FINANCE BILL

HL Deb 17 July 1951 vol 172 cc912-57

2.58 p.m.

Order of the Day for the Second Reading read.

THE FIRST LORD OF THE ADMIRALTY (LORD PAKENHAM)

My Lords, I rise to move the Second Reading of the Finance Bill. This is the sixth consecutive year that I have had the honour of introducing the Finance Bill to the House, and your Lordships will be aware by this time of the difficulty of saying anything new, or at any rate of the unlikelihood of my saying anything new, on an occasion such as this. This year it is particularly hard. Not only have most of the issues been threshed out —I will not say at undue length, but at any rate at very considerable length in another place, but the Chancellor of the Exchequer on July 4 gave a Press Conference which ended, unlike some Press Conferences I have attended, with a tribute from his audience to the comprehensive survey and the large amount of information that he had given them.

It will be recalled that amongst other points he stressed the disquieting fact that the balance of payments problem had once more come hack into the centre of the picture. Moreover, I understand that he hopes to make a further statement on the economic situation before the Recess. No one, therefore, I hope, will draw conclusions, positive or negative, from any omissions or silences of mine this afternoon. It will not be all silence. I am bound to say that I shall be detaining your Lordships in any case for some minutes; but, in all the circumstances, and bearing in mind that my noble friend Lord Lucas, will be replying to the debate, I shall confine myself in opening to two main tasks. First, I shall seek to remind the House of what is actually in the Finance Bill before your Lordships. That course will recommend itself to the noble and earned Viscount, Lord Simon, who I am sorry to hear is not joining in the debate this year, and who sometimes complains that in a debate of this character the Finance Bill itself is overlooked. Secondly, I shall try to set the proposals in question against the background of the rearmament programme which has been imposed upon us and our Allies by Communist policy and the Communist threat to peace. In performing that latter task (though, in the event, I shall do it largely first of all) if the House will allow me, I shall range a little widely, because I think most of us will agree that it is vital that something definite on this matter should be said by a Government spokesman at the present time.

It may appear at first rather curious for a Service Minister to be introducing the Finance Bill in your Lordships' House, but I venture to suggest that there is something appropriate about it—and perhaps particularly appropriate this year —because the Finance Bill before us is even more than usually of vital importance to the fighting Services and, in that special sense, as in many other senses, to our country. The economic recovery of Britain in 1950, which all of us welcome (I am sure that all in this House do so. whatever our Party affiliations) and the outbreak of war in Korea, which no one welcomes but which has made all the more plain the necessity of standing up to the Communist threat, have brought to an end an era of financial policy aimed at achieving economic independence. This year we have the even more difficult task of consolidating our recovery and our social improvements, and, at the same time, financing the first part of a rearmament programme which, as your Lordships know, is expected to cost £4,700,000,000 over three years.

Before I turn to the problem of how this heavy programme is to be carried out, I should like to clear up some mis- conceptions about the necessity for rearmament on such a scale. This is, surely, a particularly appropriate time to reexamine the justification for the defence programme, as it appears possible—I say no more than that—that the Korean war which warned the Western world of the reality of the peril may soon come to an end. I have no special information on that subject in my mind this afternoon, but there certainly exists the possibility, which I have mentioned, of an early end to that war. It is said by some that with the end of the Korean war the threat will be diminished. I suggest that such an illusion is the result of a completely false reading of the true lessons of the Korean war. The Communist aggression in Korea, while very serious, was never in itself to be regarded as indicating a mortal danger to all of us, but it did reveal clearly that the Communists were prepared, if they thought the circumstances favourable, to resort to force in pursuit of their evil ends.

Over a year ago, in another place, my right honourable friend the Minister of Defence indicated how powerful this Communist force could be. At that time, according to our information, Russia had 2,800,000 men in the Army, and could double that figure on mobilisation. Her Army consisted of 175 active divisions and 25,000 tanks. Her Air Force had 19,000 aircraft—now revealed by the Korean war to include some of the best jets in the world—and her Navy boasted about 300 submarines. Recently, my honourable friend the Under-Secretary of State for War has explained that the 2,800,000 men in the Army, which Mr.Shinwell mentioned last year, provide 40 supporting divisions in addition to the 175 line divisions, making 215 divisions in all. The total of Russia's Armed Forces—that is, the Army, Navy and Air Force—is 4,000,000 men. If the Communists, with such forces behind them, were prepared to resort to war to achieve their aims, then the danger was, and is, great indeed. Thus the lesson of the Korean war is that we must accelerate and intensify the measures which we and our Allies have already been taking for our collective self-defence. The will to resistance of the United Nations has been successfully demonstrated in Korea. But that does not mean, and none of us must suppose, that the danger is removed or that we shall not again be confronted with aggression if circumstances appear favourable to the aggressor. Until we have some clear indication that the basic aims of the Communists have changed, the danger will remain. Let none of us be under any misapprehension about that.

There are, of course, other reasons why, once we have embarked on a programme of this kind, we cannot chop it about at every supposed change in the international weather. We cannot modify it every time the weather seems a little more fair, or intensify it every time there appear to be signs of a squall. But I would emphasise at the same time—because in this country the first object of foreign policy is and always remains the preservation of peace—that while we certainly hold to our decision to look to our defences, we also hold ourselves ready for any discussion of differences which shows real prospect of reducing international tension. The causes of that tension, as we all know, are not of our making and if genuine signs are given that the atmosphere of international relations may be improved, we shall not fail to respond. We believe that the evidence of Western determination successfully to resist aggression, coupled always with readiness to negotiate, offers the best way of finding a break in the clouds.

The most plausible and insidious argument—plausible to some people but certainly not to me—used against the £4,700,000,000 defence programme, is that the scale and rate of rearmament are more than we need. The test must surely be whether, in the face of the dangers which confront us, the rearmament programme is larger than is necessary to give this country a reasonable degree of security and strength. When the programme is complete, the state of our defences will, indeed, be vastly improved. The Royal Air Force will have a front line numerically much greater than at present and equipped with the most modern types of fighter and bomber aircraft. The Royal Navy will have much more powerful anti-submarine and minesweeping forces, and some of its larger ships will be brought up to date by modernisation. The active Army, and particularly its armoured components, will be re-equipped to make it thoroughly fit for the land battles of the future, rather than those of the recent past. The readi- ness of our reserve divisions for action in time of need will also be enhanced. Our industries will be far better founded and fitted for the effort, and there will have been great expansion of capacity, especially capacity for producing tanks and aero engines.

Taken in conjunction with the Western lead in atomic weapons, the formidable defence effort of the United States and the efforts of our other Allies, this effort will, we hope, be sufficient to give us peace. But in the face of the vast hordes of the potential aggressor, supported, as he is, by a huge and ever-increasing production of tanks, aircraft, submarines, and the possession of the atomic bomb, it would be contrary to all our expert information and would certainly be for those in positions of responsibility the height of folly, to conclude that our programme is larger than we need. We must, and we shall, afford it, until we have clear proof that the Communist countries wish to live at peace with the Western world. So much for the necessity —which is perhaps not very much questioned in this House, although it is questioned by some considerable number of people outside, who may not be in full possession of the facts.

How, then, is this task to be achieved, and what will be its effect on our economic life? After all we have been through in the last twelve years, will the strain be too much for us to bear? We believe, on going into the matter with the utmost care, that this programme is well within our capabilities, although it will mean much hard work and further sacrifices. Our main economic problem at the present time is the rise in the cost of living. I am sorry that the noble Viscount, Lord Samuel, is not with us, because on the last occasion we debated these matters he suggested a great campaign to make the nation cost-of-living conscious. In his absence I do not like to say exactly what I should have said had he been here, but I think that would be a work of supererogation: I think I will leave the matter there. This issue of the rising cost of living is not of our making, but that fact is not necessarily obvious. Many well-disposed and highly intelligent people may not altogether be aware that this rise in the cost of living is not a result of our rearmament, nor is it a development voluntarily allowed or accepted by the Government as a way of paying for rearmament. In actual fact, and I am speaking with all the expert advice that a Treasury spokesman commands when he comes down to the House, our own rearmament has very little to do with the matter. Its influence on domestic prices is relatively slight, and the rise in these prices does not help to pay for it. If our rearmament programme were not larger than before Korea, we should still have to shoulder this heavy burden of rise in prices, What is now causing the rise in the cost of living is a sharp rise in world prices, which also requires us to export much greater quantities of goods to pay for a given volume of imports.

These figures may not have struck noble Lords in quite this form before. The estimate of rearmament expenditure in 1951-52 is £470,000,000 higher than last year. But the cost of our import programme during the next twelve months, reckoning the same volume of imports as in 1950, and without allowing for the increased quantities required for higher production and stockpiling, is estimated to rise by more than twice as much—that is, by £950,000,000—on account of higher prices. Much the greatest part of our domestic economic problem, therefore, is created, not by our increased defence programme but by a world inflationary situation which it is beyond our own unaided power to control—a situation admittedly caused to a great extent by other people's rearmament and its effects. Our best hope of dealing with this world inflationary situation is through international action on the lines of the present discussions in Washington to increase and allocate supplies, all of which has a stabilising effect upon prices. I would mention in passing, that the natural play of economic forces is now reducing prices in certain instances, but we must not count on that too much.

