in concrete form an idea that was in his mind, then eight or ten other men will have the same idea about the same time. Some of the most important litigation in the Supreme Court of the United States has had to deal with that circumstance—notably the Bell telephone litigation. Suppose he does desire to retain his patent and to license those who desire to use it. He receives his rental, which is
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spoken of as royalty, and that royalty, as I am informed at the present time, is taxed as income in its entirety. His property is being exhausted, for it is a wasting asset, and at the end of sixteen years it will cease to be property as far as he is concerned. I suggest that there should be a very important allowance made on the amount on which he pays tax.
For instance, assuming his income is £1,200 a year from his patent by way of royalties, that would represent a capitalized value of £12,000 at 10 per cent., and 10 per cent. would not be regarded as an unreasonable amount to receive per annum for the use of the patent. But he does not receive that in the early days, and he is always subject to the possibility of someone making a new invention that will destroy or depreciate the value of his own patent. In any case it is a wasting asset, for at the end of sixteen years the monopoly has gone. What would be a reasonable way to expect that property to be treated? Should not the Government, who are so anxious to encourage invention, say that of that £1,200, two-thirds should be attributed to capital and one-third charged as income? In the case of buildings and machinery you do allow for depreciation. I cannot look into the future without realizing the value that attaches to invention and the inventive mind in all communities, and I suggest that the taxing authority should not treat as income the return of capital on the part of those who have created property by their time and effort and ingenuity and expenditure of their resources.
For that reason, I suggest that the matter should be given attention at this time, even although it is quite apart from the important and illuminating speeches we have listened with respect to finance. These must fill with pride the mind of every citizen of this kingdom because, though the strain is so great and the demand so large as to be astronomical, this country not only has been able to retain its stability as a great financial centre but has afforded an example to all the world by showing how willingly the men of wealth in this country will, in the language of the noble Lord, Lord Wardington, commit suicide for the benefit of their fellow citizens and the State.
THE LORD CHANCELLOR: My Lords, perhaps I may be permitted to make some reply to the observations made

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in the course of this debate. It has been an interesting debate, as indeed has always been my experience here when I have had the fortune to move the Second Reading of a Finance Bill. Perhaps I may take some of the points in the reverse order of the speakers. The noble Viscount who has just spoken called attention to the undoubted fact that in our Income Tax law we do treat royalties on patents as income. What I think perhaps he may not have sufficiently observed is that that really is in accordance with the general scheme of our Income Tax law. The matter is by no means limited to the case of patents. If, for example, there is an annuity of a fixed amount which is going to be paid for a limited number of years, in each year that it is received it bears the full rate of tax, and when the years have passed during which the annuity is to be paid that asset disappears completely. We do not make any allowance because the annuity is of a sort which will only run for a limited number of years.
In the same way there are many kinds of wasting assets in this country, commercial assets which, as everybody knows, will be exhausted with time. Coalmining I think we may take as a very obvious example. Whether it is strictly justified in theory or not, the practice and not only the practice but the law of the land is and has been, certainly ever since the Income Tax Act of 1842 if not before, that we cannot examine income which reaches the hand of the recipient and is enjoyed by him in a given year by asking how long it will last. Mineral royalties, limited annuities, ground rents, things of that kind have a life which in the end will cease. It might be a logical and perhaps a more scientific method to make such adjustment, but we do not do so. I think the result is probably justified. After all, we must not treat Income Tax as though it was a constant figure. At present it is 10s. in the pound, though indeed the effective tax will vary, very much according to the total income of the individual. But it would appear to be an extremely difficult matter to make adjustments when the tax varies from year to year.
I suspect that there is a further reason which has actuated the Legislature—because, of course, this is a point very well known to the Legislature—and that is that upon the whole it is thought to be
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better, having regard to the provision which has now got to be made for the year, to adopt as simple a formula as possible and to take as income all that the Income Tax calls income, which includes annuities of every sort and kind, rather than to endeavour to make these somewhat complicated adjustments, even though I quite appreciate that there may be a scientific argument in their favour. I remember that when I was a young man and first held an appointment as a Law Officer of the Crown in the House of Commons, one of the "hardy annuals" of every Finance Bill Committee was a Motion to provide specially for wasting assets, and I had the privilege, within the limits of my youthful ability, of dealing with this argument year after year from the Treasury Bench,
If I may, I will turn now to the speech of my noble friend Lord Wardington, who gave us so interesting and instructive a dissertation on the art and practice of banking. Indeed, I may say that I regard his speech as having almost revealed the arcana of that subject, and I should imagine that he must expect increased competition in the future. I will not enter into that now, but he did make an observation on another subject upon which I should like to add a word or two. He referred in terms of high approval to the efforts of the Chancellor of the Exchequer, and I certainly think that those efforts are deserving of the highest admiration. But the noble Lord expressed regret that in adjusting Income Tax to wage-earners the Chancellor of the Exchequer had not adopted some plan by which the Income Tax might be deducted weekly from the wages. That proposal, of course, has attracted many minds. I believe I am right when I say that the Treasury has had before it dozens of separate schemes suggested for this purpose—many of them by most accomplished people—and I know that the Treasury also examined the matter very closely for itself. But when these proposals are examined, it will be found that there are two or three very serious objections. In the first place Income Tax is not a flat percentage on receipts. You do not simply take a man's receipts for a week or for a year, whatever they may be, and then by way of Income Tax extract out of them a given fraction. Income Tax works on a curve and before

