Sitting of 21 June 1937

Preamble
The House met at a Quarter before Three of the Clock, Mr. SPEAKER in the Chair.

PRIVATE BUSINESS.
Waltham Holy Cross Urban District Council Bill [Lords],
Read the Third time, and passed, with Amendments.
Barnet District Gas and Water Bill [Lords],
As amended, considered; to be read the Third time.

ORAL ANSWERS TO QUESTIONS.
  INDIA.

    SOLDIERS' MESSING ALLOWANCE.
    Captain Macnamaraasked the Under-Secretary of State for India whether the ration allowance for soldiers in India has now been raised; and whether he can now definitely assure the House that British soldiers in India are able to feed, and their meals to include suppers, without any expense to themselves?
    The Under-Secretary of State for India (Lord Stanley): It has been decided to increase the messing allowance from 3½ to 4½ annas a day. It is believed that, given time to judge the results, they will fulfil the hopes expressed by my hon. and gallant Friend.

    ARMY FUEL ISSUES.
    Captain Macnamaraasked the Under-Secretary of State for India whether he is aware that in the past it has been necessary in India for soldiers to be stopped out of their pay moneys to buy extra wood for water-heating purposes; and whether, in view of the policy that the soldier shall not be burdened with stoppages, he will arrange that the supply of wood is adequate, without burdening the soldier?
    Lord Stanley: I would refer my hon. and gallant Friend to the answer which my predecessor gave him on 16th February last. I am not aware of any general complaint that the issues of fuel are inadequate.
    Captain Macnamara: Is it not a fact that they are inadequate throughout India, and that the soldier, on the average, has two rupees a month stopped in order to supply the extra fuel for heating purposes?
    Lord Stanley: No complaint has been made on this subject, but, as my predecessor said, if the hon. and gallant Member will let me have any details, I will look into them.
    Mr. Morgan Jones: Is the Noble Lord aware that when this matter came before the House on a previous occasion several hon. Members indicated a desire that these stoppages should be brought to an end as a matter of justice to the soldier?

    SLAVERY, ASSAM.
    Mr. Edmund Harveyasked the Under-Secretary of State for India whether efforts recently made in the Naga Hills area of Assam to suppress slavery have been carried to a satisfactory conclusion; and whether the individuals and tribes engaged in the capture of slaves have undertaken to abandon their former practices in this regard?
    Lord Stanley: Yes, Sir. The recent expedition led by the Deputy-Commissioner of the Naga Hills to the Pangsha tribal area was highly successful. All the slaves for the recovery of whom the expedition was sanctioned have been freed. The villages responsible for their capture, who at first adopted a defiant attitude towards the expedition, were suitably punished, and have promised to abstain from slave raiding in the future.
    Mr. Harvey: Will the Noble Lord undertake to see that the papers are laid before the Anti-Slavery Commission of the League of Nations?
    Lord Stanley: I will look into that matter.
    Mr. Kirby: What does the Noble Lord mean by the statement that the villages were suitably punished?
    Lord Stanley: The villages were burned.

  POLITICAL SITUATION.
  Mr. Sorensenasked the Under-Secretary of State for India whether he is aware that the Muslim leaders' conference at Allahabad, on 17th May, recommended that Muslims should ally themselves with the Indian National Congress; whether he could state the number of prominent Indian political organisations that do not support, in general, the Congress party's policy; and whether any recent instructions have been sent to the Governors respecting the present deadlock?
  Lord Stanley: I am aware that a conference of Muslims at Allahabad passed a resolution of the nature indicated, though this resolution must not be taken as representative of Muslim feeling generally. I am unable to state the number of political organisations that do not support Congress policy. The answer to the last part of the question is in the negative.
  Mr. Sorensen: May I ask whether, on the Noble Lord's information, it does not seem as if there is considerable opposition to the operation of the India Act?

  POLITICAL REFUGEES.
  Major-General Sir Alfred Knoxasked the Secretary of State for Foreign Affairs whether he will consider advocating at Geneva the desirability of retaining the Nansen Office or some modified form of that office to look after the interests of political refugees.
  The Secretary of State for Foreign Affairs (Mr. Eden): While I see no prospect of a reversal of the Assembly's decision that the Nansen Office shall be liquidated at the end of 1938, my hon. and gallant Friend will be aware that the President of the Governing Body of the Office has been instructed to prepare for the 1938 Assembly recommendations for the allocation of the tasks undertaken by the Office up to the date of its liquidation, in the light of the situation existing at that time.
  Sir A. Knox: Does the right hon. Gentleman realise the plight of these people in being forced to leave their own country and there being no one to give them passports, and also that in regard to the idea of liquidating the work of the office there is only one country that insists on it?
  Mr. Eden: I appreciate what the hon. and gallant Member has said, and that is why we are at present sympathetically examining the future work of this office.
  Sir Arnold Wilson: Will the right hon. Gentleman take steps to ensure that the Assyrian refugees are not forgotten on this occasion?
  Mr. Noel-Baker: In view of the great change that has taken place in the situation does it not show that the matter cannot be left where it is, and will the right hon. Gentleman not suggest that this office should be re-commenced?
  Mr. Eden: I have considerable sympathy with what the hon. Member has said. The work in some form or other, or some part of it, must certainly go on. It is a question how it can be arranged.

  CHINA (MORTGAGED PROPERTY).
  Sir John Wardlaw-Milneasked the Secretary for State for Foreign Affairs whether he is aware that the decision of the Chinese judicial yuan in connection with the sale of mortgaged property in Shanghai only permits an auction without judgment provided the debtor or third party raises no question, and that this proviso enables defaulting mortgagors to postpone realisation without just cause; and will he therefore take steps to secure the observance of the undertaking set out in the letter from the mayor of Greater Shanghai to the senior consul referring to the proceeding in connection with these mortgages.
  Mr. Eden: I am making inquiries and will consider whether any further steps will be appropriate.
  Sir J. Wardlaw-Milne: Will the right hon. Gentleman bear in mind that the position to-day really is that the undertaking given to him by the Mayor of Greater Shanghai is not being carried out owing to the proviso always inserted, and referred to in the question?
  Mr. Eden: I will take note of that.

  RUSSIA.

    BRITISH SUBJECTS' CLAIMS.
    Sir William Davisonasked the Secretary of State for Foreign Affairs what is the present position with regard to the

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    claims of British nationals against the Russian Soviet Government in respect of cash and property belonging to such nationals which was appropriated by the Soviet authorities without compensation; and whether notice will be given to terminate the existing temporary commercial agreement with a view to its replacement by a formal treaty of trade and navigation?
    Mr. Eden: I would refer my hon. Friend to the reply which I gave to a similar question asked by him on 25th November last. In that reply I made it clear that it was owing to the fact that it had not been possible to reach a settlement of the claims of British subjects that negotiations for a formal treaty had not yet been attempted. That still remains the position.
    Sir W. Davison: Is the right hon. Gentleman aware that many of these unfortunate people who have received no compensation have lost all their property and are in a state of dire distress, and that a promise was made that no treaty would be made with Russia until their claims were dealt with, and that this temporary arrangement has gone on for three or four years, and these people are heart-broken?
    Mr. Eden: I am aware that there are very hard cases.
    Sir W. Davison: Is the right hon. Gentleman aware that these people have registered their claims with the Foreign Office? What is the good of registering their claims if the Foreign Office sits still year after year?
    Mr. Eden: It is not a question of the Foreign Office sitting still, but a question of foreign Governments not paying.
    Mr. Leach: Is this not an illustration of the mistake we made in 1924 in not accepting the Labour party policy?

    GOLD RESERVE.
    Sir W. Davisonasked the Chancellor of the Exchequer whether he is able to give any information as to the estimated amount of the gold reserve of the Russian Soviet Government?
    The Financial Secretary to the Treasury (Lieut.-Colonel Colville): In the last annual report of the Bank for International Settlements the gold reserve of the Union of Socialist Soviet Republics
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    at the end of 1936 is estimated at 3,535 million gold Swiss francs, or about £236,000,000. I know of no official figures.

  FOREIGN POLICY.
  Mr. Arthur Hendersonasked the Secretary of State for Foreign Affairs whether there is to be any change in the foreign policy of His Majesty's Government as a result of the deliberations of the Imperial Conference?
  Mr. Eden: The hon. Member will have seen in the Press the statement recording the result of the deliberations of the Conference on the subject of foreign affairs. No change is contemplated in the foreign policy of His Majesty's Government in the United Kingdom.
  Mr. Henderson: Are we to assume that His Majesty's Government continue opposed to any proposal to delete or weaken Article 16 of the Covenant of the League?
  Mr. Eden: Our position was made quite clear in my previous statement.

  SPAIN.
  Mr. A. Hendersonasked the Secretary of State for Foreign Affairs whether, as a result of the instructions sent to His Majesty's Ambassador at Hendaye, he is now in a position to make a statement with regard to the eight British nationals detained as prisoners by the Spanish insurgent authorities?
  Mr. Eden: His Majesty's Ambassador at Hendaye has reported that the Military Governor of Irun, with whom he has been in touch on this subject, has promised to endeavour to obtain an early reply from Salamanca to the representations to which I referred in my reply to the questions put by the hon. Members for Central Southwark (Mr. Day) and West Leyton (Mr. Sorensen) on 9th June. The Military Governor added that he felt sure that there was no danger of the death sentence, to which two of the prisoners were alleged to have been condemned, being carried out; the position apparently being that these two men were held back for exchange purposes.
  Mr. Henderson: Can the right hon. Gentleman say why the other six men

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  were detained when the 20 odd prisoners were released a few weeks ago? Was it not because it was intended to retain them as hostages?
  Mr. Eden: Two of them, I understand, they wished to exchange for other prisoners. We are doing our best to clarify the position.
  Mr. A. Hendersonasked the Secretary of State for Foreign Affairs whether he will state which Governments have replied to His Majesty's Government's proposals for an inquiry into the bombardment of Guernica and the nature of their replies?
  Miss Rathboneasked the Secretary of State for Foreign Affairs whether any progress has been made with the proposals for an inquiry into the bombing of Guernica; whether the Basque Government and the insurgent leaders have been asked whether they will consent to give facilities for such an inquiry; and with what result in either case?
  Mr. Eden: In the early part of May last His Majesty's Government received from the Spanish Ambassador a copy of a statement issued by the Basque Government in which they declared that they were ready to receive any commission of inquiry into the destruction of Guernica. On 18th May His Majesty's Government, having stated that they were in favour of such an inquiry, invited the observations of the French, German, Italian, Portuguese and Soviet Governments on this suggestion, stating that if, in their view, such an international inquiry could usefully be made, His Majesty's Government were ready to co-operate in it whatever its scope. On 22nd May, a reply was received from the Portuguese Government to the effect that, in their view, such an initiative would be inopportune and that it could only be carried out if the inquiry were extended to all sufferings unjustly inflicted on the peaceful Spanish populations. In their opinion, there was no legal basis for such an inquiry.
  As no further replies had been received by 28th May, His Majesty's Government were obliged to remind the other four Governments that their replies were still outstanding. On 31.st May they received a reply from the Italian Government, stating that they could not agree to the choice of a single episode as the object of such an inquiry, in view of the number
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  of atrocities proved to have been committed since the beginning of the war, and that they did not see in what way this inquiry would usefully serve the object of pacification in Spain. They felt that this object could be better served by the appeal which the Committee was then considering issuing to both sides to humanise the war. On 1st June the Soviet Government intimated that they were ready to take part in an inquiry into the destruction of Guernica. Finally, on 8th June the French Government stated that they were ready to subscribe to any initiative of His Majesty's Government in this connection. No reply has yet been received from the German Government. The House will note that this suggestion of His Majesty's Government did not receive any immediate acceptance from any of the five Powers whom they consulted, and they regret that all the Governments concerned do not concur in their view as to the value of such an inquiry even if it were extended as His Majesty's Government were willing to do to other incidents of a similar nature.
  Mr. Henderson: Is it not significant that the Portuguese and Italian Governments are opposed to the suggestion, and that the German Government have not replied?
  Sir A. Knox: Is it not also significant that the Russian Government are in favour of it?
  Brigadier-General Sir Henry Croft: May I ask whether it was made clear that His Majesty's Government could only consent to such an inquiry if it also included cases like Iviza and other places?
  Mr. Eden: We have made it clear that we are willing to join in an inquiry whatever its scope.
  Miss Rathbone: The right hon. Gentleman has not replied to one part of my question—whether the insurgent leaders had replied? I think he said that the Basque Government had consented hut did not say whether the insurgent leaders had consented.
  Mr. Eden: I do not think that they have been asked.
  Mr. Wedgwood Benn: Has the Foreign Office taken note of the studied discourtesy with which the German Government replies to nothing?
  Lieut.-Commander Fletcher: Is it not rather optimistic to expect the German Government to accept an inquiry into the destruction of Guernica by German aeroplanes?
  Mr. Eden: I must point out that some other Governments have taken a long time to reply.
  Mr. Dayasked the Secretary of State for Foreign Affairs whether he will give particulars of any information he has received of the nationality and type of the aircraft used in the recent air attacks on Bilbao?
  Mr. Eden: While I am not in a position to give detailed information, I have good reason to believe that the aircraft employed by the insurgent forces in the recent attacks on Bilbao include the three main types of service land aircraft, namely, bombers, reconnaissance aircraft and fighters. Such information as is in my possession tends to show that these aircraft are of types of Italian and German manufacture in each category.
  Mr. Day: Can the right hon. Gentleman say whether the majority of these aeroplanes were of German manufacture?
  Mr. Eden: My answer, I think, is clear.
  Mr. Benn: Is there a scrap of reality about this so-called non-intervention?
  Mr. Eden: Yes. Our objective from the first has been to prevent the war in Spain from spreading.
  Mr. Benn: Is the Foreign Secretary aware that the conquest of Bilbao has been entirely due to the intervention of aircraft from Italy and Germany?
  Mr. Eden: The right hon. Gentleman will know that the Non-Intervention Agreement was subscribed to by all Governments, including Russia. His Majesty's Government, as at present advised do not intend to be the first to denounce it.
  Mr. Noel-Baker: Will His Majesty's Government make any protest against the fact which the right hon. Gentleman has just announced, that German and Italian aircraft were engaged?
  Mr. Eden: His Majesty's Government would be in a very much stronger position if there were no foreign aircraft on either side.
  Mr. Bellengerasked the Secretary of State for Foreign Affairs whether any reply has been received from the Spanish insurgent authorities to the protest made by His Majesty's Government regarding the mining of His Majesty's Ship "Hunter"?
  Mr. Eden: No reply having yet been received, steps have been taken to expedite it.
  Mr. Bellenger: Does not the right hon. Gentleman realise that this protest was made owing to the fact that British lives were lost and that the prima facie evidence went to show that it was due to a mine laid by the insurgents? Does not the right hon. Gentleman propose to fix a time limit?
  Mr. Eden: I realise all that the hon. Member has said, but he will also realise the difficulty of communicating with a Government with whom we have no accredited representative.
  Mr. Benn: Is it not clear that the Spanish insurgents treat His Majesty's Government with complete contempt?
  Miss Rathboneasked the Secretary of State for Foreign Affairs whether he is now in a position to report upon the precautions, if any, proposed to be taken by the Non-Intervention Committee against abuses of the frontier and coastal control scheme in Spain, whether by placing neutral observers on the control warships, or by the substitution of trawlers for warships, or by the placing of observers in aerodromes in Spain and in those belonging to the participating countries, or in any other way?
  Mr. Eden: I understand that the question of improvements in the naval patrol scheme is on the agenda for the meeting of the Chairman's sub-committee of the Non-Intervention Committee this afternoon. I have said that I view with sympathy the proposal to place neutral observers en ships engaged in patrol duties. As regards placing observers in aerodromes in Spain or other countries, I have nothing to add to the statement which I made in reply to a question by the hon. Member on 2nd June.
  Miss Rathbone: In view of the admission of the right hon. Gentleman that Guernica was destroyed chiefly by

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  German and Italian aeroplanes, and in view of the statement made yesterday by General de Vayo that three times as many German and Italian aeroplanes had entered insurgent territory in the last three weeks as in the previous three months, does not the right hon. Gentleman think that the control of aircraft coming in by air is of primary importance, as it is having more influence than anything else on the course of the war in Spain?
  Mr. Eden: I think the hon. Member will realise that the difficulty is to find a solution.
  Mr. Noel-Baker: Will the right hon. Gentleman ask the Non-Intervention Committee to publish its minutes in order that we may know which Governments rejected this reasonable proposal?
  Lieut.-Commander Fletcher: Does the right hon. Gentleman not consider that it is very undignified for His Majesty's Government to remain a member of the Non-Intervention Committee when other members pay no attention to it?
  Miss Rathboneasked the Secretary of State for Foreign Affairs whether, in view of the difficulty of obtaining satisfactory evidence as to the truth of alleged breaches of the Non-Intervention Pact, he will consider reviving the proposal that neutral observers should be placed in Spanish territory or, alternatively, that the League of Nations should be asked to appoint an international commission of inquiry in Spain?
  Mr. Eden: I would remind the hon. Member that any scheme which involves placing foreign officials on Spanish territory would require the consent and active collaboration of both parties in Spain. This has never been forthcoming in the past, and there is no reason to suppose that it would be forthcoming now.
  Miss Rathbone: In view of the acknowledged difficulty of securing any impartial evidence, and the repeated replies of His Majesty's Government that they have no evidence of facts which every newspaper correspondent has reported——
  Mr. Speaker: We cannot have references to newspaper reports.
  Miss Rathbone: I am merely asking whether the right hon. Gentleman will
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  consider re-opening this question with the leaders of both sides in view of its obvious necessity?
  Mr. Eden: I am certainly prepared to open this matter with both sides if I have any reason to believe that they would accept it.
  Mr. Cocks: You have referred, Mr. Speaker, to newspaper reports. May I draw your attention to the fact that the Foreign Secretary referred to a statement in the Press in answering a question just now?
  Mr. Speaker: He did not base his answer on a statement in the Press.
  Mr. Cocksasked the Secretary of State for Foreign Affairs whether he is aware that papers found on the German air-pilot Joachim Hans Wandel, captured on the Basque front, show that he left Berlin on 22nd April, two months after the agreement concerning volunteers; and whether he will bring this case and the similar case of Hans Sobotka, who left Berlin on 6th April with a German passport, to the attention of the Non-Intervention Committee or the German Government?
  Mr. Eden: I have received from the Spanish Government certain evidence relating to the two points raised in the hon. Member's question. No request has, however, been made that His Majesty's Government should forward this information to the Non-Intervention Committee.
  Mr. Cocks: Seeing that the British Government are parties to this agreement, and that this is a distinct breach of it, is it not up to the British Government to take steps themselves, seeing that the Spanish Government are not represented on the Committee?
  Mr. Benn: Why not ask Baron Von Neurath when he comes here this week?
  Sir A. Knox: Will the right hon. Gentleman state whether, if questions of this type so embitter relations as to lead to war, will it be a private socialist war run by the Socialist Opposition, or will the fighting men of England have to take part?
  Mr. Cocksasked the Secretary of State for Foreign Affairs whether he has now studied the volume of evidence of Italian intervention in Spain submitted