In any case, it would be wrong to suggest that our rearmament programme, considered independently, is so impossibly grievous a burden. It is not of the same order of magnitude as expenditure at genuine war-time levels (noble Lords may say that they hope not), but it is, of course, a very real burden, and represents a serious setback to our hopes of economic recovery. But it is not crip- pling; it does not spell the end of our hopes of economic progress; it is not destroying the structure of the Welfare State. I noticed that a gifted friend of mine, who has forsaken Platonic scholarship for the art of journalism as practised in the Sunday newspapers, has announced that this programme would result in the "slashing," of the social services. I can only say, if I may use a colloquialism, that that is "twaddle." Expressing it in terms which might be acceptable to my learned friend, it is a very Platonic idea of "twaddle"—but I need not pursue the point. It is grossly misleading to suggest that the social services will be "slashed" by the programme which we are discussing. This programme is by no means out of relation to the increases of national production which we can hope to achieve as the raw materials problem is eased and as our technical progress continues. It is quite untrue to suggest, in an expanding economy like ours, that the rise in expenditure on defence from 8 per cent. to about 13 per cent. of the national income spells the death of social and economic progress.

Of course, it would be wrong to ignore the risks and the possibility of danger inherent in our increased level of rearmament expenditure. It creates for us severe problems, and I am not for a moment saying that these problems have been solved, or that the solution is round the corner. It provides yet another test of national steadiness and common sense. It gives rise to inflationary tendencies which call for stringent Government action and severe individual self-restraint. When I talk of inflationary tendencies. I am not speaking of the rise in import, prices, to which I alluded just now, but of an internal cost inflation resulting from factors that could and should be kept under our control. It is simply defeatism to set out all the awful consequences which might follow from rearmament expenditure, if the worst came to the worst, and then treat these things as its inevitable results. It is our belief that the Government's economic policy will be Sufficient, given co-operation and self-restraint on the part of industry and the public, to sustain the additional burden of rearmament without destroying internal stability or doing more than defer for a few years the prospect of steady expansion in our civil economy.

I hope your Lordships will forgive me for dwelling for a few moments on these aspects of the rearmament question, and I now come to the Finance Bill itself. It is recognised that the Budget nowadays must be something more than a mere balance sheet of the Government's expenditure and income. When we discuss among ourselves, and when people who claim expertness discuss among themselves, the problems of the Budget, they do not merely take into account the Government expenditure and revenue, they look at the economic situation as a whole. The danger of inflation is best measured by comparing the likely level of investment throughout the economy as a whole with the likely level of savings, both public and private. It was estimated at the time of the Budget that, on the basis of existing taxation, the gap between savings and investment would be of the order of £150,000,000. That is the figure generally agreed by most of the leading commentators—The Times, the Financial Times, the Observer, the Spectator and Time and Tide. Taking into account an increase in old-age pensions of £20,000,000, which has been widely supported by all Parties, this meant that a total of £170,000,000 of new taxation had to be found by fiscal means.

The major fiscal measures of the Finance Bill are, first, to raise the reduced rates and the standard rate of income tax by 6d. each. After allowing for the increases in the marriage and child allowances, this will produce about £73,000,000 in extra revenue this year. The Bill also increases from 30 to 50 per cent. the profits tax on distributed profits. I will return to those topics in a moment. Second in importance is the increase in the duty on hydro-carbon oils by 4½d., bringing the duty up to ls. 10½d. per gallon. This will bring in about £35,000,000 in the current year. Thirdly, purchase tax has been increased from 33½ to 66½ per cent. on motor cars, radio and television sets, and on gas and electrically operated domestic appliances. Besides bringing about other beneficial results, these changes will bring in net extra revenue, after allowing for certain purchase tax relief, of about £19,000,000 in the current year. Action is also being taken to reduce the pressure of home demand for civilian purposes by suspending the initial allowances in respect of expenditure incurred after April 5, 1952, on industrial buildings, plant or machinery, and mines and oil wells. I would, however, mention that in view of the exceptional importance and the circumstances of the shipbuilding industry Amendments in favour of that industry were accepted during the passage of the Bill through another place.

A section of the Bill to which we attach considerable importance—and in which I know the noble Lord, Lord Rennell, takes particular interest—contains a number of measures to deal with tax evasion and the legal avoidance of tax. I expect that the noble Lord, Lord Rennell, will be dealing with some of these points and, if I may, I will leave my noble friend Lord Lucas to reply to him. I would mention merely Clauses 27. 31. 32 and 37. A number of Amendments were accepted to these clauses to meet various criticisms, and I hope that they have duly done so. One clause on which I would pause for a moment is Clause 36—these clauses appear to have changed their numbers since we last discussed them, a matter which may puzzle some noble Lords, but not the noble Lord, Lord Rennell. Clause 36 is aimed broadly at two types of transaction which may be entered into by companies, with consequent loss of tax to the Exchequer. The first involves the transfer abroad of the central management and control of a company, or the transfer abroad of part of its business by a company, with the consequence that the profits are placed beyond the reach of United Kingdom tax, except to the extent that they are remitted to the United Kingdom as dividends to United Kingdom shareholders. The second type of transaction involves the manipulation by a United Kingdom company of the shares of an overseas subsidiary company in such a way that the dividends of the subsidiary are received in the United Kingdom in a capital or other non-taxable form. There has been a growing tendency, as many of us are aware, during the last year for companies resident in this country, and having a share capital largely owned by United Kingdom shareholders, to take steps of this kind in order to avoid paying their fair share of income tax and profits tax. The clause provides that transactions of the kind specified in it may be carried through only with the consent of the Treasury.

Fears have been expressed in some quarters that this clause might interfere with the ordinary business dealings of companies, or restrict the expansion of British enterprise abroad. I hope that the Amendment which have been accepted, or introduced by the Government, and the assurances given in another place by my right honourable friend the Chancellor of the Exchequer have gone far to allay these fears. Provision has been made in the clause for the Treasury to allow reasonable transactions. An example is the possible exclusion from the control of new companies set up from abroad with substantial foreign capital. I will only say that, while practical experience of the working of the clause will be necessary before we know how far it will be possible to go on these lines, it is intended, where appropriate, to use these powers of exclusion to the full, and as soon as possible. I want to make it quite clear, however, that the clause will be operated with the minimum of interference to legitimate business. During the recent debate in this House on the Economic Situation, the noble Lord, Lord Renell, raised the question of the effect of the clause on operations overseas of British companies and on United States investments in this country. I earnestly hope—I say this quite seriously—that the noble Lord was reassured by my right honourable friend's statement on these particular points. The Chancellor of the Exchequer went out of his way—this will appeal to the noble Viscount, Lord Swinton—to make it dear that development of Colonial territories should not be affected by the operation of the clause.

As I draw to a close, I should like to return to income tax and profits tax. I will not say much about income tax, except to paint out that the additional money received will be £73,000,000, after certain reliefs have been given, those benefiting being those with large families —and some of us in this House will be duly grateful for that; at any rate, we shall not raise our voices in criticism. I would ask the House to consider with me quite dispassionately the increase in the profits tax. An increase in the rate of profits tax on distributed profits from 30 to 50 per cent. will produce an addi- tional net revenue in a full year of £68,000,000. This year I admit that the additional yield will only be about £5,000,000, but it will be £68,000,000 in a full year. However, even in this year there will be an immediate effect in preventing dividends from rising as much as they otherwise would do. Consequently, in the way these matters are now calculated by the pundits, it was considered possible—and it was not disputed by anybody—to reduce the Budget surplus required by some £30,000,000.

There has been some criticism of this increase in the profits tax—I do not shrink from this fact——both by those who consider it too big and by those who think it too small. It is up to every citizen to decide between those views, and to assess the merits of our decision. It must be remembered that profits in 1950 were about 14 per cent. higher than in 1949, whereas other incomes in general rose by only 7 per cent. I shall be interested to hear what the noble Lord, Lord Brand, has to say in reply to some of these figures, because I feel that they need some answering by anyone who feels—as the noble Lord may or may not feel—that the profits tax increase was wrong.

Dividend distributions have also shown a marked increase. The Financial Times index shows that in the first six months of 1950 net ordinary dividends, after the deduction of tax—and I stress that— were 2 per cent. higher than in the corresponding period of 1949. But in the second half of 1950 the increase was 6.7 per cent.; in January, 1951, it was 10.7 per cent.; in February of this year it was 9.7 per cent., and in March of this year 14.4 per cent. Since the Budget, the increases have been 8.5 per cent. for April, 8.8 per cent. for May and 13.9 per cent. for June. That last figure is probably not familiar to many members of the House; I presume that it has been published, but I do not suppose that many noble Lords have seen it. It should be remembered—noble Lords, in fairness, will readily concede this—that the figures for the last three months are really larger in comparison with the pre-Budget months, since in the case of most companies they are calculated on tax at 9s. 6d. in the pound. Therefore, those increases of 8.5 per cent., 8.8 per cent., and 13.9 per cent., compared with last year, should be stepped up in our minds if we want to make a real comparison. It is therefore clear, I should have thought, to objectively-minded people, that profits should provide an additional contribution towards the cost of rearmament, and that this should be done in a way which gives added inducement to companies to place more of their profits to reserve and to restrain the tendency to increase dividends.

Although it is too early yet for figures to be available to show the trend of profits in 1951, it seems that most companies are taking the increased profits tax in their stride. This is shown partly by the dividend distributions since the Budget, and by various other facts; indeed, we in the Government are now doubtful whether the increases in tax were sufficient for their purpose. I am bound to say—not in a Party sense at all—that those of your Lordships who make political speeches must surely have been assailed at public meetings by critics, of all Parties or none, who call attention in terms of rising indignation to the great increases of dividends at a time when the cost of living is pressing hardly upon the people. The immediate objective of economic policy, set out in the Economic Survey for 1951, was to launch the three-year defence programme, while protecting the external balance and maintaining the level of investments as high as possible. If production fell short of the total requirements, it was intended that the burden of rearmament should be borne, so far as possible, by reducing the amount of consumer goods available. Everyone hoped that would not occur, but such would have been the plan if the worst came to the worst. Industrial production has in fact so far been consistent with the assumption that over the year 1951 as a whole there would be a 4 per cent. increase. But a greater rise in import prices than was anticipated has made it necessary to achieve a greater increase in the volume of exports than was thought necessary at the time we made our plans, and we must redouble our efforts to that end.