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you can determine what is the right amount of Income Tax that is to be charged you have to know rather more about the individual's case than can be ascertained merely from knowledge of what he has received in a particular week.
In the second place, as was observed in another connexion by Lord Arnold, the allowances have to be worked out, and that again means that two persons who may appear to be in exactly the same position, and certainly in exactly the same position if you limit your observation to a given week, are in fact persons who will be required to pay quite different amounts of Income Tax, although their receipts for the week or even for a longer period may be the same. In another connexion I made some observations on this matter when we had our discussion the other day on family allowances. Perhaps a still more serious difficulty in the way of deducting the Income Tax from the wage packet every week is this. A wage-earner may charge his work during the year. He may move from one employer to another. He may be out of work for a time or may be not working by his own choice for a time. He may get married, he may have a child—every one of these things will affect the Income Tax which he has ultimately to pay.
Of course I know that it may be said that all these things can be adjusted afterwards, but the wage-earning classes are not the only people who feel objection to paying in gross on the understanding that they can apply afterwards to get something back. It has, therefore, been found a more practical plan to deal with the matter otherwise, though, as he has now announced, the Chancellor of the Exchequer has made some modifications. He has made the lag four months instead of three, and he has secured that, in no event, will there be taken from the wage-earner in any week so much as will leave him with less than a minimum which varies according to whether he is single, or married, or a married man with children. The Chancellor of the Exchequer has also made adjustment as between winter work and summer work, because there are of course many occupations in which the rate of wage is different in the two seasons. It was for reasons of this sort, generally indicated, that I believe the decision was taken.
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I may not have spoken with complete accuracy for I have not been present at the consultations about this matter. I may say, however, that I was attracted by this idea myself, and I canvassed it in such quarters as I could. But I found myself compelled to admit that these considerations put forward by the experts of the Inland Revenue—by which I do not, in Lord Wardington's phrase, mean people who try to make simple things difficult, but people who try to get the Income Tax to work—were probably justified. But the whole matter is still in its early stage. I think we may assume that the question which interests so many people in the country, which everyone wants to see dealt with wisely, will, in the end, reach its own solution.
The only other matter on which I would delay the House, on which I feel that I must say a few words, is one which was referred to in the very interesting speech which we had from my noble friend Lord Arnold. We have become accustomed, on these annual occasions of the Second Reading of the Finance Bill, to have a speech from him, and I speak for myself, and perhaps for others also, when I say that one has always found what he has to say very well worthy of attention. I would make so bold as to meet him on a point which I would not wish to make a point of controversy, because the manners of your Lordships' House strongly discourage anything so improper. But I am not prepared to admit that the Government policy makes no contribution to what is called a wage policy. I have several times heard it said in this House that the Government have no wage policy. If that means that the Government should ask Parliament to fix everybody's wages for the period of the war, or something less drastic of that kind, then I think those who reproach the Government for having no wage policy would be of great assistance to us if they would say what their wage policy is. A proposal of that sort involves considerations far beyond the Finance Bill; as my noble friend indicated, it would be the direct concern of the Minister of Labour, and it seems to me would raise a host of social and economic questions. In any other sense, however, I entirely deny that the Government have no policy in relation to wages.
What is the main ground upon which claims for increased wages are validly and