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  by the Spanish Government to the League of Nations; and what steps he is taking to give this information to the House?
  Mr. Eden: The document has been examined. The hon. Member will realise that it was published by the Spanish Government, but was not officially circulated to Members of the League. I am arranging to place a copy of the document in the Library of the House. It will be accompanied by a summary in English prepared by the Spanish Delegation at Geneva for the Press.
  Mr. Cocksasked the Secretary of State for Foreign Affairs what replies he has received to the request he made to British consular and diplomatic representatives for information regarding the bombing of Guernica?
  Mr. Eden: I have received certain information on this subject, and, as the House is aware, His Majesty's Government proposed an inquiry into the matter on an international basis. I am not in possession of any considered reports.
  Mr. Cocks: Having got this information from the consular authorities and the Ambassador, will the right hon. Gentleman state what the information is?
  Mr. Eden: I said that I was not in possession of any considered reports, and I explained that such information as I have will be placed at the disposal of the inquiry.
  Mr. Cocks: Cannot the right hon. Gentleman place it at the disposal of the House?
  Mr. Eden: I have no considered reports to place at the disposal of the House.
  Lieut.-Commander Fletcher: As there is not the slightest prospect of this inquiry being held, cannot we have the information here?
  Mr. Noel-Bakerasked the Secretary of State for Foreign Affairs whether he can make a statement concerning the progress of negotiations for the withdrawal of foreign troops from Spain?
  Mr. Eden: The report drawn up by the Technical Sub-Committee of the Non-Intervention Committee, which contains a scheme for effecting the withdrawal of all foreign combatants from Spain is, I understand: under consideration by the Chair-
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  man's Sub-Committee this afternoon. I can assure the House that His Majesty's Government are doing their utmost to accelerate the committee's work on this problem. In this connection they are themselves making certain suggestions to the committee this afternoon with the object of expediting the actual withdrawal of men from Spain.
  Mr. Noel-Baker: In order that this country and the world may have guarantees of our good faith, will the right hon. Gentleman again consider publishing the scheme and the minutes of the discussion in the Non-Intervention Committee?
  Mr. Eden: I am quite prepared to consider that. I think the House will admit that if it rested with His Majesty's Government alone, this withdrawal would have been effected long ago.
  Mr. Arthur Greenwood(By Private Notice) asked the Secretary of State for Foreign Affairs whether he has any statement to make on the position in Spain and on the proceedings of the Non-Intervention Committee at the Conference of Ambassadors on Saturday last.
  Mr. Eden: The House will be aware that the city of Bilbao was occupied by General Franco's troops on Saturday last. I have already stated in answer to questions this afternoon the position as regards the work of the Non-Intervention Committee, particularly with regard to the question of the withdrawal of foreign combatants and the consideration of measures for the improvement of the naval patrol scheme. On Saturday afternoon the German Ambassador presented a note reporting that four attempts had recently been made to torpedo the German cruiser "Leipzig" and requesting His Majesty's Government to arrange that the four Governments parties to the Agreement of 12th June should immediately concert measures to be taken in common. I understand that similar communications were made to the French and Italian Governments. I received the French, German and Italian Ambassadors at the Foreign Office the same evening and after preliminary discussion the representatives of the four Powers present undertook to consult at once with their Governments and agreed to meet again not later that to-day. A further meeting is now in progress.
  Duchess of Atholl: Is it absolutely certain that the facts are as stated? Should not there be an inquiry before action is taken?
  Mr. Lloyd George: I should also like to press that point. Surely there ought to be some sort of investigation into these alleged attacks in view of the fact that Signor Prieto has definitely stated that the submarines of the Spanish Government were in port at that time? Should not there be some independent investigation of the facts before any conclusion is come to?
  Mr. Eden: I fully appreciate the right hon. Gentleman's point, but he will also appreciate my position when I am in the middle of these consultations. I can definitely tell the House that the importance of an inquiry is very much in my mind.
  Mr. Greenwood: Will the right hon. Gentleman be able to make a statement to-morrow?
  Mr. Eden: I anticipate so.
  Mr. Noel-Baker: Cannot the question of fact and law be referred to the Permanent Court of International Justice under the Optional Clause?
  Mr. A. Henderson: Did the German Ambassador produce any evidence as to who was responsible or these attempts to torpedo this ship?
  Mr. Eden: The hon. Member cannot ask me to reveal the secrets of the proceedings. Our object is to achieve a peaceful solution of the difficulty.
  Mr. Macquisten: Did the German Ambassador suggest that Franco did it?
  Mr. Greenwood(By Private Notice) asked the Prime Minister whether, in view of the fact that the French Government has received 30,000 Spanish refugees, His Majesty's Government will take its share of responsibility in this humane work by making arrangements for the reception in this country of Basque refugees who are now at Santander, and will provide protection for British vessels willing to convey them.
  The Prime Minister (Mr. Chamberlain): His Majesty's Government have recently been in consultation with the French Government on the whole problem presented by the presence of Basque refugees
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  on the north coast of Spain, but I am not at present in a position to make any further statement.
  Mr. Greenwood: Is the right hon. Gentleman not aware that hundreds of these people are now fleeing for their lives, that hundreds are dying of starvation, that Santander is highly overcrowded, that food is running short there, that there is a serious fear of an epidemic, and that it is a matter of hours and not of days?
  Mr. Lloyd George: Before the Prime Minister replies to that question, may I ask whether the Government have examined the possibility of removing some of these refugees through France to either Barcelona or Valencia?
  The Prime Minister: We have not at the moment sufficient information to enable us to say what is the best method of dealing with this problem. I think everybody desires to do everything he can to help in a humanitarian work, but the situation is at present very obscure. We do not know at this moment what the numbers of the refugees are, or what sort of refugees they are, or what possibilities there are of helping them. Those are the things we are trying to find out.
  Mr. Lloyd George: Will the right hon. Gentleman promise that he will examine that as one of the suggestions to be considered, because it is a definite practical suggestion which has been made?
  The Prime Minister: Certainly, and I am obliged to the right hon. Gentleman.
  Mr. Greenwood: As it is understood that there are certain British and other ships already in Spanish waters which are prepared to help in the evacuation of Basque women and children, will the tight hon. Gentleman undertake at once to see that those ships gain the protection of British war vessels?
  The Prime Minister: We have, as of course the right hon. Gentleman knows, given the protection of British warships to British and other ships carrying Basque women and children, and in similar circumstances we shall be prepared to give the same protection.
  Mr. Greenwood: Is the right hon. Gentleman not aware that a British warship has recently refused to give any such assistance, because there was no British consul at Santander?
  The Prime Minister: I think that was because the French authorities were not at the time ready to take the children.
  Duchess of Atholl: May we, then, understand from the Prime Minister's last reply that if the French Government are prepared to allow refugee Basque women and children to go for transmission to Barcelona or Valencia, then no difficulty would arise about British naval protection being afforded?
  The Prime Minister: I understood my Noble Friend to specify women and children. In that case, certainly.
  Mr. Lennox-Boyd: Is there any evidence of a reign of terror in the liberated districts in Spain, and may I ask whether——
  Mr. Thurtle: On a point of Order.
  Hon. Members: Sit down.
  Mr. Lennox-Boyd: On a point of Order.
  Mr. Speaker: What is the hon. Member's point of Order?
  Mr. Thurtle: May I ask whether it is in accordance with the Rules of Order that a question-begging epithet should be introduced into a question?
  Mr. Speaker: I did not hear any epithet.
  Mr. Thurtle: May I submit that the hon. Member used the epithet "liberated"? I submit that that is a question-begging epithet.
  Mr. Lennox-Boyd: May I have leave to finish my question? I was asking my right hon. Friend whether it is not the fact that quite shortly, after the food problem is settled, refugees can return with impunity to the Basque Province?
  Mr. Greenwood: If I repeat the question to-morrow, will the Government then be in a position to say something specific as to their intentions with regard to the Basque refugees?
  The Prime Minister: The right hon. Gentleman knows that the situation in France is not such as to be conducive to the speedy obtaining of information, but we will do all we can.
  Mr. De la Bère: Would it not be possible to do something for people in our own country?

  FRENCH CHAMBER OF DEPUTIES (VOTING SYSTEM).
  Mr. Dayasked the Secretary of State for Foreign Affairs whether he will give particulars of the report his Department has received from His Majesty's Ambassador in Paris on the efficiency of the working of the new electric system installed in the French Chamber, whereby members are enabled to vote from their seats?
  Mr. Eden: Reports were obtained from His Majesty's Ambassador at Paris at the time of the installation of the apparatus in 1931 and communicated to the Select Committee of this House then sitting on Procedure on Public Business. I have not received from Paris any subsequent reports on the working of the apparatus.
  Mr. Day: Can the right hon. Gentleman say whether it is still in force or has been discontinued?
  Mr. Eden: For the moment I should imagine it is discontinued.
  Mr. H. G. Williams: Could not the same principle be applied here, and hon. Members have this installed in their own homes so that they need not come here at all?

  EGYPT (BRITISH CONSULAR COURT).
  Lieut.-Commander Fletcherasked the Secretary of State for Foreign Affairs what, if any, decision has been arrived at regarding the memorandum addressed to the British High Commissioner in Egypt, in February, 1937, by the British Consular bar in Egypt calling attention to the prejudicial effect on their professional prospects of proposals later embodied in the Montreux Convention of May, 1937; and whether he will give special attention to this matter, in view of the fact that the practice of four members of the Consular bar who are unable to appear before the mixed court will virtually disappear when the Montreux Convention becomes effective in October, 1937?
  Mr. Eden: A further memorandum has been received from the Consular bar and the points contained therein are under consideration. As regards the second part of the question, I should explain that the British Consular Court in Egypt will not disappear in October next. His

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  Majesty's Government intend to avail themselves of the option, contained in Article 9 of the Capitulations Convention signed on 8th May last, to maintain these courts, possibly for 12 years longer, for matters of personal status.
  Lieut.-Commander Fletcher: Is it not the case that, although the Consular courts may continue, the four particular members of the Consular bar to whom my question referred will find their practice very considerably diminished, if not practically at an end?
  Mr. Eden: Perhaps the hon. and gallant Member w ill put that question on the Paper.

  NAVAL AND MILITARY PENSIONS AND GRANTS.
  Mr. Kellyasked the Minister of Pensions the number of ex-service men's widows who have been deprived of pensions during 1934, 1935, and 1936?
  The Minister of Pensions (Mr. Ramsbotham): During 1934 615 ex-service men's widows' pensions were terminated on account of remarriage and 400 on account of forfeiture. For 1935 the corresponding figures were 506, and 256, and for 1936 they were 433, and 207.
  Mr. Kelly: In the cases where these women have forfeited their pensions, have they been brought face to face with their accusers in each case?
  Mr. Ramsbotham: I understand that is the usual practice.
  Mr. Kelly: May we not have something more definite than that that is usually the practice? Are they brought face to face, as they ought to be in this country, with their accusers before their pensions are taken from them?
  Mr. Ramsbotham: Perhaps the hon. Member will put that question on the Paper.

  GOVERNMENT DEPARTMENTS.

    OVERSEAS TRADE DEPARTMENT.
    Mr. H. G. Williamsasked the Secretary to the Overseas Trade Department whether he is prepared to give favourable consideration to the grant of established status to the 15 unestablished persons who perform duties similar to the
    830
    eight established assistants to commercial diplomatic officers?
    The Parliamentary Secretary to the Board of Trade (Captain Euan Wallace): This question is now under examination.

    OFFICE OF WORKS (REMOVAL CONTRACTORS' EMPLOYES).
    Mr. Viantasked the First Commissioner of Works (1) the rates of wages paid to joiners when engaged by removal contractors of His Majesty's Office of Works supplies department, also the overtime rates; whether special rates of overtime are paid for Saturdays and Sundays; and, if so, what are the rates;
    (2) the amount of overtime worked by the removal contractors of His Majesty's Office of Works supply department from 1st January to the latest convenient date; the rate of wages paid by such contractors and the overtime rates paid; whether special rates of overtime were paid for Saturdays and Sundays; and, if so, what were the rates?
    The First Commissioner of Works (Sir Philip Sassoon): A large number of removal contractors are employed by my Department, and, though all are required to observe the terms of the Fair Wages Resolution of this House, no details are received of the amount of overtime worked or of payments made for overtime. The agreement on the joint industrial council of the furniture removal and warehousing industry, which is accepted by my Department as laying down the rates of wages payable in the industry, prescribes for payment of overtime at flat time rates. If the hon. Member considers that this agreement is not applicable to any particular case he has in mind, or that its terms are not being observed, perhaps he will be good enough to forward details in order that the matter may be further pursued.
    Mr. A. V. Alexander: Are there no periodic checks in the Department to see that the Fair Wages Clause is being observed?
    Sir P. Sassoon: If any complaints are forwarded to the Department, they are fully investigated.
    Mr. Viant: Do I understand that no investigation is made unless there is a complaint?
    Sir P. Sassoon: I think if the Fair Wages Clause were not observed we should get complaints very quickly.

    MESSENGERS.
    Mr. Parkerasked the Financial Secretary to the Treasury whether he is prepared to consider applying the national savings scheme, for providing employés in private employment with pensions, to un-established Government messengers?
    Lieut.-Colonel Colville: The hon. Member would appear to be under a misapprehension in thinking that any of the schemes of the National Savings Committee are designed to provide for the payment of pensions.

  AGRICULTURE.

    MILK (POOL PRICES).
    Brigadier-General Clifton Brownasked the Minister of Agriculture whether he is aware that the Milk Board's returns for last year show a decline in the average pool prices paid to the producer as compared with the previous year's returns; and whether he is now prepared to put in force forthwith amendments to the Act to ensure that no further decline takes place in liquid milk-producers' prices?
    The Minister of Agriculture (Mr. W. S. Morrison): I am aware that the average pool price for the year ended 31st March last was .07 of a penny per gallon of milk less than the price for the previous year, but I would remind my hon. and gallant Friend that, in addition to the pool prices, accredited producers receive a bonus of one penny per gallon, the cost of which was equivalent to a deduction from the pool fund of .35 pence per gallon in 1936–37 compared with .19 pence per gallon in 1935–36. Allowing for the bonus for accredited milk, the average gross return to producers was greater in 1936–37 than in the previous year by .09 of a penny per gallon. The answer to the second part of the question is in the negative.
    Brigadier-General Brown: Is the right hon. Gentleman aware that the pool prices paid to the producer were less this year than they were last year?
    Mr. Morrison: I have given an answer as to the gross returns of the pool.

    OATS AND BARLEY SCHEME (BERE).
    Major Neven-Spenceasked the Minister of Agriculture whether it is intended to include bere in the oats and barley scheme in view of the importance of this crop to farmers in Orkney and elsewhere; and, if so, whether it will be treated in the same way as barley?
    Mr. W. S. Morrison: Yes, Sir. It is the intention of the Government that the scheme should make the same provision for bere as for barley.
    Mr. Turton: if my right hon. Friend is going to protect here, will he also take steps to protect himself?

    MEAT (PRICES).
    Mr. R. C. Morrisonasked the Minister of Agriculture whether he will publish a schedule showing recent variations in the prices of meat, both wholesale and retail; and will he state to what cause they are attributable?
    Mr. W. S. Morrison: Wholesale prices of meat are published each week in the Agricultural Market Report of the Ministry of Agriculture and Fisheries, and retail prices of certain representative cuts of meat at the beginning of each month are published in the Ministry of Labour Gazette. For the convenience of the hon. Member, I am sending him a statement showing average prices each month from January to May this year, with conesponding figures for 1936. As regards the second part of the question, the recent variations in prices, which are mainly in an upward direction, may be largely attributed to the improvement in demand.

    BASIC-SLAG.
    Mr. De la Bèreasked the Minister of Agriculture whether, since basic-slag manufacturers are offering special inducements for summer delivery, the necessary facilities with regard to the proposals recently announced by him will be put into operation by the- end of June?
    Mr. W. S. Morrison: I would refer my hon. Friend to the reply given on 17th June to my hon. Friend the Member for East Fife (Mr. Henderson Stewart).
    Mr. De la Bére: Does not the right hon. Gentleman think it all-important that this matter should be hurried forward without any further delay?
    Mr. Morrison: It is being pressed forward without any avoidable delay, but I must have the authority of Parliament before I can do more.
    Mr. Thorne: Does this basic-slag mean that the slag that comes from blast furnaces is being used for fertilizing purposes?
    Mr. Morrison: The source of basic-slag is the blast furnaces used for the manufacture of steel.