At the same time, these higher import costs have been pushing up prices at home, and these are now being increased —and I say this solemnly—by a growth in money incomes more rapid than the growth in productivity. I felt that my right honourable friend, Mr. Robens, the Minister of Labour, made a very important point the other day when he said that what really mattered was what the pay packet would buy. That is an elemental truth, but it was very wise and helpful of Mr. Robens to thrust that home. It is true that there are some signs that world commodity prices may now be easing, but past increases are already in the system, working their way through. A greater danger at the moment—and it is one within our power to avoid—lies in future increases in wages, salaries and profits in some branches of industry, leading, of course, to a new rise in internal costs, with all those effects of a spiral character which we know too well and fear. Up to May there had been considerable increases in personal consumption compared with the figures a year earlier. The greatest importance now attaches, therefore, to achieving the largest practicable diversion of resources to defence and to exports, and to securing as big an increase in producton as our man-power and materials will allow.

I do not end on a pessimistic note, but on a very serious note, and I should be misleading your Lordships if I did otherwise. The whole programme to-day requires still greater efforts than we expected, and still greater efforts than we are making. I hope and believe that those efforts will be forthcoming from our people. And, with that in my mind and in the minds of your Lordships, I beg to move that this Bill be read a Second time.

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

3.35 p.m.

LORD RENNELL

My Lords, I do not propose to deal with the first part of the speech of the noble Lord, Lord Pakenham. A great deal of what he has said is very welcome to us on this side of the House, and we find ourselves in cordial agreement with him. What he has said is particularly appropriate to the debate which will take place in your Lordships' House to-morrow, and no doubt his remarks will be picked up by your Lordships when that time comes. I propose to deal only with the Finance Bill itself, and not to go into the economic aspects which I hope the noble Lord, Lord Brand, who is following me, will raise.

This Finance Bill leaves certain indelible impressions in my mind. As each succeeding year's Finance Bill looms up and passes over the horizon, with all the little buff and pale green forms which are the inevitable consequence, it seems that one more liberty has been taken away. These events follow one another, as I have no doubt all your Lordships will agree, apparently with growing rapidity from year to year. The time between each Finance Bill appears to get shorter and shorter as we all get older. We look back over the last few years to a succession of restrictions which we particularly deplore. I think that this particular Bill is in some ways rather more momentous in this aspect than some of its predecessors. It contains, as I see it, at least four tombstones on the road of liberty, and they are pretty big ones. I am going to submit to your Lordships that several of them are neither necessary nor desirable. I refer in particular to Clauses (under their new description or numbering) 27, 32, 36 and 37. I propose to take them individually.

Clause 27 is entitled: "Power to obtain information as to interest paid or credited without deduction of tax." That, broadly speaking, refers to interest paid on bank accounts. This clause, of course, is nothing less than a power given to tax inspectors to require a bank to disclose the affairs of its clients. It is yet another definite and fundamental breach of the relationship which, in this country, has hitherto been sacrosanct between a banker and his clients. And let it be noted that this affects not only the relations of clients with their bankers in the commercial bank world, but also the relationship between the clients and the Post Office Savings Bank, because there is a subsection n Clause 27 under which the consecration of the relationship between a depositor in the Savings Bank and the Savings Bank, which has been untouched, I believe, since the Act of 1861, now is breached.

This is not the first break in this confidential relationship that has existed between a banker and his client: the first major breach occurred under the Exchange Control Act. That gave rise to sufficient comment, criticism and apprehension for the then Chancellor of the Exchequer, at the time of the nationalisa- tion of the Bank of England, to say that Section 4 of that Act, which required the banks to disclose to the Bank of England, the affairs of their clients, was not one which need arouse apprehension. One event of that sort may not arouse apprehension, but a succession of them undoubtedly will. I suggest that Clause 27 of this Bill is an unnecessary clause. The total amount of tax evasion that may take place through the crediting of interest on deposit accounts is, I submit, in the aggregate, extremely mall.

The practice is one which can be watched in a different way. Where a very wealthy person, liable to pay large income tax and surtax, keeps a large sum of money on deposit, his accounts will be submitted by a responsible person—by a chartered accountant or an auditor, or some other person who is well known to the tax authorities and on whom they can depend not to be a party to a fraud. The smaller accounts which are not submitted in that way and which are what might be termed the "criminal accounts," are kept by the kind of people who are already sufficiently notorious to have attracted to their activities the attention not only of the tax collectors but of others and, indeed, of the managers of the banks with which they bank. Therefore I regard this clause as particularly pernicious, and comments which have been made in another place show that it is regarded by some people as a further prying into the relationship of people with their banks and with those who advise them. That is, I think, a substantial tombstone on the road of the liberty of the subject.

My next criticism is of Clause 32. This clause is entitled: Transactions designed to avoid liability to the profits tax." I am not going to deal with this at any length; it was the subject of very animated and long-drawn-out discussion in another place, which lasted, I think, for about twelve hours. But there is one particularly undesirable feature in the clause which remains, in spite of the Amendment which was introduced on the original draft. The clause starts: (1) Where the Commissioners are of opinion that the main purpose or one of the main purposes for which any transaction or transactions was or were affected … was the avoidance or reduction of liability to the profits tax, they may, if they think fit, direct that such adjustments shall he made … That makes the power of adjustment and of investigation depend upon what the Commissioners think fit; it becomes dependent upon what their opinion is. The clause states what the penalties are if their opinion is such-and-such. It seems to me highly undesirable that the subject should not know what he may or may not do without having to consult some people in the Inland Revenue about what their opinion on the subject is. That is contrary to the principles of taxation on which we have been brought up.

There are one or two other features, even in the amended draft, to which I think it is necessary to draw attention. It is true that certain improvements were made. The Commissioners are, it seems, of the opinion that it should be necessary—though this was not in the first draft—to require that it shall be a substantial transaction, though they have not expressed any opinion as to the amount. That is a remarkable necessity. They are also—and this is even more remarkable—required to notify the body whose accounts they have investigated that there were no grounds for investigation—when they have made their investigation. All I can say is that that is jolly decent of them. However, I suppose we have to be grateful even for small decencies.

There were in certain Amendments some points which ought to have been in the original draft. I shall come back to that in connection with another clause. Both this clause and Clause 36 appear to have been drafted, if I may say so with all respect, by people who had not a very full knowledge of the way in which business is transacted. Had they asked anybody who had been in either the tax business or, indeed, any business, about the way in which a clause of this nature should be drafted, providing a safeguard against reasonable people having unreasonable investigations made of their affairs, and at the same time excluding the obvious exclusions (which have been inserted by Amendment) it would have saved a good deal of discussion in another place and would have given some of us much more confidence in what was attempted. There were one or two obvious omissions which were later inserted. I will quote one, Clause 32. subsection (5) (a) which says that if a Company reduces its dividend for reasons of its own and follows its own judgment, that shall not be held to be an improper transaction with a view to escaping profits tax. That was not in the original draft. Subsection (5) (b) requires that debentures, if issued, shall not be considered as a method of reducing liability to profits tax. It is almost elementary that that should have been in the original draft. I will pass on from that point, merely recording that I regard it as another large tombstone on the road which I have mentioned.

I now come to Clause 36, to which reference has already been made in your Lordships' House by myself and others. This is the clause dealing with the transfer abroad of businesses domiciled in this country or the transfer of assets to subsidiaries abroad. When that clause was discussed by myself in your Lordships' House, I said—and I have no regrets for having said it—that it was a very "ham-handed" piece of drafting. It displayed little knowledge of how commerce, industry and, to some extent, finance overseas has been conducted from and by the institutions of this country. It was particularly that clause that I had in mind when I said that it might have been desirable if the advice of people who were more conversant with the organisation of business here had been taken before the original draft was issued. It has undoubtedly been substantially improved in the course of debate. There has been eliminated one of the very difficult features which were apparent in the original draft—that it might discourage, let us say, American concerns wishing to start a subsidiary here, from doing so. It has given the Treasury powers to exclude, either by a general or by a particular ruling, the transactions of firms which otherwise would fall under this clause.

But the real trouble is that this clause, in imposing a prohibition on a concern in this country from transferring an asset to a subsidiary in another country or from one subsidiary to another subsidiary without the consent of the Treasury, is not only hampering business by the inevitable delays which the seeking of that permission must involve, but is also a definite restriction on the power to dispose of the property of persons—I mean persons in the form of companies— in this country as they con sider to the best advantage of their shareholders. As it was described when this matter was first discussed, and not only in this House, it is equivalent to removing the commercial passport of concerns in this country, and allowing them to have it back only if they will go and ask the Treasury's permission before they do what they want to do. I do not think that this clause is necessary.

We are all aware that companies have sought to transfer, and have indeed transferred, their domiciles abroad to escape from this country. From what are they escaping? First of all, they are escaping or trying to escape—which may be reprehensible—From the burden of taxation which they consider too high—I am coming back to that point in a minute. But more especially they are seeking to escape from the application of the profits tax in the form in, which it is now applied. It is only since the introduction of profits tax on undistributed profits that this substantial move to escape from this country and transfer domiciles abroad has been noticed. There is also the desire, probably latent, especially in the case of companies where perhaps the majority of the shareholders are not shareholders in this country but who nevertheless were perfectly happy to have their company domiciled over here—and I have specific cases in mind here—to try to escape from what they consider to be the policy of a Socialist Government in this country. In other words there is a fear of being nationalised.