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pointedly put forward? It is on the ground of an increase in the cost of living. If Government policy was not directed to dealing most emphatically with that subject, the situation in regard to wages might be expected to be much more difficult than it is. Ever since the beginning of the war, as I ventured to point out in my opening remarks, the Treasury has been devoting enormous sums to checking or preventing a rise in the cost of living. In the case of food, the prices of essential foods have been kept below their actual cost by means of Exchequer subsidies. In the case of rent, rent has been fixed by the operation of an Act of Parliament. In the case of travelling, railway fares have been stabilized. In the case of clothes, the Government are taking direct control of prices under the Goods and Services (Price Control) Act, and they are making a large contribution to the same end by plans for utility clothing.
All those things have a direct relation to the problem of wages in time of war. In very large areas of employment the rate of wages is in fact, by standing agreement, regulated by reference to the cost of living; and everybody knows how important a consideration cost of living is in many other connexions. Let us look at two or three figures which help to bear this out. The food index, which twelve months ago was 23 per cent. above the pre-war level, is now only 16 per cent. above that level. As I think the noble Lord, Lord Wardington, observed, the cost-of-living index has remained virtually stationary for twelve months, at 28 per cent. or 29 per cent. above the pre-war level. In considering, therefore, this most important subject, which my noble friend Lord Arnold has raised before, I think it is only right to remember that, so far as wages are concerned, wages which are fixed by running agreements having regard to the cost of living are being most effectively and directly held by these measures, and so far as the large range of wages is concerned where changes in the cost of living provide the principal factor in argument or negotiation, Government policy exercises a very definite, although no doubt an indirect, effect on wage-levels, because it is addressed specifically, and at great expense to the Exchequer, towards stabilizing the cost of living. I make these observations, not as a complete answer, and certainly not to carry on a controversy, but because I
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venture to think, most respectfully, that the reproach that the Government are in different to the problem of wages is not altogether well-founded. All these measures which I have mentioned have been adopted, very largely, in order to remove what would otherwise be an ever-increasing grievance, which would be bound to be reflected in many cases by changing rates of wages.
I do not think that I need say more. Our functions in finance matters in this House are limited, but I claim that they are useful. We have here, like a Council of State, discussed some of the most important matters which can possibly affect the great mass of our fellow-countrymen, and which have a most material and direct bearing on the carrying on of the war and on the achievement of victory. I am glad to think and proud to remember, as the noble Viscount, Lord Bennett, indicated just now, that my fellow-countrymen, whatever be their state and degree in life, whether they are struggling with a small income, or envied because it is supposed that they can enjoy great possessions, are all at one in being willing to welcome and to submit to the stiffest Finance Bill of all time.
On Question, Bill read 2ª; Committee negatived.

NURSES' SALARIES.
LORD LATHAM LORD LATHAM had given Notice that he would call the attention of His Majesty's Government to the action of the Minister of Health in limiting the scope of the Nurses' Salaries Committee appointed by him; and move for Papers. The noble Lord said: My Lords, in view of the lateness of the hour I propose, with the concurrence of your Lordships, to postpone my Motion until another day.

DIPLOMATIC RELATIONS WITH ABYSSINIA.
LORD DAVIES: My Lords, I beg to ask the question standing on the Paper in my name.
[The question was as follows:
To ask His Majesty's Government, what steps have been taken to give effect to Article I of the agreement with the Emperor of Ethiopia signed on 31st January providing for the exchange of diplomatic representatives between the

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two Governments; and if they are in a position to state when it may be anticipated that the Ethiopian representative will take up his duties in London.]
LORD TEMPLEMORE: My Lords, I have been asked to reply. In answer to the noble Lord, I would say that the Article to which he refers provides that a British Minister Plenipotentiary shall be accredited to His Majesty the Emperor, and an Ethiopian Minister Plenipotentiary accredited to His Majesty the King, as soon as possible after the entry into force of the Agreement between the United Kingdom and Ethiopia. His Majesty the King has appointed Mr. R. G. Howe to be his Envoy Extraordinary and Minister Plenipotentiary to His Majesty the Emperor of Ethiopia, and Mr. Howe presented his credentials to the Emperor on February 19 last. His Majesty's Government have not yet learnt whom the Emperor proposes to accredit in a similar capacity to His Majesty, nor when he may be expected to arrive.
LORD DAVIES: My Lords, arising out of that reply, can my noble friend say why Ethiopia was excluded by the Foreign Office from the official list of the United Nations in the celebration of United Nations' Day last Sunday?
LORD TEMPLEMORE: My Lords, with all respect to my noble friend, I should hardly have thought that that arose out of his question and my answer, and I must ask him to put down another question on this subject, when I am sure that my noble friend the Leader of the House will do his best to give him an answer.

GOVERNMENT OF ASSAM.
LORD TEMPLEMORE: My Lords, on behalf of my noble friend the Duke of
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Devonshire, I beg to move the Motion standing in his name.
Moved, That this House approves the continuance in force of the Proclamation issued under Section 93 of the Government of India Act, 1935, by the Governor of Assam on December 25, 1941, a copy of which was presented to (his House on February 24, 1942.—(Lord Templemore.)
On Question, Motion agreed to.

BILSTON CORPORATION BILL.
The LORD CHANCELLOR acquainted the House that the Clerk of the Parliaments had laid on the Table the Certificate from the Examiners that the further Standing Orders applicable to the Bilston Corporation Bill have been complied with.
The same was ordered to lie on the Table.

COVENTRY CORPORATION BILL [H.L.]
Report from the Committee of Selection, That the following Lords be proposed to the House to form the Select Committee for the consideration of the said Bill, namely:

L. Ellenborough,

L. O'Hagan,

L. Holden,

L. Faringdon,

L. Kenilworth (Chairman).

Agreed to; and the said Lords appointed accordingly. All Petitions referred to the Committee, with leave to the Petitioners praying to be heard by counsel against the Bill to be heard as desired, as also counsel for the Bill.
House adjourned.