    WHEAT ACT, 1932.
    Brigadier-General Brownasked the Minister of Agriculture whether he proposes to introduce a Bill to amend the Wheat Act, 1932, in view of the uncertainty created by the interpretation recently placed by the courts on the definition of wheat offals in that Act?
    Mr. W. S. Morrison: Owing to the shortage of Parliamentary time the only amendments to the Wheat Act to be proposed during the present Session will be those necessary to give effect to the statement of agricultural policy which I made on 27th May, but I hope to introduce a Bill early next Session to deal with the point which my hon. and gallant Friend mentions, as well as various other matters in connection with the Wheat Act.

  POST OFFICE.

    MAILS (UNITED STATES).
    Sir Arthur Salterasked the Postmaster-General whether his Department forwards a letter to the United States of America by the earliest and quickest ship in all cases in which it would do so if the sender inserted the name of that ship on the envelope; and, if not, whether he will arrange that this shall be done in future so as to save much unnecessary trouble to senders of letters in searching shipping lists?
    The Postmaster-General (Major Tryon): Letters for the United States of America are normally forwarded by the earliest and quickest ship available. It happens, however, from time to time that an express steamer belonging to a foreign line sails from Southampton on the same day as the British contract ship and is due to reach New York before that ship. In such circumstances the mails are never-
    834
    theless sent by the British ship. The arrangement seems to me a reasonable one, and I do not feel justified in disturbing it.
    Sir A. Salter: Is it only in cases where the fast foreign ship sails on the same day that that discrimination is made?
    Major Tryon: It depends on the circumstances in each case. We are doing our best to get mails across as quickly as possible, but the views which the hon. Gentleman is putting forward are not really in accordance with the contract approved by this House or with the interests of British shipping.

    FILM UNIT (DIRECTOR).
    Mr. R. C. Morrisonasked the Postmaster-General what steps he proposes to take to fill the post of director of the Post Office film unit?
    Major Tryon: The arrangements for the future control of the Film Unit are under my consideration and will be announced, I hope, before long.

    AUTOMATIC TELEPHONES.
    Mr. Dayasked the Postmaster-General whether, in view of the wrong connections arising in the-working of some of the new automatic telephone installations, he will state how the public are safeguarded against being debited with calls that produce wrong numbers when connected; and in what manner the public are notified that credit may be allowed for the same
    Major Tryon: During the visits paid to subscribers just before the introduction of automatic exchange working, the visiting officers explain that credit may be obtained for wrong numbers by reporting all such wrong numbers to the exchange operator. Similarly in the preface to the telephone directory under tilt heading "How to avoid the risk of overcharges" subscribers are advised to the same effect.
    Mr. Day: Will the right hon. and gallant Gentleman consider having the information printed on the monthly accounts sent out to subscribers, so that they will know?
    Major Tryon: If people would read the telephone directory, they would see. We do explain to each individual subscriber the new position when he goes on to the automatic system.
    Mr. Day: Will the right hon. and gallant Gentleman inform me how the subscribers have it explained to them how they can have calls cancelled?
    Mr. Macquisten: If it means that people have to ring up and say, "I have got a wrong number," will they not get "fed up" with it?

  TEMPLE BAR.
  Sir Nicholas Grattan-Doyleasked the First Commissioner of Works whether, in view of the historic interest of the old Temple Bar, he will cause the present owners to be approached as to their willingness to transfer it to London for erection upon some suitable and convenient site in one of the Royal Parks under his control?
  Sir P. Sassoon: There is no site in any of the Royal Parks which would be appropriate for old Temple Bar, and, though I sympathise with my hon. Friend's wish that Temple Bar might return to London, the question of the site on which it should be re-erected would be a matter for much consideration before it would be justifiable to ask the present owners to transfer it from its present site, where, I would add, it is already scheduled for protection under the Ancient Monuments Acts.
  Sir W. Davison: Has the right hon. Gentleman considered the possibility of a site where there was recently a temporary gate on the northern avenue in Hyde Park, immediately opposite the end of Albion Street? Only a small entrance is needed and there is already a stone monument close by.
  Sir P. Sassoon: As I say, Temple Bar is at present scheduled, and is not for sale.

  RADNOR HOUSE TWICKENHAM.
  Mr. Harveyasked the First Commissioner of Works whether his attention has been called to the threatened destruction of Radnor House, Twickenham; and whether he will take steps to prevent the demolition of a building of such interest?
  Sir P. Sassoon: I am not aware that a decision has been taken to demolish this building, but I propose to communicate at once with the local authority on the question of its preservation.

  FIELD-MARSHAL EARL HAIG (STATUE).
  Mr. Thurtleasked the First Commissioner of Works whether he will refrain from taking any steps to have the equestrian statue of the late Field-Marshal Earl Haig erected, in view of the lack of unanimity regarding the merits of this work and also of the fact that there is no general public demand for a memorial in this form?
  Sir P. Sassoon: No, Sir.
  Mr. Thurtle: Does not the First Commissioner think it abnormally foolish even for this Government to spend time and money on erecting a statue which nobody wants?
  Sir P. Sassoon: I am afraid I have not the power to reverse a decision taken by this House. I believe it was the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury), then First Commissioner of Works, who, as long ago as 1931, told the sculptor that he had full sanction to go ahead with the work.

  JUSTICES OF THE PEACE (LANCASHIRE).
  Mr. Kellyasked the Chancellor of the Duchy of Lancaster the number of justices of the peace appointed in Lancashire in 1934, 1935 and 1936?
  The Chancellor of the Duchy of Lancaster (Earl Winterton): The numbers of justices of the peace appointed in Lancashire in 1934, 1935 and 1936 were respectively 142, 170 and 67

  OLD-AGE PENSIONERS (PUBLIC ASSISTANCE).
  Mr. Henderson Stewartasked the Minister of Health how many of the 214,901 old-age pensioners in England and Wales who were also in receipt of poor relief on 1st January last were single persons, and how many were married persons in households where only the wife or the husband was drawing a pension?
  The Parliamentary Secretary to the Ministry of Health (Mr. Bernays): I regret that this information is not available in my Department.
  Mr. Stewart: Is it not important to know whether pensioners who have to draw assistance from outside are those whose only income is a single pension and who, where they happen to be married, have only 10s. weekly coming into the household?
  Mr. Bernays: If the information is not available, I cannot give it.
  Mr. Whiteley: Could not the Minister of Health get that information if he applied to the various county council and borough committees?
  Mr. Stewart: Will the hon. Gentleman not take steps to discover the facts concerning this important matter?

  SMOKE ABATEMENT (LIVERPOOL).
  Mr. Kirbyasked the Minister of Health what steps have been and are being taken by the Corporation of Liverpool to reduce the smoke nuisance in the city, particularly in the central and northern areas?
  Mr. Bernays: The corporation, which is a leading member of the West Lancashire and Cheshire regional smoke abatement committee, is active in smoke abatement work. They obtained special statutory powers in 1921 enabling them to proceed against persons guilty of causing excessive emission of smoke and they have also made a by-law for regulating the emission of black smoke, A staff of qualified smoke inspectors administer these powers, and also advise manufacturers on smokeless methods of burning fuel.
  Mr. Kirby: Can the hon. Gentleman say what steps the corporation of Liverpool are taking to have the amount of smoke reduced in those parts of the city where it is excessive?
  Mr. Bernays: The difficulty, I understand, in Liverpool is that a great part of this smoke comes from private dwelling houses and the corporation, of course, has no legislative control over them.

  HONOURS.
  Mr. Shinwellasked the Prime Minister the number of viscounts, barons, baronets, and knights, respectively, created since the last General Election?
  The Prime Minister: The following are 1he figures for which the hon. Member asks. These include those granted to residents in the Dominions, India and the Colonies. They do not include appointments to, and promotions in, the various Orders of Chivalry:

  Viscounts

  …

  10

  Barons

  …

  21

  Baronetcies

  …

  23

  Knights Bachelor

  …

  276

  Mr. Shinwell: Can the right hon. Gentleman say whether any of the persons concerned made contributions to the funds of the Conservative party, and, if so, will he publish the amounts? May I have an answer to that question?
  Mr. Speaker: That does not arise out of the question on the Paper.
  Mr. Shinwell: Do I understand the right hon. Gentleman to say that none of these persons have made such contributions?
  The Prime Minister: No, Sir, I cannot say.
  Captain Harold Balfour: Is this question the first fruits of the great effort of the united front?

  COASTLINE (PRESERVATION).
  Mr. Parkerasked the Minister of Health whether he will endeavour to obtain a copy of the Bill, recently introduced into the Danish Parliament, for preservation of the coastline by controlling building thereon, etc., and have it translated and issued as a White Paper in view of the wide interest in the subject in this country?
  Mr. Bernays: My right hon. Friend is making inquiries and will communicate with the hon. Member in due course.

  SCOTLAND.

    POLICE FORCE, GLASGOW.
    Mr. Anstruther-Grayasked the Secretary of State for Scotland whether he can make a statement regarding the proposed increase in the strength of the Glasgow Police Force?
    The Under-Secretary of State for Scotland (Mr. Wedderburn): I am in communication on this matter with the Corporation of Glasgow, and am not in a

    839
    position at present to make any announcement.
    Mr. Anstruther-Gray: In view of the fact that there is considerable local feeling in favour of the increase, will the hon. Gentleman use every endeavour to see that a decision is reached, either on the part of his own Department or on the part of the local authority?
    Mr. Stephen: Is the hon. Gentleman aware that there is a very extensive public opinion against this increase?
    Mr. Wedderburn: The local authority is primarily responsible for the police, and if there is any question of increasing the force, the usual practice is for the local authority first to decide whether the increase is justified, and then to submit the proposed increase to the Secretary of State for his approval. In this case the corporation have asked for my right hon. Friend's views before coming to any decision, and he is accordingly conducting an inquiry into the facts, and hopes to be able to reply soon.

    EXPLOSION, ARDEER, AYRSHIRE.
    Mr. Thorneasked the Secretary of State for the Home Department whether he can give the House any information in connection with an explosion at Nobel's explosives factory at Ardeer, Ayrshire, on Wednesday last; how many men were killed and how many were injured; what the cause was of the explosion and any other information about the matter?
    The Secretary of State for the Home Department (Sir Samuel Hoare): As I stated in reply to a question by the hon. and gallant Member for Buteshire and North Ayrshire (Sir C. MacAndrew) last Thursday, three persons lost their lives and two were injured in this unfortunate accident. The hon. Member will, I am sure, agree that it would not be desirable for me to make any further statement in the matter pending the holding of any inquiry under the Fatal Accidents Inquiries (Scotland) Acts.

  TRADE AND COMMERCE.

    STEEL SUPPLIES.
    Mr. Smedley Crookeasked the President of the Board of Trade whether his attention has been drawn to the grave
    840
    position in certain manufacturing industries owing to the shortage of steel sheets, sections, and strip, both for home and export trade, resulting in stoppage of production and consequent loss of employment; whether he is aware that supplies of steel are obtainable from the United States of America in adequate quantities and prompt deliveries, but, owing to the high tariff of roughly 25 per cent., the cost of such imported steel, which is the raw material in these industries, is prohibitively expensive; and whether he will take immediate steps to have the duty reduced to such a degree that will meet the difficulty without adversely affecting the agreements with the Continental Steel Cartel?
    The President of the Board of Trade (Mr. Oliver Stanley): Any question of a reduction of duty is a matter in the first place for the Import Duties Advisory Committee, who, I understand, are at present considering what steps can be taken to facilitate increased imports without adversely affecting the flow of imports under the agreement with the Continental Steel Cartel.
    Mr. Smedley Crooke: Will the right hon. Gentleman give me an early opportunity of putting before him the full facts upon this matter, which is of vital importance both to the manufacturers and the workers?
    Mr. Shinwell: Will the right hon. Gentleman also take note of the fact that hon. Members opposite are now asking for a reduction of tariffs?

    OSLO AGREEMENT.
    Mr. Shinwellasked the President of the Board of Trade whether he has taken any steps to show appreciation of the action of the Dutch Government in extending to Great Britain the advantages as regards freer entry of exports conferred under the recent agreement to the States which initiated the Oslo Agreement?
    Mr. Stanley: No opportunity having arisen at the time when the Netherlands Government declared their intention, I am glad to have this opportunity of expressing His Majesty's Government's appreciation both to the Netherlands Government and to the Belgian Government.
    Mr. Shinwell: Has that information been conveyed to the Netherlands Government?
    Mr. Stanley: I propose to send a copy of this answer to them.
    Mr. Bellenger: Does the right hon. Gentleman propose to take advantage of the facilities that have been offered by the Oslo Convention?
    Mr. Macquisten: Does this not show how successful our tariff policy has been?

  ECONOMIC LEAGUE.
  Mr. Windsorasked the Attorney-General whether his attention has been called to the fact revealed in a recent case in the High Court that confidential information had been disclosed to Mr. Baker White and Major Hoare, officers of the Economic League, by the Manchester city police; what steps he proposes to take to discover whether, in fact, police documents containing the names of, and information regarding Communists, were made available to the Economic League by the Manchester city police; and will he make a statement to the House and institute proceedings against those responsible?
  Mr. Prittasked the Attorney-General whether his attention has been called to the case of Cookson versus Pountney, decided in the High Court on Monday, the 14th instant; whether he is aware that the facts deposed to in that case give ground for suspecting that certain officers of the Manchester city police had communicated to one Hoare and one White, servants of a body called the Economic League, confidential information on political and industrial matters obtained by such officers in the course of their duties; that both the communication and the receipt of such information constituted offences under the Official Secrets Act, 1911; and whether he will cause inquiries to be made with a view to instituting prosecutions against the persons involved?
  The Attorney-General (Sir Donald Somervell): I have had certain information with regard to this matter, and do not consider it a case for proceedings under the Official Secrets Acts.
  Mr. Stephen: Can the hon. and learned Gentleman say whether confidential information has been given?
  The Attorney-General: No, I had better confine myself to the general statement
  842
  that, having considered the information in my possession, I do not think it is a case which ought to be proceeded with under the Official Secrets Act.
  Mr. Stephen: Is the reason why the Attorney-General is not taking proceedings, because this organisation is subsidiary to the Conservative party?
  The Attorney-General: Of all considerations, that is one, at any rate which had no influence with me at any time, nor do l know that it is the fact.
  Mr. Morgan Jones: Would the Attorney-General regard it as a proper thing for such information to be given by the police, if it were so given?
  The Attorney-General: I am afraid it is quite outside my province to give the House information as to what is or what is not a proper attitude on the part of the police.
  Mr. G. Strauss: Was permission given by the chief constable for the giving of this information?
  The Attorney-General: That, again, is outside my province. I have only to deal with the question of whether, on the information in my possession, I consider it a proper case to proceed under the Official Secrets Act.
  Sir Archibald Sinclair: Will the hon. and learned Gentleman give us more information than merely saying that he is not going to take proceedings under the Official Secrets Act? Is this not a matter on which the House of Commons is entitled to information as to whether confidential information has been given or not?
  The Attorney-General: I did not say that I was not going to take proceedings, in that form. I said that on the information in my possession it was not a case for proceedings under the Official Secrets Act and that, I think, is where my jurisdiction in this matter ends. It would, obviously, be quite impossible in a case, where there is a question of criminal proceedings, for me to give full information in all the various matters which have been considered.
  Mr. A. Henderson: Can the hon. and learned Gentleman say whether confidential information was disclosed by the police to these two gentlemen?

  ROYAL AIR FORCE.

    TUTOR AIRCRAFT.
    Captain Balfourasked the Under-Secretary of State for Air whether the Tutor type of aircraft is used for training purposes; and whether it is considered fully safe and airworthy for all types of aerobatics used in comprehensive training.
    The Under-Secretary of State for Air (Lieut.-Colonel Muirhead): The flying of Tutor aircraft has been subject to certain restrictions in speed and manoeuvre, but within the limits imposed it is a fully safe and airworthy aircraft. It will be replaced by a new type in the near future which will not be subject to any flying restrictions.
    Captain Balfour: Is it not right that instruction is going on in solo flying at training establishments on this type of aircraft, and, if so, how can the Under-Secretary expect pupils always to control their flying to what are termed "reasonable limits"?
    Lieut.-Colonel Muirhead: One expects people to obey reasonable instructions, and reasonable instructions have been given.

    ACCIDENT, LANGSTONE.
    Captain Balfourasked the Under-Secretary of State for Air the type of aircraft which mused the death of Pilot-officer Thompson, at Langstone, on 17th June, by structural collapse in the air?
    Lieut.-Colonel Muirhead: The aircraft was a Shark. The cause of the accident must be regarded as obscure pending the results of the investigation which is being made.

  AIR LINER "CAPRICORNUS."
  Captain Balfourasked the Under-Secretary of State for Air whether the French authorities' inquiry into the accident to the air-liner "Capricornus" has now been completed and the report received by the Air Ministry; whether representatives of those killed or the company owning the aircraft were given an opportunity to be present; and whether any public inquiry will be held in this country at which these will be given an opportunity to be represented?
  Lieut.-Colonel Muirhead: The answer to the first two parts of the question is in the affirmative, and to the last part in the negative.

  CORPORAL PUNISHMENT (SCHOOLS).
  Mr. Sorensenasked the Parliamentary Secretary to the Board of Education whether his attention has been drawn to a recent legal action and to other cases in which a schoolmaster stated that he had inflicted corporal punishment on a boy before an assembly of the school; and whether he will issue instructions designed to prevent corporal punishment being inflicted under such circumstances, and thus minimise the possibility of pernicious sadistic and morbid elements being present in teachers or scholars?
  The Parliamentary Secretary to the Board of Education (Mr. Kenneth Lindsay): I have seen a report in the daily Press of the case to which the hon. Member refers. The administration of corporal punishment in the schools is a matter which has always been regarded as within the discretion of the school authorities, and my Noble Friend does not see any reason to vary that policy. He is satisfied that during recent years there has been a welcome decrease in the infliction of corporal punishment as a means of maintaining discipline.
  Mr. Sorensen: Is not the hon. Gentleman aware that for many years now we have abolished the exhibition of flogging and capital punishment for adults, and in view of that fact is it not more necessary to prevent that kind of exhibition being given to children; and in these circumstances will he not at least consider the matter with a view to keeping corporal punishment a private and not a public affair?
  Mr. Lindsay: It is a matter primarily for the local authorities.
  Mr. Sorensen: Will the hon. Gentleman not, in fact, consider this matter with a view to instructing the local authorities?