The cure is not to prevent people doing what they want to do but to cure the reasons why they want to do it. The cure is perfectly easy. It is so to arrange your taxation that it will not prevent the development of companies, as I am going to submit the profits tax does. Secondly, the cure is not to go on applying the Socialist policy of nationalising industries. I am perhaps not alone in thinking this, because I notice that supporters of the Government in public places take the same view about further nationalisation. I believe that if the Government were to say that they were at an end of their policy of nationalisation, as some of our greater trace union leaders in this country apparently wish them to do, it would reassure a number of people who have been contemplating the transfer of the domicile of their companies overseas, especially where those people are, in the main or in the majority, shareholders of those companies.

There was a time when foreign concerns liked to be domiciled in England because they enjoyed the advantages of our, on the whole, very good company law. Moreover, they enjoyed the advantages of the protection of English courts. It has always been one of our great sources of pride that foreign bodies, even if they were not concerned with this country—and in particular I have in mind shipowners—would domicile their disputes in this country because they thought they would get fairer treatment than elsewhere. Companies whose majority shareholders used to prefer for these reasons to be in London rather than in any other place are becoming fewer and fewer. Therefore I regard this particular clause, which seeks to prevent, and to be an obstacle in the way of, people getting away from a régime that they do not like, as another major tombstone on the road to liberty.

The last clause that I want to take is Clause 37, which deals with sales between associated persons and subsidiary companies. The implication of this is very serious. Frankly, the outcome depends entirely on how the clause is applied. I know there are certain reasons in connection with double taxation, and the conventions dealing with double taxation, which might make a clause of this sort desirable. But in its present form that clause in fact could make it perfectly impossible, without incurring penalties, for any company in this country with a subsidiary abroad to sell to that subsidiary at a lower rate than to a third party; or, in other words, sales at arms' length. It is common knowledge that most industrial concerns producing in this country who have wanted to set up overseas in the Dominions and Colonies have had to set up subsidiaries and, in order to start those subsidiaries in business, have had to sell at lower rates than they were selling to third parties—at arm's length. This clause could make that impossible. I regard that as another, though perhaps slightly smaller, tombstone.

Looking over the Finance Bill as a whole, and looking back over what has been said about it since the beginning of April. I hope that in future years supporters of the Opposition Parties in this country will take the trouble of reading and studying the Finance Acts produced by the Government now in power before giving themselves over to quite so much jubilation as they did on this occasion. Any jubilation they may have felt in April must be profoundly modified by reading the import of the four clauses to which I have referred, and also by considering the impact of the new rates of profits tax on both undistributed and distributed profits. Even on the tax side, there seems to be no cause for jubilation. Over the clauses dealing with the subjects that I have discussed there is great cause for grief—greater than over the last two Finance Acts. I do not disagree with anything that the noble Lord said about the necessity of paying for rearmament. I do not disagree in any way with the increases in tax which are necessary to achieve that end, provided that they are coupled with the proper economies and provided that the increases are applied in such a way as not to damage the economic structure of the country.

In that respect I regard the profits tax on distributed profits as entirely pernicious. If, in order to find the money to pay for our rearmament, it is necessary to have a tax on corporation profits, then let us have it; we must have it. But let us have it on profits, and not on distributed profits. The effect of this large tax on distributed profits is unfair in the extreme. Holders of preference shares and debentures do not contribute to the tax on distributed profits. The sole contributor to the tax on distributed profits is the equity holder, the owner of the risk-bearing capital. The economic effect is already apparent. It is to force industries, for rearmament as for every other purpose, into borrowing money when they ought not to borrow money, because, under the distributed profits tax, the cost of raising money by equity. ordinary share capital, is absolutely out of the question.

If, as the noble Lord said, we are to have an expanding economy to carry our armament programme, and are to continue the social benefits which we enjoy, much more capital will be required. The imposition of a profits tax on distributed profits is not the way to secure that capital; it is the way to make it more and more difficult to attract the capital.

LORD PAKENHAM

May I interrupt the noble Lord if he will allow me, to ask him where he would place the tax?

LORD RENNELL

I said on all profits, not on distributed profits. The noble Lord referred to the increase of profits in the month of June, which he said were up by 13.9 per cent., and to the increases in profits which had been shown for the last few months as justifying the taxation of distribution of those profits. I do not know whether the noble Lord meant it, but he left with me the impression that there was something naughty or reprehensible in these increases in profits and that they should, therefore be removed. Has it passed through the noble Lord's mind that these increases in profits may also, perhaps, he a reflection of increased efficiency in production? Is the increased efficiency in production which has undoubtedly taken place an undesirable or naughty thing?

LORD PAKENHAM

I am sorry to intervene again, but I think the noble Lord has misunderstood me. The figures I gave for this year were figures of dividends.

LORD RENNELL

I do not think that will make any substantial difference to what I am going to say. Profits have increased and dividends have increased. Is it wrong that profits should increase, and that dividends should increase, when they are the reflection of increased efficiency? Should somebody be penalised because he makes more profit by reason of his production being more efficient? Is that the way to raise capital for enterprise hereafter? I think the answers to those questions are not needed from me. I urge the Government to consider this question of profits tax, which I regard as of vital importance and as having been the major blot on the Finance Acts of the last three years. I think that in any event it is an undesirable tax, but if we must have something of the sort it should not be in the form in which it now stands on the Statute Book, and in which it will shortly stand there when this Bill becomes an Act.

I do not propose to follow the noble Lord into the economic aspects, either of our present situation or of the effect of this Act upon them. I trust that those matters will be dealt with by the noble Lord, Lord Brand. Perhaps your Lord ships will allow me to conclude by saying that a great deal of this Bill seems to me to aim at a short-term result, regardless of the consequences which it may have on the future economy of this country. Before sitting down, may I apologise to noble Lords opposite if I leave the House, to which I hope to return in time to hear the noble Lord. Lord Lucas?

4.6 p.m.

LORD PETHICK-LAWRENCE

My Lords, I do not propose to detain your Lordships very long with my remarks on the Finance Bill. With the exception, perhaps, of the noble and learned Viscount, Lord Simon, who was himself Chancellor of the Exchequer, probably I have listened to more debates on Finance Bills in the course of my time in another place than has any other member of your Lordships' House; and my recollection of Finance Bills goes back even further than that. I remember the time when Lord Randolph Churchill saw fit to leave the Government because the finance requirements of the year were put at a figure that he could not possibly "stomach," and he gave place to another Chancellor of the Exchequer who carried them into law. At that time the total requirements of the Exchequer were considerably below £200,000,000 in the year. I remember a speech made from the Conservative Benches during the interim period between the two wars, in which it was stated, correctly and with some amazement, that for the first time the figure of £1,000,000,000 had been reached in the Budget. That, I think, was either in 1937 or 1938. To-day we are dealing with proposals that exceed £4,000,000,000—more than twenty times as great as the sum which Randolph Churchill, only some sixty years ago, thought incredibly large, and four times as great as the figure in the year just before the beginning of the last world war. Those are astounding changes that one individual, myself, has seen in the course of his lifetime.

I do not propose to enlarge further upon what my noble friend Lord Pakenham said about the substantial requirements which have made necessary the raising of these large sums, except to point out that, though there may be small difference between the two sides in regard to individual items, broadly speak- ing the magnitude of the figure is agreed in all parts of the House. We come then to the method of meeting this enormous bill. One of my first recollections in relation to national finance is of a time when my grandfather said that he would no longer be able to support Mr. Gladstone, because he had increased income tax to 5d.—or "fippence," as my grandfather called it in those days in the pound. The present Chancellor of the Exchequer has raised the standard rate of income tax from 9s. to 9s. 6d.—and there was no super-tax in those days of which I have just been speaking we have had surtax added on. Yet, in the main, these present figures are accepted by all Parties in this House and in the other place.

What was the criticism that was made? It was the fact, and I think the noble Lord who has just spoken practically admitted it, that when this Budget was first produced it was generally regarded as a good "middle of the road" Budget; the general comment was that it might have been a great deal worse, considering the adverse terms of trade, the enormous burden in respect of defence, and all the other factors. I understood from the noble Lord who has just spoken that, in the main, he did not dissent from that original view. What he did—as, of course, he is perfectly entitled to do—was to point out certain clauses designed to deal with avoidance of tax, and to pick holes in them. He suggested that they were unsound. I have already said that I have listened to a very large number of Budget speeches, and to many speeches on Finance Bills, in which clauses of that kind have been introduced. I am sure that the noble and learned Viscount, Lord Simon, who was himself at one time a Chancellor of the Exchequer, will bear me out when I say that nearly every year no matter which Party may have been in power, there have been introduced into the Finance Bill clauses for checking avoidance of payment of tax. Every time those clauses have been introduced there has been criticism on the ground that they were too wide. Every Chancellor of the Exchequer concerned has listened with attention, care and consideration to the arguments that have been put forward, and has modified his proposals to meet criticism, whilst retaining their main substance.

I do not think the noble Lord, Lord Rennell—who, as I understand, is unable to be in the House now—will disagree with the statement that I am going to make, that the present Chancellor of the Exchequer has been in line with his predecessors and has met, so far as it was possible for him to do so, many of the criticisms advanced in that way. I think he said, speaking in another place, that the Bill had thereby been considerably improved. I think we shall all agree with that, because we must all recognise that it is the business of the Chancellor of the Exchequer, in the interests of the honest taxpayer, to check—I will not say dishonest practices, because someone once said that you were entitled to avoid anything provided that you did not break the law—which is true—but at any rate to check avoidance which enables a person unfairly to escape a burden with the result that, in the case of his more scrupulous taxpaying neighbour, that burden becomes all the greater. So I do not think the fact that some of these provisions and safeguards have found their way into the Bill only in the course of its passage through another place implies any serious criticism of the Chancellor of the Exchequer.