  BRITISH ARMY.

    OPEN ARRESTS, SUNDAYS.
    Mr. Thorneasked the Secretary of State for War how many men were put under open arrest on Sundays for the year ended May, 1937?
    The Financial Secretary to the War Office (Sir Victor Warrender): This information is not readily available, and could be obtained only with a disproportionate expenditure of time and labour.

    DEFENCE COMPANIES.
    Mr. Smedley Crookeasked the Secretary of State for War whether he will consider the advisability of revising the conditions of service in the new Defence Companies for freeing the Regular and Territorial Armies and giving incentive to recruitment in the Defence Companies by giving them something further to do and a definite place to do it in before awaiting the launching of any attack on this country?
    Sir V. Warrender: My right hon. Friend will bear the suggestion in mind, but regrets that he can hold out no prospect of its early adoption, as all available funds are at present required for the training and equipment of Regular and first-line Territorial Army units.

  PRISONS (CHILDBIRTH CASES).
  Mr. R. C. Morrisonasked the Home Secretary what information is placed upon the birth certificates of babies born in prison with regard to their place of birth?
  Sir S. Hoare: Governors have instructions that the word "prison" is not to appear in the notification to the Registrar, and that the name of the road or street in which the prison is situated is to be given as the address.

  AIR RAID PRECAUTIONS.
  Mr. Parkerasked the Home Secretary whether, in view of his refusal to allow Members of Parliament to purchase Government gas-respirators for carrying out experimental tests, he will now, in the public interest, publish the results of official tests which have been made?
  The Under-Secretary of State for the Home Department (Mr. Geoffrey Lloyd): The result of exhaustive official tests is that the civilian respirator has been shown to protect effectively the face, eyes, and lungs against any type of gas which, so far as is known, could be used in war.
  Mr. Noel-Baker: Are we to understand that these respirators are effective against vesicant gases?
  Mr. Lloyd: Yes, as far as the eyes, face, and lungs are concerned.
  Mr. Shinwell: Will the hon. Gentleman, in the public interest, reply to the last part of the question, which asks why he
  846
  refuses to publish the results of the official tests; why does he go on deceiving the public in this fashion?
  Mr. Lloyd: I think the House will appreciate that it is not in the public interest to reveal every scientific detail of the tests made by the Government.
  Mr. Sorensen: Will the hon. Gentleman publish particulars regarding air raid precautions against gas for children?
  Mr. Lloyd
  Mr. Macquisten: Do these things only prevent gas going into the mouth?

  EXPLOSION, DEPTFORD.
  Mr. Thorneasked the Home Secretary whether he can give the House any information in connection with the explosion at the tar distillery works in Trundley's Road, Deptford, on Wednesday night; how many people were injured; what the cause was of the explosion; and will he give any other information about the matter?
  Sir S. Hoare: I have received a preliminary report upon this accident. The explosion took place in a receiver into which pitch, distilled in an adjoining still, was being run. Two men were injured. The circumstances of the accident are still under investigation, and no definite conclusion has yet been reached as to its cause.

  BRITISH UNION OF FASCISTS (PROPOSED PROCESSION).
  Mr. Watkinsasked the Home Secretary whether his attention has been called io the proposal of the British Union of Fascists to organise a procession through the Jewish districts of the East End of London on Sunday, 4th July next; and whether, in view of the disorder caused by the attempt made by the British Union of Fascists to hold a similar procession on 4th October, 1936, he proposes to take any action in pursuance of the powers conferred by the Public Order Act, 1936?
  Sir S. Hoare: Yes, Sir. I am informed by the Commissioner of Police for the Metropolis that the British Union of Fascists have applied to him for permission to meet in Piggott Street, Limehouse, on 4th July, and to march thence to Trafalgar Square by one of two alterna-

  847
  tive routes, both of which would involve the procession passing through the main Jewish quarter of the East End of London. The House will remember that when the Fascists organised a similar demonstration on 4th October, 1936, strong opposition was organised by the anti-Fascists, and a very ugly situation developed. At that time neither the Secretary of State nor the Commissioner possessed any statutory power to prohibit a procession in advance, and the only effective way c4 preventing serious public disorder was to deal with the demonstration on the spot after it had assembled. The demonstration on 4th October, 1936, was dealt with on these lines, and in pursuance of his common law powers the Commissioner informed the organisers of the procession on their arrival at the starting point that, in view of the imminent risk of a breach of the peace, the procession would not be allowed to take place.
  Since then the powers of the police have been strengthened by the Public Order Act, 1036, Section 3 of which confers powers for the preservation of public order on the occasion of processions. Sub-section (1) of that Section empowers a chief officer of police to give directions imposing upon the persons organising or taking part in the procession such conditions as appear to him necessary for the preservation of public order, including conditions prescribing the route to be taken by the procession and conditions prohibiting the procession from entering any public place specified in the directions. While this Sub-section would accordingly enable the Commissioner to route the procession, it would not empower him to prevent the procession from passing through every street in the Jewish districts; for this would in effect amount to imposing a complete prohibition of processions in a particular area. The Commissioner is satisfied from information which has reached him and in view of the experiences of October, 1936, that a procession of the British Union of Fascists through the main Jewish quarters would give rise to serious public disorder.
  After carefully considering the Whole situation, the Commissioner has come to the conclusion that, by reason of the particular circumstances existing in the Jewish quarters of the East End, the powers conferred on him by Subsection (1) of Section 3 would not be
  848
  sufficient to prevent serious public disorder being occasioned by the holding of the proposed Fascist procession, and he has accordingly asked my consent to his making an order under Sub-section (3) of that Section prohibiting the holding of public political processions in a certain area of the East End for a period of six weeks. The order will apply to the area north of the Thames bounded by a line running along the City boundary northwards to Highbury Station on the London Midland and Scottish Railway, thence eastwards along the line of the railway to where the railway crosses the River Lea, thence southwards along the course of the River Lea to its junction with the Thames. (This area includes the Boroughs of Stepney, Bethnal Green, Poplar, Bow and Bromley, Shoreditch and parts of Finsbury, Hackney and Islington.) It will apply to all political processions irrespective of party, but is not, of course, intended to have any application to other processions, such as processions of the Salvation Army, or any procession held in connection with industrial disputes, if it is of a nonpolitical character.
  I am satisfied that, in the particular circumstances obtaining at present in the East End and in view of the risk of serious conflict between the Fascists and their opponents, there is no alternative to the making of an order in pursuance of the powers conferred by Sub-section (3), and I have accordingly conveyed to the Commissioner my consent to his making an order on the lines proposed.
  I should like to take this opportunity of stating that if opposition is organised against any lawful procession held outside the prohibited area during the period prescribed by the order made by the Commissioner of Police, it will be the duty of the police to take such steps as may be necessary to deal with disturbers of the peace, including the organisers of the counter-demonstration.
  Sir H. Croft: May I inquire whether similar treatment will be meted out to a procession marching through the West End of London on 1st May next year, such as took place this year, with enormous red banners and provocative emblems?
  Sir S. Hoare: I have shown in my answer that I intend to be entirely impartial.
  Mr. Stephen: Is it not clear that the procession which passed through London on 1st May was not provocative inasmuch as there was no disturbance arising out of it?
  Mr. Gallecher: Is not the Home Secretary capable of stopping provocation without interfering with public rights and the right of public procession?
  Sir S. Hoare: I think that I am carrying out the spirit and the letter of the policy that was adopted by Parliament last year.

  INDUSTRIAL COMPANIES (SMALL INVESTORS).
  Mr. Gibsonasked the Chancellor of the Exchequer whether he has had under consideration the large sums of money lost by small investors (including many in Greenock shipyards) who, since the War, have put their savings into shares of industrial companies; and whether he has any statement to make regarding compensation to such shareholders being made a substantive part of any scheme he may make for the taxation of the profits of such industrial companies?
  Lieut.-Colonel Colville: I am afraid that the matters to which the hon. Member refers are not relevant to the question of taxation of profits.

  NATIONAL DEFENCE CONTRIBUTION.
  Sir John Mellorasked the Chancellor of the Exchequer whether it is his intention that income received from their holdings by investment trust companies and other holding companies shall pay the National Defence Contribution, now proposed, more than once?
  Lieut.-Colonel Colville: No, Sir. Provision will be made to cover the case in which the income on an investment is paid out of profits which were liable to the contribution, so as to ensure that there is not a double charge.
  Sir J. Mellorasked the Chancellor of the Exchequer his estimate of the sum which the National Defence Contribution, now proposed, is expected to produce in the current financial year?
  Lieut.-Colonel Colville: My right hon. Friend does not think that he could safely
  850
  estimate that the receipt in the current financial year will exceed the sum of £2,000,000 included in the Budget.
  Sir J. Mellorasked the Chancellor of the Exchequer his estimate of the amount in a full year of the National Defence Contribution, now proposed, to be paid in respect of income received from investments by banking businesses, assurance businesses, and businesses consisting wholly or mainly in the dealing in or holding of investments?
  Lieut.-Colonel Colville: My right hon. Friend regrets that he cannot undertake to sub-divide the estimated yield of the tax so as to show how much is attributable to different industries.

  WESTERN AVENUE (TREES).
  Sir Alfred Beitasked the Minister of Transport whether his attention has been called to the fact that avenues of trees have been planted along the older sections of Western Avenue, but that no trees have been planted on the newer double-tracked sections; and whether he will make representations to the responsible authorities?
  The Parliamentary Secretary to the Ministry of Transport (Captain Austin Hudson): Yes, Sir; my right hon. Friend will ask the Middlesex County Council, who own the land alongside this road, to co-operate with him to this end.

  ABYSSINIA.
  Mr. Sorensenasked the Secretary of State for Foreign Affairs whether he will make a statement as to any reports he has received respecting conditions in Ethiopia; and whether he has information respecting Italian activity at Jibuti and along the Jibuti-Addis Ababa railroad?
  The Under-Secretary of State for Foreign Affairs (Viscount Cranborne): With regard to the first part of the question, the position is still as described in the reply which my Noble Friend gave to the hon. Member for Caerphilly (Mr. Morgan Jones) on 24th May. With regard to the second part, the Italian authorities, with a view to expediting the clearance of goods of Italian and foreign origin lying at Jibuti and destined for Abyssinia, recently passed a decree, the

  851
  effect of which appears to be to concentrate in official hands the entire trade in such goods through Jibuti until the goods reach Diredawa or the Ethiopian frontier station at Aiscia.

  UNEMPLOYMENT ASSISTANCE (YORKSHIRE).
  Mr. R. Gibson (for Mr. T. Smith)asked the Minister of Labour the number of persons in receipt of unemployment assistance at Pontefract, Castleford, Normanton, and Goole, respectively?
  Captain Hope (Vice-Chamberlain of the Household): I have been asked to reply. The number of payments of unemployment assistance allowances, excluding allowances paid in supplementation of insurance benefit, at the Employment Exchanges named during the week ended 11th June, 1937, were as follow: Pontefract, 1,203; Castleford, 1,751; Normanton, 463; Goole, 321. In addition, supplementation allowances were paid in six eases.

  NEW MEMBER SWORN.
  James Scott Cumberland Reid, Esquire, K.C., for the Burgh of Glasgow (Hillhead Division).

MESSAGE FROM THE LORDS.
That they have agreed to,—
Richmond (Surrey) Corporation Bill,
London Midland and Scottish Railway Bill, with Amendments.
Amendments to—
City of London (Various Powers) Bill [Lords], without Amendment.
That they have passed a Bill, intituled, "An Act to confer further powers on the Shoreham Harbour Trustees; and for other purposes." [Shoreham Harbour Bill [Lords.]
And also, a Bill, intituled, "An Act to authorise the Whitehaven Harbour Commissioners to make arrangements with their Bondholders; and for other purposes." [Whitehaven Harbour Bill [Lords.]

MESSAGE FROM THE LORDS.
  SHOREHAM HARBOUR BILL [Lords],
    WHITEHAVEN HARBOUR BILI. [Lords],
    Read the First time; and referred to the Examiners of Petitions for Private Bills.
SELECTION (STANDING COMMITTEES).

  SCOTTISH STANDING COMMITTEE.
  Colonel Gretton reported from the Committee of Selection; That the Solicitor-General for Scotland, being a Member representing a Scottish constituency, is added to the Standing Committee on Scottish Bills under Standing Order No. 47 (2).
  Report to lie upon the Table.

ORDERS OF THE DAY.

  WAYS AND MEANS.
  Considered in Committee.
  [Sir DENNIS HERBERT in the Chair.]
  3.58 p.m.
  The Chancellor of the Exchequer (Sir John Simon): I beg to move,

  WAYS AND MEANS.

    CHARGE OF NATIONAL DEFENCE CONTRIBUTION.
    That there shall be charged on any profits arising at any time during the five years commencing on the first day of April, nineteen hundred and thirty-seven, from any trade or business of any description (including, in the case of bodies corporate whose functions consist wholly or mainly in the holding of investments or other property, the holding of the investments or property), a tax not exceeding five per cent. of the amount of the profits."
    In framing this new version of the National Defence Contribution I have enjoyed some advantages which are not always available to those who have the duty of proposing taxation. In the first place, the discussion which took place three weeks ago on the original proposal, and which terminated by a promise to withdraw the tax in that form and to propose a substitute, found a very large measure of general agreement in the House as to what that substitute should be. The Prime Minister promised that other proposals should be prepared on the assumption
    "that those proposals will be devoted to finding a simpler tax upon the profits of industry, and a tax which is estimated to produce not less than £25,000,000."
    A little later, explaining our intention, which I am now endeavouring to fulfil, the Prime Minister said that these proposals
    "will still be based on the principle which is generally agreed in the House, namely, a tax on the profits of industry. They are to be made as simple as may be to avoid the difficulties which have been mentioned, and they are to produce the requisite amount of money."—OFFICIAL REPORT, 1St June, 1937; cols. 927–8, Vol. 324.]
    I have endeavoured in the light of those general directions to frame a new proposal which is now the subject of this Financial Resolution.
    I have had a second advantage which is indeed very rare. Trade and industry itself in unduly generous terms has offered assurances that if the form of tax was simplified and charged on profits, not on
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    the growth of profits, if it avoided the complicated calculations of capital and operated with certainty, the tax would be cheerfully accepted. It is a very unusual position and I feel almost as though I was engaged in collecting a voluntary contribution. At any rate, having now been at the Treasury three weeks and having made a preliminary survey of the full scope of my charge, I can only say to the Committee with great sincerity that all contributions will be thankfully received.
    There is a third respect in which I have been particularly fortunate. I have had the opportunity, and have taken full advantage of it, of consulting the representatives of industry, and have had the advantage of learning from many practical people what their objections might be and what the proposals might be which would strike them as a better form of taxation. I wish to acknowledge my obligation to the very busy people who have helped me in this way, but I sincerely hold the view that in this case it is entirely right and wise to consult those who can best tell what will be the actual operation of the tax. That being the situation in which I have acted, let me briefly describe the scope of the tax that I propose.
    The proposed tax will be charged on the profits of trades and businesses carried on in the United Kingdom, or of trades and businesses carried on outside the United Kingdom by those who are ordinarily resident in the United Kingdom. As hon. Members know, that makes the scope of the new tax correspond to the scope of Income Tax, and it has been my object throughout, for the purpose of simplicity and sureness, to use the Income Tax scheme as far as I can in framing the new tax. I observe in passing, since I see that the point is mentioned in a leading article in the "Times" this morning, that when one says that the new tax is to be imposed on the profits of trades and businesses carried on in the United Kingdom, that will be so whether they are carried on by a foreign company or by an English company; it makes no difference. The test for this purpose is where the trade is carried on.
    The next question, and it is one to which I know a great deal of thought has been given by right hon. and hon. Members as well as by others outside the

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    House, is whether the new tax should be applied to the profits of companies alone or whether it should also be applied to the corresponding trading profits of firms and individuals carrying on trade and industry. Of course the matter is the more obvious because in the old Corporation Profits Tax there was no tax except upon the profits of corporations or companies. I have come to a very clear view about that, and I shall offer two or three reasons which I think will convince the Committee that undoubtedly this tax ought to be shared also by firms and individuals who are carrying on trade and industry. Partnership firms all over the country are in competition with companies. In many cases they are carrying on a similar kind of business. Let me give a couple of examples. There are large partnership firms of bankers carrying on business in competition with limited companies which are doing banking business. I cannot see why the tax should be imposed on the one and not imposed on the other.
    Take another example. The provision trade, the tailoring trade, retail drapers and trades of that sort—you may find examples of that sort of business in many parts of the country, in most big towns, sometimes carried on by firms, sometimes carried on by limited companies, the same sort of trades on the same scale, and in competition. You may say generally that if the tax is being imposed on the profits of trades and businesses because trade and industry is feeling on the whole the upward impulse of prosperity, there can be no justification for taxing companies alone and leaving partnership firms out. I have, therefore, come to the conclusion that the new tax should apply to firms and individuals carrying on trade and business, no less than to companies.
    Then comes the question which has much excited certain commentators, whether the tax should also include professions. I think there are very good reasons why professions should be excluded. I shall mention two. First of all the main grounds for levying this tax at the present time, especially upon industry, are that industry is enjoying, on the whole, a special prosperity, and that this prosperity results in large measure from State policy. In the case of professions the influence of this course of policy in increasing emoluments is certainly much more remote, even if it exists at all.
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    I do not think there would be any difficulty in showing that in some cases it has not operated in the least. It is clear that industry feels the direct thrust of better times and increasing profits—and that is specially so in the case of ordinary shareholders—whereas many professions will not feel that at all or will feel it in a most indirect way.
    There is a second reason, which is overwhelming. It is easy at first sight to suppose that you can just put this tax on professional men and leave it there. That is not so. All professional men are not taxed in respect of their profession. Take two highly skilled medical men. One is a medical officer of health and the other is carrying on the private practice of a doctor—he is a doctor in the West End, in Harley Street. He is taxed no doubt on his profession. His colleague in medicine who holds a public office is not taxed on the ground of his profession at all but is taxed as the holder of an office or as one engaged in an employment. A chartered accountant who, as often happens, is retained and employed all his time by some great firm to keep its accounts, is not as a matter of fact taxed for his profession at all. You will at once get distinctions which in themselves are quite unjustifiable between one professional man and another.
    If indeed we were to widen the scope of the tax in the way sometimes suggested, we should find it extremely difficult to know where to stop. For example, why should you charge this new tax on a successful practitioner at the Bar and yet not apply it to the Attorney-General? Why should you apply it to a West End doctor and not apply it to a medical officer of health? If you once get into that territory you will find that you will need to transform your tax so that it will attach not merely to the profits of industry but to very large numbers of persons who are getting in one way or another large remuneration and to a large extent are professional men, even though they are not taxed in respect of their profession.
    Mr. R. C. Morrison: Does the right hon. Gentleman know a medical officer of health receiving over £2,000 a year?
    Sir J. Simon: It is easy to give an example of men who are professional but none the less are employed at high salaries. I can certainly think of some,

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    but I shall not mention names. I think that the claim heard three weeks ago in many quarters, to bring in the professions, was really due very largely to the feeling that the old tax was very complicated and in the opinion of many people was likely to give a great deal of employment to chartered accountants or solicitors. I am bound to say that I think that fear was exaggerated, but I have no doubt it was the motive which operated in many minds. Of course you cannot put a tax on professions merely by mentioning chartered accountants, solicitors and so forth. I should have thought it was quite hopeless to draw up a list of the professions to which the tax should apply and another list to which it should not.
    The keynote of the proposals is simplicity. I think that simplicity in itself is the justification for excluding any professional man. If it is said, what is a profession, how do you draw the line, I can only say that I think the Clause will be found to provide the answer. There was not much difficulty last time when this distinction was drawn in legislation. I remember one or two cases which were argued in the courts. In one the question was whether a man was to be regarded as belonging to a profession if his occupation was advising people how to avoid Income Tax. With great solemnity the judges decided that that was not a profession. But the language of the Clause will, I think, clear the way pretty well. To avoid fears and hopes I will say now that the proposal I make is that stockbrokers should be included as well as stock jobbers and insurance brokers. Doctors and barristers on the other hand would be excluded.
    Let me come to a major point of the scheme. The Committee will observe in the White Paper which I thought it right to publish in advance of my speech, that we suggest there should be a tax of 5 per cent. in the case of companies and of 4 per cent. in the case of partnerships or individuals carrying on trade and commerce. What is the reason for that? Of course the reason is as far as may be to produce equal treatment. It can only be done as a measure of rough justice, but the Committee will follow what are the reasons, which I think are overwhelming, for setting up differential treatment. Broadly speaking, limited companies differ from partnership firms in this sort of matter in two respects. Those two re-
    862
    spects taken together require this difference of treatment. In the case of a limited company in calculating what is its balance of profits and gains, the company is entitled first to deduct the payments which it makes to its directors for fees and salaries, and it pays only upon the balance that is left after that deduction. It may be a very considerable deduction.
    In the second place, the operation of Surtax is at any rate primarily an operation which affects individuals and does not affect companies directly altogether, and you may broadly state that the burden of Surtax falls more certainly and in a larger degree upon partnerships and individuals than upon companies. For example, if a limited company puts aside a portion of its profits and gains to reserve, possibly for the purpose of creating bonus shares, that part of the profits will escape all Surtax whatever. It is sometimes said that every profit made by a limited company always escapes Surtax; of course, when that profit is distributed, if it reaches the hands of individuals who have a sufficiently large income, Surtax will be charged. These distinctions, taken together, have already been held by Parliament to justify different treatment, and a similar view was taken in the original form of the National Defence Contribution. I think we shall meet that difficulty fairly by the provision that partnership companies and individuals shall pay at the reduced rate.
    In expounding this proposal I do not desire to indulge in any complications, but I would mention in passing one matter which, before we have finished with this proposal, will have to be closely examined. A certain difficulty arises in connection with one particular class of company, that in which the directors are not the servants of the shareholders but are themselves in control of the company. Where, for example, a firm has been turned into a company and the partners of the firm have become directors and, in fact, completely control its operations and the distribution of the profits—that is, in what I may call a director-controlled company—it would be possible for the directors to secure that their remuneration should be so large as completely to drain away the pool of profits which ought to be available for the purposes of this tax. The way in which that is met, and the way in which it was met in the Corporation Profits Tax is to

    863
    say that there must be some conventional deduction which is authorised by our law, and which must not be exceeded for the purposes of the tax, whatever be the actual amount of the directors' salaries. If that were not so, since this tax applies to what is left after the directors have been paid, there would be an opportunity to drain the pool quite dry without producing any difference whatever to the directors because it does not matter to them whether they get the money in directors' fees or otherwise. I shall, therefore, propose a formula which will bring in two variants. One variant is that not more than a certain percentage of the profits shall be deductible in respect of directors' remuneration. The other variant is that the permissible deduction shall not exceed a specified lump sum.
    I shall propose to continue, in this new formula of tax, the relief for the small business which was one of the features generally approved in the earlier edition of the National Defence Contribution. I will give an illustration of how this whole proposal will work. The proposal is that if the amount of profit which comes under survey is not more than £2,000 there shall be no tax at all. If it exceeds £2,000 but does not exceed £12,000 there shall be what I think the Prime Minister called a tapering of the burden so that it will not reach its full rate of charge until the figure of £12,000 is reached. The actual figures will be: Assuming that the profits to be dealt with are £2,000, and no more, there is no tax; if it is £3,000, the tax will be £60; if it is £4,000, the tax will be £120; if it is £5,000, it will be £180; if it is £6,000 it will be £240; if it is £1,000, it will be £300; if it is £8,000, it will be £360: if it is £9,000, it will be £420; if it £10,000, it will be £480; if it is £11,000, it will be £540; if it is £12,000, it will be £300, which is the full rate of 5 per cent. I think that is a fair way of dealing with the matter.
    I must endeavour to make plain the mode in which I propose the profits should be assessed. I suggest that we should, as far as possible, keep to Income Tax principles. The profits arising from a trade or business in each accounting period will therefore be computed on Income Tax principles, with such adaptations as are necessary. I believe it will give a very great deal of confidence to industry to know that we are not invent-
    864
    ing a whole lot of new-fangled machinery. One or two exceptions must be made. In the case of Income Tax there is a legitimate deduction in the case of Schedule D for the annual value of premises which are owned or occupied for the purpose of trade or business. The reason for that is that the taxpayer has already paid under Schedule A, and must not be charged twice over. In the present case that reason would not apply, and consequently the annual value under Schedule A must not be deducted.
    Here is an illustration to show how we are keeping to income tax principles. Current wear and tear may, of course, be set off against profits in any year, if the profits are sufficient to meet the claim; the same thing would be true here and the same with what is called accumulated wear and tear, which are amounts which have not been worked off. Again just as Income Tax permits a carry-forward of losses, so we, in following the principle of Income Tax, will give a corresponding carry forward in respect of unabsorbed losses. There is a slight adjustment to be made, for reasons which I will not delay the Committee with now and which are really mechanical. The broad point which I am insisting upon is that we shall follow Income Tax methods as far as we can and Income Tax allowances which have been proved to, be reasonable by the test of time and experience.
    Then there is the question of what is to be done with interest on borrowed money. Strictly speaking, under Income Tax a company which pays interest to debenture holders makes its returns of profits and gains under Schedule D before deducting that interest. It gets the Income Tax back afterwards by deduction at the source when it pays the interest to the debenture holders. Under the ordinary practice of Income Tax, the amount which is paid away as the interest due to the creditors is a matter which comes into the assessment. I propose that the payment of the debenture interest should be deducted before one arrives at the assessment for the purpose of this tax and similarly in the case of an annual payment, such as, for example, a royalty. I think it is fair to recognise that a company burdened with this obligation, because its financial structure has largely been on borrowed money, is entitled to

    865
    relief in comparison with another company which has not got this burden to shoulder.
    While there may be a deduction of interest paid to debenture holders there can be no deduction of dividends paid to preference shareholders. Debenture interest is in the nature of an expense in earning the profits; the preference dividends are part of the method by which the profit is distributed. It would be a very dangerous undertaking indeed in connection with this tax to offer to redistribute the responsibility of the different classes of the shareholders who have made their bargain among themselves and who have their respective rights. Certain of them have prior rights to be paid but others have the advantage of waiting so that if there is something extra they may take it all. I should not be justified in suggesting any interference with the arrangements, which differ between company and company. The shareholders are bearing their burdens in accordance with the contracts between them, and I well understand the distinctions. The owner of the equity must shoulder the burden. That must be so in the nature of the case and it is only right to say that to the owner of the equity.
    I would like to give an explanation of another point which I see has been raised in preliminary comments, and which we must discuss more in detail on the Clauses. I have not proposed that there should be a further limiting provision that in no event can this tax take away more than one-tenth of what is left for payment to the ordinary shareholders. There was a provision of that sort in the Corporation Profits Tax. The Committee will observe that, just or unjust, it is, at any rate, a perfectly practical provision which can work quite fairly when you are dealing only with limited companies, which is what the Corporation Profits Tax was doing. It was saying: "Take away from the gross profits what has to be paid in debenture interest and on preference shares; let us see what is left for the ordinary shareholder, and let us see that the tax does not walk off with more than one-tenth." You cannot apply that kind of principle when you are devising a tax which is also to apply to partnership firms, and there is therefore no corresponding provision.
    I have done my best to look at it from every point of view and I am not entirely
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    satisfied that this particular provision, if it were introduced, would be entirely fair between one company and another. Take two companies—I am leaving out the partnership company—each of which has made £50,000 a year profit. One is a company which has a very large preference issue, and it may have a very limited number of ordinary shareholders. It may easily happen that the £50,000 will be exhausted in paying the dividends to the preference shareholders, and the ordinary shareholders, poor creatures, will get nothing. One-tenth of nothing is nothing, arid the result will be that that particular company, because of its structure, will escape the tax altogether. Take another company in the same line of business, a competitive company, perhaps, which also makes £50,000 gross profit; but suppose that its structure is such that there are very few preference shares, it may be none at all, and a very large number of ordinary shareholders. That company would be quite heavily hit, and I cannot for the life of me see why it is fair, as between two companies situated similarly as far as profits are concerned, to say that the test as to whether they should or should not pay should be whether it would take more than one-tenth from the ordinary shareholders. It is regret-able, of course, that taxation should hit anybody; people regret it most of all when it hits themselves, and feel a certain sympathy when it hits other people; but I think that this provision would introduce a complication, and I hope that: this tax, whatever else it may be known as, will be known as a simple tax.
    Colonel Sir Charles MacAndrew: I quite follow the distinction which the right hon. Gentleman has drawn between the preference and the ordinary shareholder, but what is the position of the company which has debentures out of proportion to its ordinary or preference shares? "Debenture" is only a name.
    Sir J. Simon: It may be only a name, but, when it comes to paying, the company must pay. One must distinguish between the payments which have to be made in the course of carrying on the business and the distribution of the profits as between one shareholder and another. I do not want to turn the present debate into a discussion on such points, which are really only refinements. I noticed,

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    however, that this point was made in a number of letters, and I thought the Committee would allow me, even at this stage, to make that observation.
    I come now to another point, which concerns numbers of persons, namely, the treatment of investments. I think I state the matter sufficiently if I make these three observations. Generally speaking, income from investments will not be included for the purpose of this tax; that is to say, if a trader holds some investment and draws his dividends from it, the proceeds of that investment will not be included in the profits gained by his trade or business. The second point, however, is that, in the case of a company whose functions consist either wholly or mainly in the holding of investments or other properties, so that that really becomes its business, then, of course, those holdings must be treated as the business carried on by the company, and the profits made from them will become taxable. There is a third point, which was raised by a question put to-day by my hon. Friend the Member for Tamworth (Sir J. Mellor). You can have a case in which this income from investments is itself derived, in the form of dividends, from a company which is within the charge of the tax. It may be that a trust company holds Zoo investments, and draws dividends from them, and that the companies in which it is interested have themselves borne this tax in respect of their profits. In that case there is no intention of imposing the tax a second time. Perhaps I may repeat the answer which was given at Question Time, as it came rather late, and perhaps not everyone paid attention to it. My hon. Friend the Member for Tamworth's question was as follows:
    "To ask the Chancellor of the Exchequer whether it is his intention that income received from their holdings by investment trust companies and other holding companies shall pay the national defence contribution, now proposed, more than once?"
    The answer was:
    "No. Provision will be made to cover the case in which the income on an investment is paid out of profits which were liable to the contribution, so as to ensure that there is not a double charge."
    The Committee will probably wish me to refer briefly to certain exemptions and reliefs which I propose. The case of public utility undertakings needs to be
    868
    examined narrowly and carefully, and I think the Committee will find that I have done my best. Not everything that, on a generous view, we can discover within this description is necessarily deserving of relief. Public utility undertakings which are now subject to statutory restrictions in regard to prices charged or dividends payable ought, I think, to be exempt. If Parliament has already said that, as regards these particular undertakings, it insists upon a limit to what they are entitled to do, it does not seem to me to be right to bring them into the general scheme of the tax. It will be sufficient for the moment to say that statutory undertakings, as I conceive the tax, will be of one of two kinds. First, they will be local authorities or public authorities of an analogous character—local authorities which supply gas, water or electricity, or authorities like the Port of London Authority or the Mersey Docks and Harbour Board. Secondly, the statutory undertakings may be companies which have been authorised by Statute to render such services, but at the same time have been precluded by or by virtue of a British law from charging higher prices or distributing higher dividends than a stated maximum, and my proposal is that to that extent public utility undertakings should be exempt.
    Mr. Dalton: Do I understand that electricity supply companies as such will not be exempt—that it will depend upon the constitution of the particular undertaking?
    Sir J. Simon: It will entirely depend upon whether they fall within that definition. Those which are simply left at large will certainly not be exempt, but those which can show that by or by virtue of an Act of Parliament there is a restriction upon them will be exempt.
    The second class of exemptions, to which I think many Members of the Committee will desire me to pay particular attention, relates to the Special Areas. I propose that provision should be made for the remission of the tax in whole or in part in cases where the Commissioner for the Special Areas certifies that it is expedient, for the purpose of establishing industrial undertakings in those areas, that relief from the tax should be given. I suggest that that is a very proper exemption to make. It was, in fact, sug-

    869
    gested in the Debate three weeks ago, I think by my hon. Friend the Member for Brentford and Chiswick (Mr. H. Mitchell). I will not discuss at the moment whether it should go any further, but will merely point out that as regards the Special Areas the Commissioner under the present law has the power to refund Income Tax and rates, but as regards other areas there is no such power.
    Mr. MacLaren: Will the right hon. Gentleman say something about the position of building societies?
    Sir J. Simon: Building societies, I think, must be regarded as investment trust companies; their principal business consists in making investments. In accordance with an undertaking given earlier, the tax to be paid under this head will be deductible for the purpose of arriving at income for Income Tax purposes. That is, I think, a sound principle. It is a principle which has been applied before. This tax should not be regarded merely as an additional Income Tax.
    Lastly, I would like to stress a point which I have been at pains to bring out, and which I hope will commend this tax to Members of the Committee. Undoubtedly, if for a tax on the growth of profits there is substituted a tax on profits themselves, it is not easy to secure that the tax shall be a temporary tax, but it is very necessary that we should mark this tax as a temporary tax. I am well aware that nothing we can do now will alter the power of hon. Members opposite, should they come into office, either to double the tax next year or to take it off the year afterwards, but at least let us make clear what is the intention of the Government. I think it should be stated in the plainest way in the text of the law. The Defence Loans Act, 1937, authorises borrowing for certain purposes, in view of our rearmament programme, within a period of five years. Those five years run from April last to April five years hence. The Committee will observe that in the Resolution I have described the period in which the tax is to be imposed as during five years commencing on the 1st April, 1937, and consequently the Act will run out on the 1st April, 1942. I think that that is a valuable provision, as laying down quite plainly the intention to which Parliament has given approval.
    870
    The Committee will appreciate that the tax is to be collected annually. It will be collected in respect of successive accounting periods. Since the profits that come under the tax only began on 1st April last, a very limited amount will be collected this year, probably only about £2,000,000; but in a full year the amount will be £25,000,000, according to the best calculation I can make. That, however, will be ultimately subject to the deduction of this tax in computing liability for Income Tax.
    Mr. Bellenger: Will it be collected in one instalment?
    Sir J. Simon: The deduction that is made on this head for purposes of assessment to Income Tax will always be a year late. The reason for that will be seen at once, because the Income Tax assessments, being based on the profits of the preceding year, will always be made 12 months after the actual payment of this tax.
    Colonel Nathan: Will the £25,000,000 be the gross receipts, or the net receipts after allowing for loss of Income Tax and Sur-tax?
    Sir J. Simon: I thought I made that clear. This tax should produce £25,000,000, but there will be a deduction in computing liability for Income Tax in subsequent years. I only wish to say, in conclusion, that the tax has been framed with a great desire to deal as far as we may with hard cases, but I think the Committee will feel that, if in a full year I am only going to get 25,000,000, and that will be subject to a deduction of one-fourth on assessment to Income Tax, I am not in a position to be generous in every quarter. I must say I was a little astonished to read in the "Times" newspaper this morning a letter from one who used recently to be our colleague, and is now Lord Home of Slamannan, in which he almost seems to complain that the Government, as he says, are wedded to a tax on profits. I should think we are wedded to a tax on profits. In the course of the assault delivered against the previous form of tax, in which Lord Horne took a very effective and prominent part, there was a widespread assurance that a fiat tax on profits would be greatly to be preferred. An appeal of that sort must, as far as I am concerned, fall on deaf ears.