Naturally, the Treasury, who have a fundamental responsibility in these matters, endeavour to make prevention of avoidance as firm as possible. Equally naturally, the House of Commons, which is the guardian of the taxpayer, rightly thinks up all possible ways in which the powers of the Treasury can be too great, and seeks to prevent obstacles to evasion or avoidance being unfair or unjust. So, I think, that, on the whole, we have a fair set of clauses relating to this matter in the Bill in its present form. If points have been raised by the noble Lord indicating that, even in its present form, the Bill goes beyond what is just and reasonable, I have no doubt that, although we in this House to-day cannot amend or alter a Finance Bill, the Treasury and the Chancellor of the Exchequer will nevertheless take note of them and will see whether some future provision or correction may be required. When the noble Lord, Lord Lucas of Chilworth, replies, he will doubtless answer many of the other points which have been raised by Lord Rennell.

To me the most important thing about the Budget and the Finance Bill—which is the statutory form into which the Budget is put—is whether the Bill really fulfils the purpose of a Budget; whether it raises in the best way the proper amount for meeting the necessities of Government, the vastly increased necessities created, on the one hand, by the Civil Estimates relating to the Welfare State and, on the other, by the greatly increased defence programme which recent events have forced upon us. When we come to look at that, we must remember that in previous years a Chancellor of the Exchequer who budgeted to balance what we now call "above the line" items, was considered fully to have done what was required of him. There is no doubt that the present Chancellor of the Exchequer has fulfilled that requirement, which was, until quite recently, regarded as the sole criterion of a sound Budget. And he has met it by honest means, and not by any trickery or "hokey-pokey," not by calling into account large sums of what are really capital repayment. From that point of view, his Budget is undoubtedly sound. But in the last few years we have realised that what is important is not merely that a Budget should meet the "above the line" items of expenditure, but that it should form something of a balance even when the "below the line" items are taken into account. That is so, because we now recognise, in a way that we never recognised before, that, unless that is done, we shall have inflation, which will react most injuriously upon the future of the country.

That brings me to raise the question of whether, as the result of Budget finance, we have inflation at the present time. Most people who are not economists or financiers confuse rises in prices with inflation. Rises in prices may be due to inflationary causes, or they may be due entirely to other causes. Undoubtedly there are considerable rises in prices at the present time, but they are certainly not wholly due, if at all, to inflation. The principal cause is the greatly increased cost of imports into this country, which comes partly from the great pressure of population upon food and largely from the stockpiling which is going on all over the world for armament production. There is no question of inflation in this country so far as it is of our creating. It might be blamed on the change of exchange value a few years back, but that is another matter. Inflation occurs only if, owing to our financial policy, too much money is chasing too few goods, and that would arise if a below-the-line balance was not carried out in the Budget At present we cannot tell whether the results of this Budget will be somewhat inflationary or not, because it depends on circumstances which are outside the control of the Government. It depends on how much money the ordinary person chooses to save and how much he tends to spend his capital—to have what is called negative saving. We cannot tell, either here or in another place. Only when we get to next year and see what has happened in the matter of saving, shall we be in a position to judge whether this Budget has entirely fulfilled its purpose or whether it has been inflationary.

I come to the last point I propose to make. It is said sometimes that however good or bad this Budget may be, or however much the Chancellor of the Exchequer has succeeded in balancing his accounts this year. we are taking a grave risk that in the following year, 1951-52. the burden which the Chancellor will then have to carry will be so great that he will have to adopt entirely new methods to deal with it. Though everyone realises that the burden will be increased, the increase is often very much exaggerated. The large increase due to the defence proposals already forms part of the present year's finance. It is true there will be an increase next year as against this year, which is generally put at about £300,000,000, most of it for direct defence and some of it for munitions. Further to that, there are certain items of receipts which are non-recurring and there may be another £200,000,000, on that account. But the real question is: Will there be a further rise in prices and a further adverse trade balance? Since the Budget was introduced, there has been a small falling off in the gross increase of prices which took place about the time of the Budget. Some prices continue to rise, while others have fallen. I think it is unlikely that the balance of trade will go further against us than it has gone: it may lightly improve. Production is still increasing considerably and it may well be that our production will enable us to face a larger expenditure than has been the case in the present year.

I think my noble friend Lord Pakenham said that the tax on profits, which would produce only £5,000,000 in the present year, will produce: something like £68,000,000 next year, which will be a full year. That is a considerable help. There are items of tax revenue which are likely to increase. Therefore, though I should be the last to venture on a financial prophecy—that would be most unwise—and say that the Chancellor next year would be faced with no difficulties and certainly with no grave difficulties, I think it would be unwise to be too pessimistic and assume that the Chancellor will be faced with insuperable difficulties. They may be much greater than those faced in the present year, but it may be equally true that some of the grave problems he had to face will be only slightly larger than they have been in the present Budget, and therefore only some slight increase in taxation may be necessary. But we cannot judge. In this House we are prohibited from amending a Finance Bill. The noble and learned Viscount, Lord Simon, will agree with me that that is not due to the wicked Parliament Act the Labour Party introduced, but to an Act to which he was a party over forty years ago.

VISCOUNT SIMON

My Lords, it was an entirely justified proposal.

LORD PETHICK-LAWRENCE

It was really part of a constitutional understanding that had existed before that time. The Finance Bill has been knocked about a great deal in another place, and the Chancellor of the Exchequer has admitted that it has been improved. I am sure that not only what was said by the noble Lord, Lord Rennell, but what will be said by the noble Lord, Lord Brand, will be weighed and considered by all concerned. For my part. I think it is a good middle-of-the-road Budget, and we ought to regard it as sound and, in the main satisfactory.

4.28 p.m.

LORD BRAND

My Lords, before I begin the remarks I wish to make on the general financial aspect of the present situation, I should like to say two things. The first is that I agree very much with what my noble friend Lord Rennell said.

I remember many years ago being a member of a Company Law Amendment Committee presided over by a friend of many of your Lordships, Lord Greene, who unfortunately is not well now. The first question he put to us was whether, in considering the amendment of company law, we ought to consider it our first duty to catch the rogue, or whether our first duty should be, while trying to catch the rogue, to have a law which made business possible for the ordinary man. We came to the conclusion that as at least 95 per cent. of business men were honest, it was right to make it easy for them, while doing our best to catch the rogue. When we come to taxation, on one side the Inland Revenue try to get every penny they legally can and on the other side the great mass of taxpayers try, not to evade payment, but to pay as little as legally they can. It appals me to see the amount of the best brains of this country which is, day after day, taken up with seeing how little can legally be paid in taxes and, on the other hand, how much of the best brains of the Civil Service is taken up with seeing how much can be paid. But that is something that we cannot get away from. I regret deeply all these further restrictions that the Finance Bill puts upon business. The fact that the Treasury say that they will administer these restrictions in the best way possible does not mean that a foreigner who is seeking to come to this country for the purpose of doing business will do so in the hopes that the Treasury will be lenient. He looks at the law, and makes up his mind according to the law.

The other point to which I should like to refer is what my noble friend Lord Pakenham said about dividends and profits. I have not the figures here, but I have some in my mind. First of all, as to profits. Of course, high profits are a sign of inflation; they come from inflation. While companies have on one side bigger earnings, they have on another side constant losses through inflation. I do not think all your Lordships realise that, as inflation proceeds day by day, the capital and reserves of every company in this country become of less value. They are able to do less work. The replacement of stocks is enormously more expensive, as is the replacement of fixed assets: and all companies must have much larger profits in order to keep in as good a position. They must run in order to walk. Therefore those people who think that all profits now are real profits, make a great mistake. Unfortunately, both the Inland Revenue and a part of the accounting profession have tried to insist that in estimating profits one must take no account of any changes in the value of the pound. For this reason the real profits of a good many companies may have been overestimated.

That does not meet the noble Lord's question whether higher dividends should be paid. He will say that if companies are in great need of money (as they may well be in a year or two) all they have to do is not to distribute dividends. That is not easy. First of all, the shareholder is entitled to justice; and, in the second place, if you are to be able to raise money in the future you must pay dividends, so that an investor knows what return he is going to get, or knows at least that he is going to get something. As the noble Lord, Lord Rennell, said, the profits, tax, as it is at present, will make it very difficult to issue ordinary shares. The second point about dividends is that, in the whole situation, they are very small fry. I have not the exact figures, but I think that out of personal incomes of about £10,000,000,000, profits are about £650,000,000. Therefore, so far as their taking of money which the wage earner and the salaried man ought to have is concerned, they count for very little, particularly when one realises not only that the receiver pays 9s. 6d. in the pound income tax, but that if any receiver of dividends comes into the Surtax class, he pays surtax, too. So in the end what the shareholder gets is extremely small. In the last few years the increase in dividends has been much smaller in proportion than increases in wages and salaries. It is only recently, shareholders having had very little increase for some years, that an increase has taken place, and if the percentage figures quoted by the noble Lord are translated into hundreds of thousands or millions of pounds, the noble Lord will find that the total is very small.

I now wish to make some general remarks about the inflationary consequences which seem to me to follow from Socialist policy. These consequences follow, not only because of the huge expenditure of the Socialist State and, therefore, huge taxation, but from the manner in which the policy of full employment is interpreted. As an Election is perhaps near, and as all Parties accept more or less the policy of full employment but not perhaps the way in which it is now worked, I feel it is important to consider the results that the present policy produces and what policy another Party, if it came into power, might adopt. The chief characteristic of Socialism seems to me to be that it leads inevitably to continuous inflation. This is altogether apart from the recent rise in prices in the world, which has added to the inflationary consequences here but is nothing to do with the causes of internal inflation, and apart from anything that arises out of rearmament. Continuous inflation, unless it is very slow indeed, is very damaging to any country, and particularly to us, for reasons to which I will come shortly.