    871
    When I read Lord Home's letter I reminded myself of a story that I read many years ago in a French book about a woman who kept chickens. She went one morning into her poultry run and said to the assembled birds, "My dear fowls, I want to consult you. Would you prefer to be boiled or to be roasted"? Whereupon chanticleer, in my imagination very like Lord Home, replied, "Madam, we do not wish either to be boiled or to be roasted." The lady said, "My dear fowls, you are wandering from the point." I regret very much that, having escaped one horn of this dilemma, it is necessary to be impaled on the other. I submit this proposal to the Committee as being simple, as being what we were asked to substitute, a tax on profits, as involving no elaborate calculation of capital, as being as far as we can make it temporary, and as fulfilling the undertaking given three weeks ago by my right hon. Friend.
    4.48 p.m.
    Mr. Pethick-Lawrence: Some 10 days ago we buried the mortal remains of a stillborn infant known by the name of National Defence Contribution. There were no mourners, except the Prime Minister and the solitary Member of the Communist party. To-day we come to the baptism of the new infant to which the Chancellor of the Exchequer has given birth, and to which he has seen fit to give the same name as the late lamented. I do not think it is a very good omen, but from the reception that it has already had from the benches opposite, I imagine that it will have a longer life than its unfortunate namesake which has gone. We have had from the right hon. Gentleman a very lucid description of his new tax, and I am sure he will agree that our discussion to-day will be very much enhanced by having the White Paper, which he consented to give at my suggestion, explaining the tax in advance, and I am sure it is not only in the interest of myself and my hon. Friends, but of the House as a whole, and I think the country and the business community also, that at the time when the original Money Resolution was put down we were favoured with a description of the tax which has enabled us all to appreciate in the main what was intended, and for which we should otherwise have had to wait until the right hon. Gentleman delivered his speech.
    872
    There are several points to which we must draw attention in discussing this Resolution and the tax to be founded on it. The first point to which I propose to address myself is the matter of principle. The old tax was condemned, I think in all quarters of the House, because it was regarded as grossly unfair. It was condemned also because in our view it was administratively unworkable. It was condemned particularly from these Benches on the ground that, at any rate, in the emasculated form in which it was presented to us by the present Chancellor, it made a contribution to a series of unbalanced Budgets which I do not hesitate to describe as derisory. The new tax is considerably less unfair. I am prepared to agree with the right hon. Gentleman it is administratively simple, but I am bound to say that, though it produces more than the old tax, which was cut down in order to meet the objections that had been raised, it still makes a miserably inadequate contribution to the deficit of this and subsequent years.
    When we had the old tax, it was said on all sides of the House that there was some justification for a special tax on excess profits at a time when industry was somewhat booming, and it was pointed out that, whether the principle of the tax was good or not, we had to go where the going was good and where the money was to be found. Therefore, there was some case for a tax on excess profits, and possibly upon profits as a whole. But, as long as the capitalist system exists, there is not in general any case for taking toll of the active producers in industry, represented mainly by the equity shareholders as distinct from the passive partakers in industry, many of whom have obtained their resources by inheritance or by some other passive act on their part by which they obtain a very heavy lien upon the production of the country. Therefore, though it may be arguable that at this juncture there may be some special case for attaching an additional burden to profits, as distinct from other forms of income, I should certainly enter my caveat against any idea that that is the most sound method of imposing taxation in ordinary times, because I do not consider that other classes should be let off their proper share of the burdens of the country. After all, we have taken a good many years in perfecting our system of Income Tax, Surtax

    873
    and Death Duties, and in general they remain the fairest form of taxation that we can have.
    I pass to the details of the tax, and I will begin where the right hon. Gentleman left off, and where in fact the White Paper begins, and that is in relation to the duration of the tax. I think the right hon. Gentleman, with his usual desire for felicitous expression, did not quite achieve his purpose when he said it was somewhat difficult to frame a Clause which would clearly confine a tax to five years, because he knows as well as I do, and those who know the Rules of the House, that it is not only difficult but impossible to impose any taxation which will be for a specific number of years in the future. Not only can one Parliament not bind another, but one Session of Parliament cannot bind the Session that follows it. Though I have not sat in the House nearly as long as the right hon. Gentleman, I can remember instance after instance in which Chancellors of the Exchequer, beginning with the right hon. Member for Epping (Mr. Churchill) and the Noble Lord who has passed from us, my old chief, Lord Snowden, have made proposals and said what was going to happen in the next year and the year after that, but in the years that followed they had to abandon the principles that they had themselves laid down. I remember the McKenna Duties, which were introduced as a temporary tax, and those who introduced them were most careful to state that they would not have been introduced as permanent taxes and were not suitable for it, but they have been retained ever since.
    Mr. Macquisten: The McKenna Duties were departed from and reimposed afterwards.
    Mr. Pethick-Lawrence: The hon. and learned Gentleman's interruption is quite away from the point. The fact that they were discontinued and reimposed does not in the least alter my argument. That being so, I treat this proposal as almost valueless. It may or may not be that these taxes will last for the full five years. It may or may not be that they will be continued after the five years. It may or may not be that during their continuance they will be kept on at the precise rate and in the precise form in which the right hon. Gentleman has proposed them in the Resolution, and will ultimately put
    874
    them forward in the Bill. Whether that be so or not entirely depends upon what we in the House in future Sessions decide shall be the case. It does not in the least depend on any form of words which the right hon. Gentleman devises on this occasion.
    But, taking the proposal at its face value, let us see what is the merit of this five years. The right hon. Gentleman says it is surely an excellent thing that, inasmuch as industry will be making extra profits owing to Government expenditure, the tax should run just for that time and should stop when the Government expenditure is likely to become less. That is all right for the taxpayer, but I beg him to look at the matter, not only from the point of view of the taxpayer, but from the point of view of the Chancellor of the Exchequer. What is going to be the position at the end of the five years? There is to be no loan. The Prime Minister was most careful to tell us that. Borrowing was to cease at the end of five years. That is what the Government say. Government expenditure is to be reduced. So the Government say. Therefore, the trade and prosperity of industry is likely to be declining and the normal revenue from the normal taxes is likely to be less. Everyone assumes that there will be a certain increase in unemployment; therefore, the expenditure of the State on unemployment will be increased. And it is at this particular moment that the right hon. Gentleman proposes to cut off 25,000,000 a year out of the revenue. The prospect before the Chancellor of the Exchequer in 1942 will, indeed, be a gloomy one, not so much an annus mirabilis as an annus horrificus for the Chancellor of the Exchequer. One hundred years ago came the time that was known as the hungry forties. I think that the forties of the twentieth century, assuming that all the proposals of the Chancellor of the Exchequer go through as he anticipates, will be the time of the hungry Chancellors of the Exchequer.
    Before I pass from the point of the duration of the tax, I should like to be quite clear upon one point upon which I am not quite certain at the present time. When the right hon. Gentleman was explaining the effect of the paragraph in the White Paper, "Losses, and wear and tear," the general effect of the wear and

    875
    tear deductions was quite clear, but I am not quite so sure what are covered by losses. I can understand that where a firm is taking part in several operations some may be losses and some may be profits in the same year, and they are set off one against the other. I should like a little more enlightenment as to what is to happen if some of the five years make a profit and some of the five years make a loss. Members of the Committee will remember that in the later years of the Excess Profits Duty there were very considerable reimbursements from the Treasury to firms and companies which had made a profit under E.P.D., and which had to be reimbursed when they made losses later. Will the Chancellor of the Exchequer be kind enough to tell us at some later point with some clarity precisely what the position is going to be? If a firm makes a profit in the second year of account and pays this tax, do I understand that, if in the third year it makes a loss, there will be a reimbursement?
    Sir J. Simon Sir J. Simon indicated dissent.
    Mr. Pethick-Lawrence: That is certainly a relief, because otherwise the situation might be serious in succeeding years.
    Sir J. Simon: I am obliged to the right hon. Gentleman. I think that what I stated really implied that, but it is quite right to get it clear. I said that we proposed to adopt the principle of Income Tax. As the right hon. Gentleman knows, the Income Tax scheme permits a carry forward, but not backward, of losses against profits for six years. When it gets to seven years, the first year is disregarded.
    Mr. Pethick-Lawrence: Suppose a firm makes a profit in the second year and pays the tax and makes losses in subsequent years, will that require any reimbursement?
    Sir J. Simon Sir J. Simon indicated dissent.
    Mr. Pethick-Lawrence: It is just as well that the Committee have had that point made perfectly clear, and I am obliged to the right hon. Gentleman for interrupting me and making that statement.
    876
    Now I come to a very large issue as to who falls within the net of this particular tax and who falls outside. A very strong criticism was made, particularly from these benches, upon the original form of tax. We understood that banks and financial houses, accountants and lawyers were all left out. In fact the tax was dubbed by some people, not without reason I think, as the accountants' endowment tax. The new tax is less unjust because most of these are now made to contribute, and I believe that if we view the matter impartially we shall all agree that those houses which are making good profits whether they be themselves engaged in productive enterprises or whether they are of a financial character, also should bear their share of any burden that is being imposed. The right hon. Gentleman made a defence of the exclusion from the tax of professional persons. He carried me along with him as far as he was able to show that to include them would be administratively difficult and would give rise to a number of complications. But, on the other hand, I am not sure that that satisfied me that his line is a good one. It only shows that there are more difficulties in the whole of this question of profits calculation than meet the eye, and I come more and more to the view that the income Tax is the fairer method of dealing with income all round.
    Mr. Cove: Not necessarily.
    Mr. Pethick-Lawrence: The new tax still exempts the passive element of production. That I regard as a blot, but I will not refer to it again, because I have already dealt with it at some length. Let us see who comes into the tax. In the first place, there are the Income Tax payers whose incomes are small and who would be able to claim exemption from ordinary Income Tax. In that respect this particular proposal is not better than its predecessor. I hope that I make myself clear. I see the hon. Gentleman the Member for South Kensington (Sir W. Davison) looking rather doubtful as to what I mean, and I know that he is a technician in Income Tax matters. If you take the man with a small income who through exemptions at the present time pays no Income Tax at all, or pays a very small amount of Income Tax, had the Chancellor of the Exchequer seen fit to throw a slight burden on Income Tax,

    877
    that man would have paid nothing, or only a negligible amount in taxation. That man may have most of his income, or the whole of it, derived from an investment in a company or in some business which will pay this new taxation, and, poor though he be, will not get any exemption of any kind from this tax. He will have to pay precisely as large a proportion of the tax as his far more fortunate neighbour who is very well-to-do.
    In that respect this tax is administratively worse than the ordinary Income Tax. I suggest to the right hon. Gentleman that he should look at that point in Committee. It may be that out of the framework of these proposals, it is not possible to give any relief to that class of person, but may be he could find some method which would be only reasonable and fair. Then there are co-operative societies. We have always taken the view that to impose Income Tax upon what are the profits of mutual trading was a vicious principle, and this tax further extends that vicious principle by imposing upon the profits of co-operative societies this new form of the National Defence Contribution.
    I now come to the point with regard to the contributors inside the company itself. The right hon. Gentleman dealt at some length with that point, and covered some of the points I had in my mind. I think we should all agree that the idea of omitting debenture interest is sound, as it is interest on a debt to a creditor. As between preference and ordinary shareholders, I think that the right hon. Gentleman necessarily is in somewhat of a difficulty. It is true, as Lord Horne said, that this tax, falling as it does on the ordinary shareholders, may amount to a very considerable part of the dividend which they would otherwise receive, but I agree with the Chancellor of the Exchequer that to adopt Lord Horne's remedy would bring about a graver injustice than the one which it is sought to remedy. It is perfectly true that, if the ordinary shareholders were able to limit the total proportion of dividend on which they pay the tax then the amount received by the Chancellor of the Exchequer would vary with the gearing of the company. The company that was highly geared in favour of one class of shareholders would pay little tax, and another company making precisely the same profit would pay an entirely dispro-
    878
    portionate amount of money. It would not be dependent upon anything that the Chancellor of the Exchequer did, or on what profits they made, or on their normal liability to tax, but purely on the particular method they had chosen themselves of gearing their own company.
    There was one point in the explanation of the Chancellor of the Exchequer—perhaps I misunderstood him—which I could not follow. I understood the right hon. Gentleman to say that, supposing a company, after paying its preference shareholders made no profit which would be divisible among ordinary shareholders, there would be no tax paid. Surely, that is not correct. The company pays the tax on its profits. If after the tax has been paid there is enough to pay the preference shareholders their normal dividend of, say, six per cent., then the shareholders get it, but if after paying the tax there is not enough left, then the preference shareholders have to receive something below their normal dividend.
    Sir J. Simon: I do not think that the right hon. Gentleman quite understood me there. I was discussing whether it would be wise to introduce into the present proposals a qualifying proviso such as is found in the Corporation Profits Tax. That proviso, roughly speaking, would be that in no event would the amount which the State gets by way of tax exceed one-tenth of that which is left to the ordinary shareholder. I merely made the very obvious observation that, under that proviso, if you had a company which had exhausted all its profits in paying dividends to its preference shareholders, there would be nothing for the ordinary shareholders, and I apprehended that one-tenth of nothing is nothing, and that, therefore, such a proviso would have the effect of depriving me of any tax at all. I was not referring to anything in connection with the scheme, but offering an argument, as to the possibility of which the hon. Gentleman will probably see is possible of introducing into this tax what is to be found in the Corporation Profits Tax.
    Mr. Pethick-Lawrence: I fully understood that. I felt sure that the Chancellor of the Exchequer could not have made a mistake upon the point. What I am pointing out now is that, supposing without the tax there is just enough

    879
    money to pay the preference shareholders and nothing left for the ordinary shareholders, then the tax falls on the preference shareholders for the current year. Unless their contract is for accumulated profits, they cannot recover in subsequent years. I suggest to the right hon. Gentleman that it might not be unreasonable in certain circumstances that preference shareholders should be made to pay part of the taxation even when there is some money accruing to the ordinary shareholders. I hope, at any rate, that he will adopt that in preference to any suggestion of the kind suggested by Lord Home. If he is going to refuse, in any case it is a matter for shareholders to fight out. Rather than adopt what Lord Home suggests, I would put forward this alternative proposal with the object that the Treasury should not suffer one penny loss owing to any arrangement that could be made between the ordinary and the preference shareholders.
    I come now to some of the minor points of the Bill. The first is the relief to small businesses. In the main we shall all agree that that is necessary. It would be necessary for administrative purposes, now that ordinary firms are introduced, even if it were not important and desirable from the point of view of the taxpayer; but I am not sure that the amounts that have been chosen in the new tax, taken as they are from the old tax, are suitable. In the old tax we were dealing with excess profits solely, but I am inclined to think that the remissions are excessive in the present proposals. It seems to me to be a very considerable amount to allow through the net of taxation that £2,000 may be made in profits without paying a single penny contribution under this proposal. It is not possible to move an Amendment to increase the tax, and therefore this is the only opportunity on which I can draw attention to this fact. I think the right hon. Gentleman has been too generous, because he has taken over from the previous proposal a large remission which under the present scheme he need not have made to that full extent.
    With regard to the provision for the Special Areas, there are two points that need consideration. It would be obviously quite wrong if every business operating within the Special Areas were subject to this exemption. I am aware
    880
    that that is not the proposal put forward by the Government. On the other hand, the scheme outlined in the White Paper, which has been explained by the right hon. Gentleman, does not make any provision for other areas which are terribly depressed but are not included specifically in the Special Areas. I was interested to note that the right hon. Gentleman chose his words rather carefully on this matter. He said: "I shall not discuss for a moment whether it should go further." He went on to say that as far as the Special Areas are concerned, and he emphasised the word "Special," this is what the Government propose. Therefore, I gather that the Government are open to consider whether in certain circumstances there might not he an extension from the Special Areas to other areas equally needing help, but which do not come within the definition which the Government attach to the words, "Special Areas."
    The right hon. Gentleman explained the position of public utility companies. It is rather an intricate point and I will not take up the time of the Committee discussing it. No doubt as the Measure proceeds through its various stages opportunities of discussing that point will arise and differences of opinion may emerge in the Committee. I am very glad to see that there is to be no calculation of capital in the new tax. Those hon. Members who listened to my first speech following the introduction of the original tax by the present Prime Minister will remember that from the outset I saw great difficulty in attempting to base the tax upon the calculations of capital which the Prime Minister then proposed. I think we are well out of the morass into which we should have been led by that scheme.
    I come now to the last paragraph in the White Paper, which relates to the yield of the tax. Let us be quite clear what the tax is going to yield and how it will deal with the financial situation of this year and subsequent years. The yield of the tax is estimated to be something like £25,000,00o in a full year, but only £2,000,000 in the present year. It has been admitted by the Chancellor of the Exchequer, in reply to a question, that that is the gross yield and that it is subject to certain deductions, which were elaborated in the Debate which we had the other day on the old tax. It is subject, first of all, to a reduction of

    881
    roughly one-fourth from Income Tax, which we will put down at £6,000,000, and it is also subject to a deduction in respect of Surtax, which may amount to £1,000,000, and may be appreciably more. That is £7,000,000. It may be subject to other reductions in respect of Stamp Duties, etc., but that would apply to any other form of taxation. At any rate, there is £7,000,000 of deductions, so that the tax will yield as an addition to our revenue not £25,000,000 but something like £l8,000,000.
    It is important for the Committee to realise what a very small contribution that is to what is in fact a deficit not only for this year but for the next five years, which we are asked to envisage. We on these benches have taken the view from the beginning that the proposal to borrow such a large sum of money in peace time, at a time of growing revenue and increasing trade is injurious, and it is a mistake to regard this comparatively small amount as at all adequate to deal with the situation as it is or as it is likely to he during the next five years, and the disastrous position which is likely to arise at the end of the five years, of which I have already spoken.
    There are two other matters to which I wish to draw attention. They are not directly dealt with in the White Paper but they are relevant to it. The first gives rise to a question which is being asked not only by economists but by a large number of people, namely, can the tax be passed on? It was the unfortunate experience of many of us to witness the working of the Excess Profits Duty during the War and to see that that tax was very largely passed on to the consumer in the shape of increased prices. I have not the slightest intention of worrying the Committee by going into a complicated economic argument as to whether this tax can theoretically be passed on or not. The hon. Member for Oxford University (Sir A. Salter) who was recently elected to this House, will be far more capable of dealing with that question; but my own opinion is that it will depend not only upon the way the tax is worked but upon the whole policy of the Government, and what is happening in the field of foreign affairs. I would put it to Members of the Committee and to the Chancellor of the Exchequer in particular that they will be watched most carefully by the people of this country, not to discover whether this
    882
    particular tax can be passed on, because that is very difficult of verification, but whether prices go on rising and whether the rise in the cost of the necessaries of life continues, so as to lower the standard of life of the people. If that be the case and if the standard of life of the people is forced down, the general public will rightly blame the whole policy of the Government.
    The other question is that of armaments. When it was known that the Government proposed to spend a very large amount of money on their rearmament programme, the question of profits on armaments was uppermost in the minds of a very large number of people. We on this side have taken the view, and we continue to take the same view, that the right method of dealing with the armaments industry is to make it a national industry, because you are perfectly certain to have vast profits made out of armaments so long as armament manufacture is in private hands. There was a disposition on the part of certain people when the Prime Minister introduced the original proposal to favour the tax because it was thought that the State would get back a substantial amount from the profiteering in armaments. I always regarded that view as quite illusory. The Government and the armaments manufacturers wrangle out between them what price the Government shall pay for the armaments and it is more a political than an economic question as to how much profits the armament makers are able to exact.
    The hon. Member for Cambridge University (Sir J. Withers) seems to doubt that. I am prepared to discuss it later if he likes. I always regarded it as illusory that under the original proposal the Chancellor would have got back a substantial amount of the armaments profits or that he would have reduced appreciably the profits which the armament manufacturers make. But I should like to ask in regard to the new tax whether in fact it is going to he paid by the armament manufacturers, in so far as it applies to them. It is easy for the Government in dealing with the armaments firms, to allow them to make precisely the same profits after paying this tax as they would have allowed them to make if the tax had never been in existence. The country will judge the Government not on. some meticulous economic point of

    883
    view but upon whether in fact the armaments manufacturers get away with a large amount of swag, or whether they do not. That depends upon the policy of the Government all round.
    In conclusion, I would repeat that the real criticism that we make against the proposals of the Government are that they are totally inadequate as a means of bridging the gulf that separates the current expenditure of the country and the current revenue which the Government are collecting by the ordinary means of taxation.
    5.29 p.m.
    Sir Francis Acland: When I read the outlines of National Defence Contribution, Mark 2, when it came out in the White Paper, my first feeling was to wonder whether there was enough in it to give us a whole dray's discussion. I do not intend my contribution to the Debate to be of such a length as will help to answer that question in the affirmative. The main points are that the Government have done what the House in general wanted them to do, which is not so common an occurrence that we ought not to be grateful for it when it happens, and that the people who will have to pay, including many who will have to pay under Mark 2, who would have escaped under Mark r, are a great deal less displeased at the prospect of paying what may be expected from them. To my mind it was of the essence of the matter, and I think I was the first Member of the House to draw attention to it, that the offers made by the persons concerned through the Chambers of Commerce should be taken up, that there should be consultation, and that the new tax should follow in the main the results of that consultation. It became clear that the people concerned preferred on the whole a flat tax on profits, and it is that surely, with certain trimmings, which is now in the main to be imposed. That being so, the question as to what alternatives we might have preferred does not seem to arise on this occasion. Some of us would have preferred a graduated Super-tax on increases in unearned income, but that does not come into consideration because those who have to pay it, in industry, prefer a flat tax on profits.
    I am a little surprised at the comparatively kindly reception the new tax has had when I realise that in its main essentials it is the same tax as the Corporations
    884
    Profits Duty of 1920, proposed by the late Sir Austen Chamberlain. Some of us remember that Mr. Baldwin, as he then was, declared in 1920 that the tax was not meant to be permanent, and apologised for retaining it in 1923. He said that every one would admit that it is not a good tax, as it bore exceptionally hard on enterprise and industry; and we also remember that when the Labour Government a year later took the tax off their action was popular. For the moment the Treasury must be congratulating itself, patting itself on the back, on getting a tax like this, rather than having to make a frontal attack in the Budget. Of course it is rather early to say whether the tax in its actual working will be equally unpopular with its prototype, or whether there is a prospect now of it being better received. I suppose the central fact about the whole controversy is that the City prefers almost anything to something which makes it hot and bothered. Certainly Mark 1 left them hot and bothered. I have heard it suggested that when the Chancellor of the Exchequer was considering the tax he should have gone to some person with a school certificate and explained it, and if it was not understood should have realised that it would not be understood by the City. But there was a good deal to bother them, and even the Chancellor of the Exchequer with his wonderful power of lucid explanation must be glad that he has not to pilot through Committee the Clauses of the original tax.
    Apart from Committee points, upon which I do not want to enter, there are only one or two more remarks I desire to put before the Committee. Holding as we do that the original tax was a wholly insufficient method of dealing with armaments profits, we naturally hold the same view, but more strongly, about the revised version. We are not satisfied that the Government are taking sufficient trouble to get back for the taxpayer a fair share of the profits which are being and will be made, and that applies specially to sub-contracts. We shall take whatever opportunities there may be of drawing attention to this fact. The second point is that it is unsound to try and embody in legislation any undertaking as to the duration of a tax. I am not saying that in five years' time it will be either right or wrong to continue the

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    tax, but I think with the burden of the new debt upon us, let alone the existing debt, there will be many arguments for its continuance. That, however, is not the point. The point is that, whatever may be said by Parliament now, that question must be left to be dealt with by Parliament five years hence.
    It may be perfectly natural for the Prime Minister to say that if things go as he hopes they will it is his present intention to discontinue the tax at that time, and such a statement coming from such an authoritative source will, of course, be received as a very serious element in regard to the position of the tax. We know that it will be literally carried out. I am not in the least questioning the sincerity of the intentions of the Government, but we know that we cannot limit the discretion of another Chancellor of the Exchequer in the same circumstances or the same Chancellor of the Exchequer in different circumstances, or the House of Commons whatever the circumstances may be. It is rather almost a farce to try and limit it by providing that a certain tax shall last only a certain number of years. If it is the right thing to continue the tax after five years in the national interest no legislation that we pass now will have the slightest effect. I think we all welcome the fact that by what we are doing today we shall be gaining a considerable source of revenue, although not a sufficient source, without going off fairly easy and familiar ground. That is the main point. If we had kept to the original proposal we should have gone on new and difficult ground. I believe we are all unanimous in hoping that we shall get away for our summer holidays by the end of next month and that is much more probable with Mark 2 than if we had stuck to Mark 1.
    5.39 p.m.
    Sir Alan Anderson: The Chancellor of the Exchequer commends this new tax to us on the ground that it is simple, and on that ground and also on the ground that it brings in more money most of us welcome it. The first National Defence Contribution had many points to commend it. It tried to be fair, to temper the wind to the shorn lamb, or rather to the lamb which had not yet begun to grow its coat. Many people who escaped under it will pay
    886
    the new tax. A peculiar feature of the criticisms of the first National Defence Contribution was that many of the people who knew that they were going to escape were among the most active critics. The right hon. Member for North Cornwall (Sir F. Acland) has a poor opinion of the intelligence of the City, but they generally know which side their bread is buttered.
    Colonel Wedgwood: Hear, hear.
    Sir A. Anderson: Many of the business firms who engaged in these discussions knew quite well that they would not pay the National Defence Contribution under the first tax. There is just one point I should like to make in answer to the cheers of the right hon. and gallant Member—the principal critics of the first National Defence Contribution were not "the City," with a capital "C," but in the industries of the country. There was a small speculative element in the City which was much concerned at the start of the National Defence Contribution, but I do not think you can fairly describe them as the opinion of the City with a capital "C." Indeed as far as I can judge, the opinion in the City was that the amount returned by the National Defence Contribution was not enough. That was the chief criticism in the City. They were concerned also about the complications and uncertainty of the tax. The present proposal is much simpler and brings in more money. It is simpler because it legislates by reference to the Income Tax, which we all pretend to understand. Of course we do not. I never attempt to make out my own return and I do not suppose that many hon. Members do. We have advisers who know what it means, but we have come to the conclusion that it is just and that the pitfalls have been discovered. But the imposition of an entirely new tax alarmed us.
    I think most of the points which are open to discussion on this second edition have been mentioned by the Chancellor of the Exchequer. There is the case of the ordinary shareholder. I think it is fair to say in a time of a sudden increase of prosperity that the equity shareholder gets the advantage and is able to pay. I agree that in certain peculiarly constituted companies there may be injustice in that the preference shareholder does not pay his part, and in the new arrange-

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    ments we are making it may be possible to meet that point, but not, I hope, so as to bring in the many complications we want to avoid. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) thought it was unjust for this tax to fall on a poor shareholder because he held equity shares. Surely if the advantage of this large outpouring of public money is going to the holder of equity shares he will be better off on balance than if he had invested in other types of shares, even if he has to pay this tax.
    Then there is the case of companies trading abroad. I do not feel that that point has been met. It is a most difficult point. The Chancellor of the Exchequer said that he had followed the same practice as was followed in Income Tax, but are not the cases entirely different? If an individual is resident in this country he pays tax on the income he derives from business carried on abroad. That is right if he is resident here. But here we are stretching out our hands and we are saying that if a company is operating in Singapore and has investors resident all over the world it must pay on the whole of its profits if its headquarters are located in this country. I believe there will be great objection to that, and I think it is dangerous. It appears to me to be most important to encourage business to locate its headquarters in this country, even if its operations are carried on abroad, and if anything is done to discourage that it is bad business from the interests of employment here. There was also a point with regard to investment companies which the Chancellor has met, and also in regard to depreciation. In paragraph (6) we have the words—
    "Provision will I be made under which, in effect, the same measure of carry forward will he given."
    Some friends of mine, being of a suspicious nature, have asked what is the meaning of those two words "in effect." I remember that in a play that was running some years ago, called "The Liars," one of the characters explained that when anyone started a remark by saying "In fact," he followed it with a lie. The implication here is rather that those words "in effect" would not have been inserted if the same measure of carry forward was really to be given, and that they are put in because there is some difference. It would be interesting to know what is that difference.
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    The question as to how long this tax will continue is one with which the whole of industry is very much concerned. I suppose that every hon. Member agrees with the statement of fact that no Governmen can bind its successors, but I think the view of most of us is that this tax is reasonable as an emergency and temporary measure. It is rough justice, it will probably work for five years; but in my view it certainly would not work and would not give satisfaction if continued beyond that. I think the tax carries within itself its temporary character, and that I believe is a better safeguard that it will be taken off or replaced by something else than any assurance that could be given.
    It is interesting to notice the unity with which we approach this tax compared with the criticism with which the original tax was met. The problem which the Chancellor had to meet was in general common to all businesses. All of us occasionally find a sudden emergency which puts up our costs and with it a sudden opportunity to put up prices, and we all know that unless we put up prices quickly when the emergency is fresh in the mind of our customers, they will object to our putting them up afterwards. That was the position of the Chancellor, and it is one which is common to all of us, so that we can sympathise with my right hon. Friend. Nevertheless, in one way his position was unique. He had a complete monopoly, and there is no authority framing taxes in competition with him. All of us in our hearts hope to get a monopoly in our own affairs, but we know that it is the most dangerous thing that one can have. Last week there was, on the Home Office Vote, a Debate which emphasised that in regard to the catering and general arrangements in the prisons. The Home Office has the monopoly for catering in prisons. If they could compare it with what is done in Turkish, German or Russian prisons, they could probably give a very good answer. In the Debate, one after another of our hon. colleagues who have been His Majesty's guests spoke with personal knowledge, and said that the food was badly served and dull, and that the amenities might be very much improved. They had no sense of shame of having been in prison, any more than John Bunyan had, and no doubt they spoke the truth, but in the ordinary way the "lag" cannot criticise

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    the food, so that no doubt it is rather bad.
    However, no such shyness stops the taxpayer from criticising. I think it is very necessary that the taxpayers should organise themselves and should be encouraged to speak to the Government about the methods which the Government propose to adopt in order to get the money they require. On this occasion, ale industries of the country got together and gave the best advice they could and gave constructive opinions about the original proposals. They were not hostile, but tried to be constructive. Industry adopts the same attitude towards this proposal. As my right hon. Friend the Chancellor is a golfer, perhaps I may remind him, for I think it reflects the general opinion of industry in this country, of a cartoon in "Punch" which showed two players on the green and as one addresses one of those short putts which sometimes go wrong, his partner strides up to him and says, "Now then, we have got this for the match. None of your science. Just bung it in." That is what I think industry in general feels about this tax.
    5.51 p.m.
    Mr. Clement Davies: I do not propose to follow the hon. Member for the City of London (Sir A. Anderson) into the intricacies of prison life, or into bunkers. I am afraid that he and I approached the original tax differently, and I cannot agree with him now even in shedding a tear about it. He began rather by blessing that tax, which he now agrees industry as a whole condemned lock, stock and barrel; and I, for one, desire its early and complete demise. I wish to congratulate the Chancellor of the Exchequer upon bringing forward a simple, straightforward tax for which industry itself asked. The position apparently is that the Chancellor of the Exchequer is in need of further money, and that he has told the country that that money must be forthcoming. The tax which was proposed by the present Prime Minister, when he was Chancellor of the Exchequer, was an inequitable one, an unworkable one, one which it would have been very difficult to assess, and probably still more difficult to collect. But industry recognised from the commencement that the money would have to be raised, and that if it had to be raised, industry was willing and ready to find it,
    890
    and could do so, on one condition—that the tax was a simple, straightforward one.
    Personally, I would have preferred, as I said in my first speech on the matter, that the extra tax should be added to the Income Tax, and in that respect I am entirely in agreement with the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence). I still consider that the Income Tax is the fairest of all taxes. If we have to bear the burden of increased armaments to-day, or any increased burden, we should bear it equitably, and the one equitable way of bearing it is through the Income Tax. However, the Chancellor of the Exchequer has chosen another way. This method has several deficiencies. It does not tax all persons. It taxes only those persons who are enterprising enough to be equity owners. It leaves untaxed the rentier class. It leaves untaxed the owners of preference shares. The right hon. Gentleman the Member for East Edinburgh made one suggestion as to how that situation might be dealt with. He suggested that when the tax has been paid by the companies, a proportion should be deducted from the amount of dividend which will be payable to the preference shareholders pro rata to the value of his dividend to the amount of the tax.
    Mr. Pethick-Lawrence: My proposal was that the Chancellor of the Exchequer should provide in exceptional circumstances some such arrangement.
    Mr. Davies: The right hon. Gentleman said that that might be a way of meeting the situation. I do not think this is the moment to consider any question of that sort. Industry has practically given an undertaking to the Chancellor of the Exchequer that it will find the money, and, although it might perhaps have been more equitable and more lair if the tax had been added to the Income Tax, industry must implement its promise. The Chancellor of the Exchequer very rightly referred to a letter which had been written by Lord Home. Lord Home called attention to the old Corporation Profits Tax which was in existence during and after the War, and said that that tax also fell upon the equity owner, but that provision was made to try to save him from bearing an unjust or unfair burden by limiting the maximum which he would have to pay. He suggested that for the

    891
    consideration of the Chancellor of the Exchequer.
    The primary consideration for the Chancellor of the Exchequer is the amount that he will get from the tax. He said that the most he can get in the first full year will be between £18,000,000 and £19,000,000 net. That is all that will be produced. If one added a limit of 10 per cent. of the profits earned by the equity owner, that amount would be still further reduced, and the right hon. Gentleman would not get anything like it. What he would get, I do not know. Inasmuch as the right hon. Gentleman must have this money, and inasmuch as industry has said, "Bring forward a plain, straightforward and simple tax, and we will pay it, "I suggest that the Chancellor of the Exchequer should now stick to the proposal he has put forward and that industry should pay without any complaint.
    5.57 p.m.
    Colonel Nathan: The Committee is under an obligation to the Chancellor of the Exchequer not only for the clarity of his explanation of this tax, but also for having given hon. Members an opportunity of studying the provisions in the White Paper before actually having the Debate in Committee. It is undoubted that the tax is a great deal simpler than the National Defence Contribution as originally proposed, but still I fail to find in it any underlying principle. When the National Defence Contribution was debated, I ventured to suggest that a new method of taxation required to justify it some underlying principles which would be recognisable by the taxpayer called upon to pay it. There might, for instance, be the moral principle to which my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) has referred this afternoon, the principle of making the manufacturer of armaments, pay. I find, however, no moral principle, economic principle or principle of social justice in the proposal that is now placed before the House.
    It is clear that the Chancellor of the Exchequer has done what the Prime Minister three weeks ago said he had done when Chancellor: gone where the money is; that is a thing which in the circumstances the Government were bound to do. The right hon. Gentleman has to find the money. This tax at least has the
    892
    advantage that it enables the taxpayer to understand with a fair degree of precision what it is that he is to be called upon to pay, and he is accustomed to the machinery of assessment and of collection. I believe that a Government should hesitate very long before introducing a new tax unless it is necessary for the purpose of complying with some such principle as I have indicated, because it is essential that the taxpayer should understand what he is called upon to pay and the basis on which the assessment is to be made. In a previous Debate I referred to the National Defence Contribution as "own blood brother" to the Excess Profits Duty. I scarcely realised how accurate I was. It is certainly true that this new tax is own blood brother to the Corporation Profits Tax. It was the late Sir Austen Chamberlain who in 1920 introduced the Corporation Profits Tax upon which the new tax is based, and I am a little surprised that the late Chancellor of the Exchequer did not attach more importance to the statement made by Sir Austen Chamberlain when he was introducing the National Defence Contribution in its original form. In opening his Budget on 19th April, 1920, Sir Austen Chamberlain said he was about to introduce a new tax which might in the future take the place of the Excess Profits Duty, and that inquiries had been made in the United States and Canada with a view to finding a possible guide based upon their experience. He went on to say:
    "The results of the inquiry and of independent investigation in this country have not served to remove the difficulties which presented themselves on our first consideration of the proposal for a taxation of profits in excess of a certain return upon invested capital,"—
    that was the original National Defence Contribution—
    "and have not enabled us to see our way to adjust such a tax to existing business conditions and customs in this country."
    It was in face of that statement that the National Defence Contribution was first introduced. Sir Austen Chamberlain went on to say:
    "We, therefore, abandoned the idea of creating a tax on profits in excess of a fixed standard, and we propose to have recourse to a different measure. I may describe our proposal as a Corporation Tax levied at the rate of 1s. in the £"—
    that is the rate here—
    "on the profits and income of concerns with limited liability, engaged in trade or similar transactions."—[OFFICIAL REPORT, 19th April, 1920; col. 98, Vol. 128.]