The chief incentive to inflation from full employment is the manner in which the Socialist Party interpret it. As I understand it, they give A.1 priority in all circumstances to full employment. Its effects on the stability of our currency—that is, on our external position—and on the long, term difficulty under such a system for maintaining full employment permanently are regarded as secondary. The only alternative in the minds of Socialists seems to be between absolutely full employment, on the one side, and the mass unemployment of the 'thirties on the other. This I do not consider to be a real alternative. Conditions now are totally different from what they were in the 'thirties. It is true that we cannot escape altogether the trade cycle, but, if we have monetary stability, we ought to be able to render the ups and downs of the trade cycle more moderate.

A much greater risk now is the general loss of faith in our currency. As it is, however, both Socialist theory and practice, I believe. demand a state of constant inflationary tension in order to have absolutely full employment. In particular, all monetary measures to restrain such a condition are regarded, anyhow among a large number of Back Benchers, as almost criminal, and merely a relic of the bad old days. Therefore there is always a tendency for too much money to be chasing too few goods; there is also always a demand for labour slightly in excess of the available supply; there is always a demand for goods slightly in excess of the current supply of goods at current prices; and therefore there is constant pressure for more consumption and, consequently, a tendency for prices to rise. This policy therefore means that the maximum of employment must be maintained, both by an easy money supply as well as by controls—the use of licences, allocations, and so forth. It does not mean an effort to bring about the distribution of labour in such a manner as will ensure the continuance permanently of high employment within the framework of a stable currency. It does not mean the continued free adjustment of labour to changing demand.

For instance, I understand the practice is that any temporary unemployment, say in the building trade, in any locality, is dealt with at once; the programme and the licences are revised, though there may well be more urgent needs elsewhere. The falling off in demand is not left to work itself out, and the result is that there is a good deal of hidden unemployment, no employer giving up labour willingly, since he knows he will not be able to get it back. Moreover, it means great immobility of labour. This doctrine also involves that any general fall in the price level must be resisted, since any such general fall must mean some unemployment somewhere. Therefore, while prices may rise, whey must not fall. All this is in contradiction to the fact that the world is ever changing—new competition, new inventions, new fashions and new conditions. The public interest needs adjustment to any of these new conditions, continuously, as quickly and with as little hardship as possible. In other words, market conditions, as expressed through the adaptation of capital, labour and plant to new conditions, must be used to bring about a new equilibrium between supply and demand. Without this, our conditions become much too rigid and much labour becomes inefficient.

I consider also that the system tends to inefficiency on the part of the employer, though often it is not unattractive to him. If we were to have inflation without controls, he might find conditions intolerable. If we have inflation with controls, then almost anything can be sold by him, for the time being, and he does not object. Without wishing to criticise in any way our friends in Australia and New Zealand, Australia particularly, I think, is an example of the tendency of Socialism to produce a somewhat static state of affairs. The Australians have a small population in a huge country. Their production ought to increase very much faster than ours, yet it does not do so. I think that is because Socialist methods have gone further in Australia than here, and rigidity and controls by Labour are stronger there than here. In any case, you see no such rapid development of production in Australia as you do now in the United States.

But while in any country a system leading to inflation is damaging unless it is very slow, here it involves us in very special difficulties. It becomes very difficult to maintain our external balance unless all other countries inflate equally, because we then have both export and import difficulties; the cost of our exports increases, and the prices we pay for imports become more attractive. If wages, prices and costs rise here and not elsewhere, or, as is more likely, if they fall elsewhere and do not fall here, we shall fail to compete. Merely to increase home demand—and this is where I disagree with many economists—does nothing to solve the problem. You may increase internal Government expenditure, and build more roads and buildings, but you cannot buy newsprint, iron ore, wheat or anything else you want with roads and buildings. If your export trade is not there to enable you to buy these goods, you will not buy them at all. In such circumstances, when we find that our exports cannot compete, either we shall have to reduce demand at home, so as to cause costs and prices to fall sufficiently, or there must be devaluation. The first method means temporary unemployment and possibly, or probably, a reduction in wages. Therefore I think the second alternative, which means again looking to devaluation for a remedy, is the more likely. But it is no remedy. As we know, it is only a temporary palliative.

I think, too, the likelihood of this result is increased by another doctrine of the Welfare State—namely, that the standard of living of the broad masses must never fall. This, of course, does not apply to the rentier and his like. Through inflation, all those classes fall into the pit, unbefriended and without anybody to help them. But there must be occasions when the standard of life does and must fall, and as we know the moment of devaluation is one of them. Thus we introduce a vicious circle. The Government devalue to escape a fall in incomes directly. But devaluation has only a temporary effect. Incomes and costs rise again, and so, unless the Government can stop the inflation, a vicious circle begins again. Moreover, devaluation does not cure any maladjustment between the supply and demand of labour—the demand for which a free market would reveal.

Another aspect of the Welfare State which, in my opinion, helps the inflationary tendency, is this. Welfare benefits from the State—all meaning more taxation—are generally regarded as additional to, and not part of, the standard of living, as free gifts from heaven. Hitherto, there has been no great opposition to them because they involve taxation. But in future, now that the rich are more or less disposed of, that situation will change. The general public will pay for any increased expenditure, and one may suppose that a different state of mind will intervene. But at the present moment, welfare benefits tend to produce inflationary effects. The bigger the welfare benefits, the more taxation. The more taxation, the greater the ultimate tendency to inflation. I may also add—and I regard this as very important—the more taxation the less savings. The less savings, the more likely a heavy capital investment programme is to be inflationary. I think it very likely that in the next two or three years we shall have a great demand for further capital for industry and the question is: Will the savings be there? I am not at all saying that no inflation has taken place in other countries. In nearly all countries since the war there has been inflation. All countries were left with excessive supplies of money and insufficient supplies of goods. Like other countries, we have greatly improved our position. But so have other European countries. Most European countries have improved in about the same ratio with us, and some now seem to be taking disinflationary steps which we here do not dare to take at present. If we compare the inflation in the United States with inflation in this country, we have to recollect that Marshall Aid was an inflationary influence in the United States while it should have been a very strong disinflationary influence in this country.

It may be that some political circles welcome inflation. It is the best means of silently ruining the rentier—indeed, whole classes of the community—and ridding all debtors of their debts at the expense of creditors. But inflation leading to the complete loss of faith in currency is a great disaster. Only speculators gain and, of course, all debtors. Meanwhile, industry loses a large part of its working capital. And, while taxation remains as it is, shareholders, I think, are likely to lose heavily too—as, obviously, are all holders of Government or other fixed securities. Savings tend to disappear, and industrial improvement is hampered. In addition, any such system must ultimately undermine the sterling area and our position as its bankers, as well as the position of sterling as a world-wide currency, and the position of London as the greatest international financial centre.

The Chancellor of the Exchequer and the noble Lord, Lord Pakenham, may reply that my account of Socialist policy is a travesty of the real situation.

SEVERAL NOBLE LORDS

Hear, hear.

LORD BRAND

They may say that no Government since 1947 has paid more attention to the needs of external policy; that the Budget has always been balanced, sometimes with a large surplus as a disinflationary measure; that imports have been restricted; that endless efforts have increased exports; that devaluation, when it took place, was not their own fault but was in essence a fundamental readjustment to post-war conditions: that this country is exceptionally handicapped by the existence of huge debts abroad, and, in fact, that all Marshall aid has gone to pay them; that reserves, in any case, have been considerably increased, and that it is the declared policy of the Government to strengthen them. I agree that many efforts were made by Sir Stafford Cripps and the present Chancellor of the Exchequer and I regard the Labour Party as having been exceptionally fortunate in having had these two Chancellors of the Exchequer. I disagree with Mr. Bevan's view about economists being Chancellors: he seems to think that it is disastrous that a Chancellor of the Ex- chequer should be an economist. Personally I think that it is very satisfactory. Nevertheless, I am absolutely sure that both Chancellors have been always swimming against a strong stream of inflationary tendencies, due to the causes which I have named, and that Socialist policy in general has the effects which I have pointed out. I admit that there may be one argument for inflation. Now that we have enormously excessive taxation it may be argued that, in the end, inflation will be the only way of lessening its weight. But this is no remedy if increased inflation means an equivalent rise in costs all round, including the Government's costs. If that happens you again get into a vicious circle.

Since the Socialist Party are not likely to alter their policy, I consider that it is important at present to reflect on what, if the Conservative Parry comes in, will he their policy, accepting as they do, more or less, the social services and full employment. I think the proper path is clearer if the main objective is clear. The main objective, to my mind, the re-creation in the world of the strength of sterling, making it. within the shortest period of time, convertible. And for any such policy we need much larger reserves than we now have. Our reserves appear to have increased enormously since devaluation, but against that increase there has recently been a great increase also in sterling obligations; and our sterling obligations, of course, represent a call on our dollars when dollars are wanted in repayment of them. I repeat, therefore, that our reserves are not nearly big enough for us to contemplate convertibility. For this reason, we must so order our internal policy as to achieve this aim.

People often forget that a country's external position depends, more than anything else, on its internal policy. We cannot, of course, by our internal policy avoid at this moment the misfortune of the recent rise in import prices or the great additional burden of rearmament. But ultimately a building up of our reserves depends upon internal policy. By our internal policy we have to enforce the restriction of consumption on current and capital account; we have to secure greater mobility of labour, adequate savings, the maintenance of competitive costs with other countries, and the utmost increase in production. But under Socialist principles any improvement in economic conditions is likely to be swallowed up by the Welfare State. Thus, there is never any margin to spare for reserves, for restriction of taxation, for savings or for anything else. On the other hand, a Government who pursue by their internal policy the aim of strengthening sterling are helping towards the maintenance of full employment, while any Government whose policy leads to a weakening of its currency will certainly, in the end, endanger full employment.

Of course, to increase our reserves now, in the face of rearmament, is very difficult. Nevertheless, we should be clear as to the aim. Apart from increased production for export, we can at present improve our external position only by a reduction of the Government current or capital expenditure, or by a reduction of private current or capital expenditure. No doubt each of these aims is difficult to achieve. I do not think that any further margin is to be found by increased taxation. On the other hand, I consider some rise in interest rates and some further restriction of credit would favourably affect both capital and current expenditure. But certainly to obtain any real United Kingdom surplus at the moment means very hard living for this country. I do not know how far the electorate will willingly and knowingly accept sacrifices to strengthen our external framework, or whether they will do so before we either have much worse inflation or considerable unemployment, though now that the rich have, as I have said, been disposed of, and nearly all future additional costs of the Welfare State will fall on the mass of the people, the people at large may understand the nature of that State more easily.

I calculate that if, taking the year 1948-49, all excess personal incomes over £2,000 a year were confiscated, the yield would be only £50,000,000—and £2,000 a year is equivalent now to only £1,000 a year in 1938. Thus, if the Government were to reduce every single taxpayer down to the equivalent of £1,000 in 1938 they would gain only £50,000,000 of revenue. That does not leave a great deal of leeway for those with over £2,000 a year to pay much more for the Welfare State. This being so, the great mass of the people may now more readily listen to arguments against increased expenditure. Moreover, we have to meet the competition of powerful, competent, industrial nations. If they are more flexible than we are, we shall suffer; and devaluation from time to time will prove no remedy. My own opinion, therefore, is that the prime objective of any new Government should be to remedy present inflationary tendencies and to develop a monetary policy for strengthening sterling.

I should like to end by reading to your Lordships a paragraph or two from a recent book by the eminent Oxford economist Professor Hicks. It is a book recently written on the trade cycle which I feel puts in a nutshell what I have been trying to say. Professor Hicks says: If the only alternative before us was between a continuance of the trade cycle, as experienced since 1914 (a trade cycle, that is, which has had its real oscillations enormously magnified by monetary instability), and a 'full employment economy' always verging on over-employment, with violent balance of payments crises, and shortages due to productive inefficiency, we should, I think, be obliged to admit that the second was the lesser evil. But if a third alternative were offered: of monetary reform to re-establish monetary security, combined with a moderate use of public investment and fiscal controls, designed to quieten, but hardly to eliminate, the real cycle, should we still make the same choice? It seems to me, at least, so far as I can see at present, that it is this third alternative alone which holds out hope.

5.3 p.m.

LORD LUCAS OF CHILWORTH

My Lords, this Finance Bill debate has run the true course of all Finance Bill debates in your Lordships' House. We have listened to the voice of the City. We have been duly admonished for some very wicked wrong-doings, and we have heard various members of the Party opposite quarrelling among themselves. After the most exhaustive speech of my noble friend Lord Pakenham, who answered quite the majority of the questions before they were asked, and in view of the exhaustive speeches of my right honourable friend the Chancellor of the Exchequer in another place, I do not intend to detain your Lordships very long. But courtesy at least demands that I reply to some of the points raised by the noble Lord, Lord Rennell. I find myself in a difficulty because the noble Lord is not here. He apologised for the fact that he could not be present, and I now find myself in the difficulty of having in his absence to attack strongly some of the things the noble Lord said. I will do it as politely as I possibly can.

The noble Lord, Lord Rennell, said that he was going to deal with four tombstones which His Majesty's Government had erected upon the road to liberty. Liberty! I wonder how many financial crimes have been committed under that disguise! As the noble Lord, Lord Rennell, went on, I wondered what he meant by liberty. Liberty to do what? Knowing the noble Lord as I do, surely he did not mean the liberty to see that the only person who paid taxes in this country was the person referred to by the noble Lord, Lord Pethick-Lawrence, as the honest taxpayer, because, after all, what the noble Lord, Lord Rennell, failed to do was to realise, as Lord Pethick-Lawrence did realise, that the clauses which the noble Lord, Lord Rennell, said were the tombstones erected along this road to liberty were there solely for one purpose—that was, to stop tax evasion. Nobody who did not wish or desire to evade his proper taxes need have the slightest fear of anything contained in any of those four clauses.

I know very well, and I am quite prepared to admit, that the higher taxes go, the more attractive evasion is, and, of course, the greater have to be the efforts of the Inland Revenue to see that everyone pays his just dues. Take the first clause to which the noble Lord, Lord Rennell, objected, Clause 27, which relates to the disclosure of bank interest. We all know that wages have to be disclosed. Why should not income from bank interest also be disclosed? If anybody discloses what is paid to him as bank interest, there is none of this prying and breaking the sacrosanct position as between banker and customer. Really, according to what the noble Lord said, the Chancellor of the Exchequer at times such as this has not the right to inquire and take all proper steps in his inquiries to find out whether tax evasion is taking place. Is there anything sacrosanct between the wage-earner's pay packet and the employer? The employer knows all about that. The wage-earner has to disclose everything in his P.A.Y.E. computation. Why should not interest be disclosed? There is no point at all in that.

The next clause is Clause 32: Transactions designed to avoid liability to the profits tax. The noble Lord does not require me to tell him how it can be avoided. If the steps laid down in the Act are taken against anyone by the inspector of taxes, the person who is subjected to that investigation always has the safeguard of an appeal to the Commissioners.

VISCOUNT SIMON

My Lords, as this is a friendly debate and the noble Lord is master of the subject, I wonder whether he would expound Clause 32 a little more in detail. I quite agree with him that the purpose here is to do one's best to prevent improper evasion of tax, but Clause 32 begins by saying: Where the Commissioners are of opinion that the main purpose or one of the main purposes was to avoid profits tax; and then it goes on to provide that the Commissioners may make such adjustments … as they consider appropriate. First of all, suppose that the Commissioners are right in their opinion: could the noble Lord give me an illustration of the sort of change they would make which they would consider appropriate? For example, suppose that the Commissioners are of the opinion that the purpose of a transaction which has given people capital rather than income-bearing profits is really to avoid profits tax, what, in his view, are the Commissioners to do? The transaction has taken place. After the transaction has taken place, how are they going to adjust in a way that they consider appropriate? For myself, I find that a little difficult to understand. I am not saying anything more than that it would be very helpful if the noble Lord could give us a little explanation. I am quite aware that in subsection (7) there is a provision for appeal. That is a little odd, because whereas the decision of the Commissioners is based on the fact that they are of a particular opinion, the appeal is not really an appeal against that; it is an appeal or the ground that the avoidance or reduction of the liability to tax was not the main purpose. In the ordinary way I should expect the Appeal Tribunal to say that that is not the point; that the point is, not whether it was or was not the main purpose, but that the Commissioners had an opinion. A little explanation on that would be very acceptable to me.

LORD LUCAS OF CHILWORTH

The noble and learned Viscount pays me a very high compliment. If it is so difficult for him to understand, how does he expect me, at a moment's notice, to explain it?

VISCOUNT SIMON

You were saying how obvious it was.

LORD LUCAS OF CHILWORTH

The obvious thing is: was that transaction entered into for the purpose of avoiding proper tax? That is the test, and that can be dealt with only by the opinion of the income tax inspector. Somebody has to express an opinion. The income tax inspector expresses that opinion and assesses the tax. Then there is an appeal to the Commissioners if the person against whom the assessment of tax is made is not satisfied. Exactly the same procedure is adopted in any other case to-day. I can give you plenty of cases. Noble Lords do not require me to tell them how, in quite a number of companies, liability to profits tax can be avoided.

LORD HAWKE

Before the noble Lord continues, are we to understand that any transaction that avoids tax in any way is now illegal, and is likely to be reopened? As a taxpayer I have always been brought up to believe that anything within the law to avoid paying taxation was perfectly legitimate. Here is a new clause which allows it to be completely reopened on a different footing.

LORD LUCAS OF CHILWORTH

An avoidance of tax is a breach of the law, and the noble Lord cannot read anything other than that into it.

LORD HAWKE

What about reduction of liability?

LORD LUCAS OF CHILWORTH

Reduction of liability is a breach of the law as it stands.

VISCOUNT SWINTON

Do you mean an avoidance of tax?

LORD LUCAS OF CHILWORTH

Yes.

VISCOUNT SWINTON

Surely the noble Lord means evasion, which is very different from avoidance. The noble Lord is replying for the Treasury. May I ask this specific question—and if he cannot answer it perhaps the Lord Chancellor can. Is it a new thesis that avoidance of tax, which hitherto has always been held by the highest judicial decisions of this House to be perfectly legitimate, as from the date of the passage of this Bill is to become a criminal offence, or at any rate an action which renders one liable to proceedings? Does the noble Lord mean that, or does he mean evasion of tax?

LORD LUCAS OF CHILWORTH

I should have thought noble Lords would have known that I meant evasion of tax —illegal avoidance or evasion of tax. I quite agree with the dictum laid down by the noble Lord, Lord Pethick-Lawrence. Anybody who can legally avoid paying tax, does so; but an illegal avoidance of tax is an evasion, unless we want to split hairs. Noble Lords must have known that that is what I meant.

LORD RENNELL

The noble Lord will see that the Bill uses the word "avoid."

LORD LUCAS OF CHILWORTH

I think I have made the position perfectly clear, and before the noble Lord, Lord Rennell, returned I was saying that the point you have to decide in all these matters is this: is the transaction in any case under any of the four clauses to which the noble Lord, Lord Rennell, referred carried out for the purpose of avoiding tax? If it is, then in my view the noble Lord has nothing to grumble about.

LORD HAWKE

Why is not the word "evasion" used?

VISCOUNT SIMON

I am not quarrelling with anybody. The noble Lord is explaining the point, and I am sure he has looked at it. My great difficulty is to understand what it is the Commissioners are going to do. You must assume that a transaction has taken place for example, that a company has so arranged matters as to give people capital instead of giving them income. It has been done. What does the noble Lord conceive the Commissioners are going to do if they "direct that such adjustments shall be made as respects liability to the profits tax as they consider appropriate"? Are they going to undo the transaction? That is what I do not follow.

LORD LUCAS OF CHILWORTH

I should imagine that they would assess to tax the sum which they think would have been taxable if that transaction had not been entered into. That appears to me to be the logical thing for them to do. Now perhaps I may proceed. The noble and learned Viscount is always courteous when he asks questions, but if I am to be subjected to a cross-examination in regard to the duties of an income tax inspector, ruble Lords are going to leave here very late to-night.

VISCOUNT SIMON

It is not the income tax inspector, it is the Commissioners; they are wholly different people.

LORD LUCAS OF CHILWORTH

I come now to Clause 36, dealing with the transfer of companies abroad. The noble Lord, Lord Rennell, said that many companies were transferring their activities abroad to escape from—and then he halted—to escape from this, that, nationalisation and a lot of other things. If a company will not face up to its responsibilities and wants to get out of them by transferring its activities abroad, it is quite right that that company should be made to pay. Clause 37 was also criticised by Lord Rennell. That clause deals with sales on an artificial basis between interconnected companies. Nobody is going to complain if a company in this country sells articles at a very deflated price to a subsidiary abroad, if it is necessary for that subsidiary abroad also to sell at a deflated price for the purpose of meeting competition. But would the noble Lord, Lord Rennell, maintain that it is justifiable to sell goods to a subsidiary at a deflated price out of all relation to the level of the market in the country in which ultimately they are going to be sold, only for the purpose of avoiding taxation in this country? Most certainly he would not.

LORD RENNELL

I think the noble Lord is not quite clear on the matter. I do not think he quite meant what he said. If a company in this country sells an article to a subsidiary at a very deflated price (I did not use the word; the noble Lord did), and then passes it on to the public in that country, as he said, at a very deflated price, then there could not be much profit in it anyway. The point is what this clause does or can prevent.

What I said was that the parent company could be prohibited from selling to a subsidiary at any other price than that at which it would sell to a third party at arm's length; and that, I say, is wrong.

LORD LUCAS OF CHILWORTH

I take it, even to avoid taxation?

LORD RENNELL

It does not say anything about that.

LORD LUCAS OF CHILWORTH

That is what it would be done for. The noble Lord again misses the main point, that all these clauses are designed to catch the person who will not play the game. The noble Lord, I think, would be the last to attempt to justify that sort of conduct. All his forebodings about what is going to happen to British industry through these wicked provisions seem to have little basis. As Lord Pethick-Lawrence pointed out, British industry has been "ruined" by successive Chancellors of the Exchequer since the days of Gladstone. yet it seems to survive remarkably well. All kinds of industries appear to be paying quite handsome profits. In this connection I could not quite understand Lord Rennell's argument. There was an interjection by Lord Pakenham about dividends and profits, and Lord Rennell said that what he objected to was the tax on distributed profits. Before, he had objected to the tax on undistributed profits. Lord Pakenham asked what would he levy tax on, and he said "profits."

LORD RENNELL

My Lords, I must beg your Lordships' pardon for interrupting again. I have in past times objected to the tax on both distributed and undistributed profits. What I said this afternoon was that I took grave exception to the tax on distributed profits, but if we had to have a tax to raise money let it be on profits, whether distributed or not, but preferably not on the distributed profits—in other words not a corporation profits tax.

LORD LUCAS OF CHILWORTH

If you do not have a tax on distributed profits, you have got to have one on undistributed profits.

LORD RENNELL

You have got one.

LORD LUCAS OF CHILWORTH

What the noble Lord has been saying is entirely contrary to what is said by mem bers of the noble Lord's Party in another place. Formerly, in the days when the noble Lord used to sit on the Liberal Benches, it used to be an almost daily occurrence for an opinion to be expressed from those Benches which differed from an opinion expressed from the Liberal Benches in another place. Perhaps the noble Lord is now introducing that technique on to the front Conservative Opposition Bench. It will be very interesting if that is the case. At any rate, he is now expounding a theory which is directly contrary to that maintained by the Conservative Party in another place. Perhaps the noble Lord does not realise the fact that profits to-day are too easy to make: that is the real trouble. Can he really maintain the argument in your Lordships' House that through the present economic position profits have not been increasing? As the noble Lord, Lord Pakenham, pointed out, dividends have been increasing, and will increase, because of the £4,700,000,000 rearmament programme, when that rearmament programme has to be paid for. Lord Rennell's own words in this connection were "I have no quarrel with the rearmament programme." And I added sotto voce: "No, if someone else pays for it." Is it not right that there should be a substantial contribution towards it in the form of profits tax from those firms which make profits on account of that rearmament programme? I think that the noble Lord, Lord Rennell, would be well advised to consider that.

I am not going to repeat the figures which Lord Pakenham gave about dividend increases, but I am going to repeat what the Chancellor of the Exchequer said. He said that the only doubt he had in his mind to-day was whether the distributed profits tax was sufficient, because dividends are increasing month by month. In January, 1951, there was an increase over last year of 10.7 per cent. In February, the increase was 9.7 per cent. and in March. 1951, the figure was 14.4 per cent. over that for the corresponding month a year previously. I see the noble Lord, Lord Brand, rising, but I ask him to forbear at the moment, because I know he will want to interrupt me in a moment when I come to deal with his speech.

LORD BRAND

My Lords, I have one point that I should like to make here. Does not the receiver of dividends pay tax and surtax anyhow?

LORD LUCAS OF CHILWORTH

I would say that from that point of view the receiver of dividends is fortunate in being able to pay surtax. Wage-earners have to pay income tax each according to his means.

Now I come to the speech of the noble Lord, Lord Brand. So far as I follow it, I think his argument is this: that full employment is in itself inflationary; therefore, as the Government's objective is full employment, the Government policy is inflationary. That is the noble Lord's contention in essence, or at any rate I gather that that is the substance of his whole argument. I am not going to deny that the level of employment has some effect upon the level of prices. If there is a rise in the level of employment, there is a rise in the level of demand. And if there is a rise in the level of demand there is always a slight tendency for prices to increase. Obversely,if you are going to have unemployment, you are going to have a slackening of demand and a slackening of demand necessarily tends to cause further unemployment. There is only one alternative to full employment and that is a measure of unemployment, and that is what the noble Lord always has the courage to say. And if I may say so respectfully, I admire him because he says what is in the minds of a good many noble Lords opposite.

LORD BRAND

May I intervene again for a moment? I would never urge a policy of unemployment. I say that you have to give first priority to your external problem if you wish any full employment policy to succeed. If you do not do that, your currency will weaken at various points, and you will have further trouble with it; and so your absolutely full employment policy will prove a failure. I am ready to leave it to the future to decide between myself and the noble Lord.

LORD LUCAS OF CHILWORTH

We have both got to do that. What the noble Lord says really comes down to the question of flexibility. I have heard before in your Lordships' House the argument that what we want is more flexibility; we want a little tiny bit of unemployment. That argument always comes from people who will never, while they are upon this earth, have to stand in an unemployment queue.

LORD BALFOUR OF BURLEIGH

I really must protest. I have been misrepresented in this matter, and I feel very bitterly—

LORD LUCAS OF CHILWORTH

I have never mentioned the noble Lord; if the cap fits, then, of course, the noble Lord is quite at liberty to wear it. But I have never mentioned his name. It has been said in this House and it has been said outside this House, that what we really want, not only to discipline labour but also to alter the pace of inflation, is a little bit of unemployment.

LORD BRAND

Excuse me, I never said that.

LORD LUCAS OF CHILWORTH

I listened to the noble Lord patiently, and I tried to follow him without ever once intervening while he was speaking. I am sure that the noble Lord will extend to me exactly the same courtesy. My speech is just as controversial as his was. I do not think that full employment has had an inflationary effect. We had full employment from 1945 to 1950, and prices rose by barely 2 per cent. The real cause of the rise of prices in this country is world conditions. Only this last twelve months the average of import prices has risen by something like 40 per cent. I pointed out, during the economic debate in your Lordships' House, that the prices of our raw materials since the outbreak of the Korean war had risen by 75 per cent. I do not think the noble Lord will disagree when I say such rises in prices are very high and also occur in countries where there is no such thing as Socialism. I would point to America. When the noble Lord said, "What would a Conservative Government do?" my ears pricked up, but I failed to hear one thing about what a Conservative Government would do—unless, of course, they start engineering and manipulating the internal economy so as to cause unemployment. Whatever kind of patron of the Conservative Party Lord Brand is, judging by his speech today and by his speeches on many occasions in your Lordships' House, the Conservative Party will never allow him to write their next Election manifesto. This has been an interesting debate, and I can only end, like my noble friend Lord Pakenham, by hoping that your Lordships will now give the Finance Bill a Second Reading.

On Question, Bill read 2^a; Committee negatived.