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    It is clear that in 1920 Sir Austen Chamberlain had not merely envisaged the difficulties of the National Defence Contribution as originally introduced, but that he actually gave reasons why the Corporation Profits Tax offered substantial advantages. It is perhaps a pity that the Government, when reviewing possible sources of taxation in our present situation, had not a little more regard to past experience of such authority. The Chancellor of the Exchequer has told us, and it is set forth in the Resolution, that this tax is to be temporary. We have known other "temporary" taxes. The Income Tax itself in its origin was a temporary tax. Sir Austen Chamberlain, however, in 1920 did not introduce the Corporation Profits Tax, as a temporary tax, or as legislation as to the duration of which there was silence. He expressly stated the character of the new tax as a permanent tax. It was intended in 1920 that it should be permanent, but only four years later it was repealed by Lord Snowden amid the acclamation of all parties upon the ground that it was unloved by its parents, reviled by its subsequent guardians, condemned by every party, and was only awaiting its final doom. Now the same tax, with slight variations, is before us for consideration, with the proviso that it is not to be permanent but only temporary. I venture to prophesy that just as the Corporation Profits Tax in 1920 was called permanent and turned out to be temporary, so this tax which is described as temporary will turn out to be permanent. The future will show whether my prophecy is justified or not.
    On the question of yield the Chancellor of the Exchequer, in answer to an interjection by me earlier, said that the produce of the tax would be not £25,000,000 as had been generally understood—that being the gross figure—but that the net figure would be something between £17,000,000 and £20,000,000. I think there is, from the revenue point of view, an advantage to the Exchequer in this tax to which attention has not yet been drawn in this Debate. Under the National Defence Contribution, as previously presented, there was to be at the end of the five-year period of the tax, an adjustment under which those who had paid the tax might recover substantial sums if the later years of the period were pretty bad for them financially, as compared with the earlier years. That might
    894
    have meant, as it did in the case of Excess Profits Duty, large sums being repaid to the taxpayer and perhaps considerable dislocation and disequilibrium in the budgetary finances of future years. That evil, for I think it is an evil, is absent from this tax, and it is a point upon which the new tax ought to be commended. I believe it ought to be a principle of taxation that there shall be no recovery in the event of bad years and that a tax once paid shall remain in the coffers of the Exchequer.
    The Chancellor of the Exchequer this afternoon commented on the fact that this tax, in contradistinction to the Corporation Profits Tax, applies not only to companies but to individuals. The right hon. Gentleman put forward very cogent reasons why that should be so, but it seemed to me that he put before us no sufficient reasons to show why—nor am I, for one, able fully to understand why—in the case of corporations the tax is to be at the rate of 5 per cent., and in the case of individuals only 4 per cent. I heard and understood the explanation given by the Chancellor of the Exchequer, but it did not carry conviction to my mind. It seems to be too often assumed that a corporation is something different from an individual. It is true that in the eyes of the law a corporation is a juridical person. It is a person independent of those who compose it. But for tax-paying purposes, a corporation is simply a number of individuals in the mass and the taxation falls, not upon a company or corporation as some outside body independent of the individuals but on the individuals who are shareholders and participants in it. I know that when this matter comes to be debated on Second Reading it will not be possible under the Rules of the House to move that the rate applicable to individuals should be 5 per cent. as in the case of corporations, but it may be possible to put down and to debate for purposes of elucidation a Resolution dealing with the rate applicable to companies——
    Mr. de Rothschild: Is it not a fact that as regards companies, there is a limited liability which does not exist as regards individuals?
    Colonel Nathan: My hon. Friend is correct when he says that there is a distinction between a company and an in-

    895
    dividual in their relations to third parties and in their obligations to creditors, but that has no relation or very little relation to the question which we are now considering.
    Mr. Macquisten: But is it not the case that the private individual stands the risk of losing his all, whereas the shareholder in the company only stands the risk of losing his stake in the company?
    Colonel Nathan: It is, of course, true and it is inherent in the fact that the company is a limited liability company that the stake put into the company is a limited stake and that no more than that stake can he lost. It is true in that sense that the shareholder in a company is in a different position from the individual trader. But we are not here considering the relation of the shareholder to the law at large or to the world outside or to creditors. It is only in relation to creditors that the question of limited liability comes to be one of any consequence.
    Mr. Mabane: Does not the question of reserves affect the issue very substantially? A private individual cannot provide reserves which are exempt from Surtax whereas a limited company can.
    Colonel Nathan: My hon. Friend asks whether it does not make a difference that reserves have not to be found under compulsion by the individual.
    Mr. Mabane: A private individual cannot make provision for reserves without becoming liable to Surtax in respect of it, whereas a public limited liability company can make provision for reserves as it pleases, without being so liable.
    Colonel Nathan: I think my hon. Friend is taking a short view. As I understand his point it is that the individual must, out of his pocket, make provision for reserves while in the case of a company in which he is a shareholder such provision may be made out of the reserves of the company. That, of course, is true but if you search the records of companies you will find that, on the whole and broadly speaking, the reserves set aside year by year in a company are ultimately distributed to the shareholders and go back into the pockets of the individuals and there become liable to Sur-
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    tax. It is only a question of delayed payment of Surtax in the case of reserves which are set aside by a company. My hon. Friend I know is too familiar with business to accept that as a statement without qualification and I think he will do me the justice of saying that I am too familiar with business to make it as a statement without qualification. I make it as a broad general proposition. The profits of a company before the company is wound up, reach the pockets of the shareholder in such a way as to place under the compulsion of paying Surtax those who come within the scope of Surtax.
    It has been pointed out already by my right hon. Friend the Member for East Edinburgh and other speakers that the burden of this tax falls exclusively on the holders of the equity shares, that debenture holders, as is right and proper, are under no obligation with regard to this tax and will bear no part of it, and that, so far as preference shares are concerned, they also escape except in the very unusual or special case put by my right hon. Friend the Member for East Edinburgh. I fail entirely to understand why the burden of this tax should fall upon the ordinary shareholder. The rentier already escapes wholly, the preference shareholder is to be put in a privileged position under these proposals, and it is the ordinary shareholder alone who is to suffer the burden. It is all very well to say that it is the ordinary shareholder who will reap the greatest reward from large profits. It is also the ordinary shareholder who will suffer first if the enterprise is unsuccessful, and a burden resting wholly on the ordinary shareholder is in fact a tax upon enterprise and initiative.
    If it had not been put forward by my hon. and learned Friend the Member for Montgomery (Mr. C. Davies), I should myself have taken the initiative in putting forward the suggestion to the Treasury, as I do now, that there should be adopted in regard to this Corporation Profits Tax the same procedure as is adopted in regard to Income Tax. It is common practice, and not only so, but it is the law, that when a dividend is paid, the appropriate tax is deducted from the payment made by the company to the shareholder. Why should not the same thing be done with regard to this Corporation Profits Tax, or National De-

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    fence Contribution, to call it by its new name, in just the same way? The general law, as the Chancellor of the Exchequer said, is to be assimilated to the law relating to Income Tax. Why in this respect should it be a thing apart? Why should not the tax be made to fall, as it so easily and automatically could be made to fall, upon the preference shareholder in proportion to his interest in the profits of the company?
    Colonel Wedgwood: Why not on the debenture holder also?
    Colonel Nathan: The answer to that question is that the debenture holder is a creditor, that the amount paid to him is interest and is independent of profit, altogether. If there are no profits, the debenture holder is still entitled to receive his interest. It has no necessary relation to profits at all.
    Colonel Wedgwood: He is a moneylender.
    Colonel Nathan: There is one point upon which I am very anxious to put a question to the Financial Secretary, because I did not follow what was said on this point in the very clear statement of the Chancellor of the Exchequer, and it relates to what he called director-controlled companies. I understood from him that, as regards that class of company, newly defined, the directors' fees are to be limited to a certain proportion of the profits and to a total aggregate sum in all. The argument that he advanced in support of this suggestion was that otherwise the National Defence Contribution might be avoided. I want to ask what the effect will be in regard to the Finance Act of 1922, under which broadly speaking, when companies are in the control of a small number of persons, so as to become director-controlled companies, then, for the purposes of Surtax, undistributed profits and the like are deemed to be part of the profits of the company, liable to tax in the hands of the shareholders. I would like to know what the relation of the 1922 Act is to the director-controlled companies.
    The hon. Member for the City of London (Sir A. Anderson) said something with regard to English and foreign companies, upon which I should like to make one comment. The burden of taxation in this country is becoming so great,
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    and the importance of bringing to this country and keeping in this country companies which are at all events, in the Income Tax connotation of the term, foreign companies is so great, that I feel that a great deal of attention and consideration should be given to the position of the so-called "foreign companies" because I am using the term as one which is used in the tax Acts. I should like to know in that connection, if possible, what the Chancellor of the Exchequer proposes to do with regard to the report of the committee on the Income Tax.
    I want also to say a word or two with regard to the exemptions. I understood from the Chancellor of the Exchequer that public utilities—for instance, electric power companies—will be exempted from the tax when either their dividends or their rates of charge, or both, are restricted by Statute; and then the right hon. Gentleman used the phrase—it may have been quite inadvertent and have no special or, shall I call it, sinister meaning—"those companies will be exempt from the Act to that extent." The words which I am emphasising are "to that extent," and the question which I wish to put is whether these public utilities are exempt wholly from the tax if they are in any regard subject to restriction of dividends or charges, or whether it is only to the extent to which they are so restricted; and that would have a special application to the case of railway companies, which are statutory Companies restricted as to their charges for carrying passengers and freight, but which at the same time carry on a large number of other businesses, such as sea transport, hotels, and all the rest of it. I should like to know how far they will or will not be exempt from this tax.
    Then there is the special position, I suppose, of the London Passenger Transport Board, which appears to be under certain disabilities if it does not in fact make a certain return upon its capital. Is the London Passenger Transport Board, a statutory board, to come within the provisions of this Bill? Here is one last class of case: I have had brought to my notice in relation to this tax, and I give it as a practical instance, a property company. All the properties, or 90 per cent. of them, owned by this company are properties under the Rent Restriction Act; in other words, the rent cannot be increased, at all

    899
    events except to the extent provided by Statute. Will a property company owning properties subject to the Rent Restriction Act be deemed to be within or without the exemptions from this Bill?
    I must confess that, great though I think this tax is as an improvement upon the proposals put forward on the previous occasion by the Prime Minister when Chancellor of the Exchequer, I should very much prefer to see an Income Tax. I thought there was great significance in a casual remark made this afternoon by the hon. Member for the City of London, who, I regret, is not now in his place. He was talking about the burden as it falls upon ordinary shareholders and saying that there may be small men among the ordinary shareholders, and then he went on to use words to this effect—"but how lucky they are that in good times they can make a profit and get a good return." That is to miss the whole point of the contentions of hon. Members on this side of the House, and indeed on the other side too, I think, as to where the burden of taxation should rest. The point which has been long established, and almost sanctified by our tax law, is not that a man is lucky to have a large income or unlucky if he has a small one, but that the taxation upon his income, whatever it may be, should be proportionate to the burden which his shoulders can bear, and that position was quite overlooked by the hon. Member for the City of London in his remarks this afternoon.
    I am satisfied that another advantage of an Income Tax is that this present tax will be passed on to the consumer, as every tax is passed on to the consumer ultimately, short of the actual Income Tax itself, which finds its way out of the pocket of the individual citizen. That is the only tax which cannot be passed on, and even some of that can too, I think. This new tax is also, I believe, unfair as between individuals, because it takes no account of the differences in the financial position of individuals. It is sometimes said that you cannot have an Income Tax applicable to dividends received from the profits of industry, because it would mean a differentiation. Surely that cannot be true. There is already a differentiation in our Income Tax law between earned and unearned incomes, and in foreign systems, even if
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    not in our own, dividends from different sources bear different rates of tax. Conceding that £25,000,000 has to be found by the Chancellor of the Exchequer, I should greatly prefer that it should be found by an Income Tax, or by a tax based upon the principles of our Income Tax, payable out of the dividends received actually from the profits of industry and trade.
    6.28 p.m.
    Mr. Boothby: I should like to say that the hon. and gallant Member for Central Wandsworth (Colonel Nathan) rather missed the point of the interruption of the hon. Member for Huddersfield (Mr. Mabane), which was rather an important point. The hon. Member for Huddersfield pointed out, rightly, that in the case of a private firm or company you cannot put anything to reserve without paying Surtax on it, whereas in the case of a public company it can put any amount to reserve and have to pay no tax upon it at all.
    Colonel Nathan: I do not think I misapprehended the point. I conceded the point, so far as the hon. Member stated it, but the real point is that it becomes liable to Surtax when it is taken out of reserves.
    Mr. Boothby: I think that is one of the reasons which caused the Chancellor of the Exchequer to make this differentiation, which, I think, it not unsound. As I was a strong critic of the original proposals, while listening to-day to the chorus of congratulation and almost of welcome for the new proposals, I could not help wondering what kind of welcome in fact these new proposals would have had if they themselves had been suddenly launched on the Committee in the original Budget speech. I have come to the conclusion that perhaps on the whole the original National Defence Contribution was not a bad thing. Here you have a proposal to tax industry to the minimum extent of £25,000,000 a year welcomed and hailed in every quarter of the House of Commons as a great constructive Measure, and you have industries pressing forward from all sides, from every part of the country, only too anxious to make their contributions to so simple, admirable, and meritorious a tax. It certainly has the merit of simplicity, and a merit which I suggest is even

    901
    greater: it has an element of certainty about it which is what business really wants more than anything else. It will involve no dual labour, which is another point against the original tax.
    The Prime Minister was rather hard on me when he singled me out in the speech in which he withdrew the tax as having painted too exaggerated and gloomy a picture of the state of affairs which had resulted from the introduction of the original proposals. He related the amount of gloom which I had painted to the estimated amount that he had expected to raise from the tax. I do not think, however, that that was really of great importance. It was not the amount that caused such consternation but the complete and absolute uncertainty. What I thought the Prime Minister would take into consideration when he accused me of painting this dark picture was the psychological effect upon industry of the complete uncertainty into which it had been plunged. When the first National Defence Contribution proposals were placed before us, no one had any idea what his liability would be. You could not tell whether the estimate of the Treasury was right or wrong, and most companies felt it would be at least a year before they could calculate what their liability under the tax would be. The result was that nobody had any idea of the real value of any securities. The value of securities was written down, and it remains to-day written down by a sum which has been estimated at somewhere between £400,000,000 and £500,000,000. I venture to suggest that now even the Treasury cannot laugh that off.
    That was really one of the reasons why I did paint a very gloomy picture, and I do not feel guilty, that it was in any respect too gloomy. I think that there are about it now tinges of gloom which I should like to see removed at the earliest possible moment. I still feel that it is not quite fair to put the whole burden of this tax upon the ordinary shareholder, in spite of what the Chancellor said. I do not see why the preference shareholder should get off scot free and that the ordinary shareholder should be penalised, as he inevitably will be. I still feel that that is a fundamental objection, and I wish the. Chancellor would examine it to see whether he cannot do away with the anomalies in regard to the preference
    902
    shareholders. In regard to the possible double taxation of investment trusts, the Committee will be satisfied and grateful to the Chancellor for his complete reassurance on that point.
    The hon. and gallant Gentleman who has just addressed the Committee rightly pointed out that it was important that we should attract and maintain in this country as many companies operating overseas as possible. I want to ask the Financial Secretary about the companies here that are operating overseas in the Dominions. Will the Dominions accept this tax as part of the costs of production, or will the sum aid in respect of it be subject to Dominions Income Tax at the full rate? That is a vital point, because it is so subject, will not these companies which carry on operations in the Dominions or the Colonies be under a serious disadvantage compared with their competitors who have not their registered head offices in London, and with other companies which do not operate overseas and which, therefore, will not have the burden of this tax in addition? I put that forward as a point which I believe is one of substance, and I shall be grateful if the right hon. Gentleman would look into it, as it seems at the moment that some of these companies will be unfairly treated unless some arrangement can be made either by way of rebate here, or by some arrangement with the Dominions.
    I think that the only possible general criticism that can be made of the tax is that once again, on the whole, the rentier gets off and the entrepreneur, the producer, pays the bulk of it. The right hon. Gentleman said he thought that in the existing circumstances that was fair. I suppose that a strong case could be made out for it, but I hate letting off the rentier if it can possibly be avoided. I do not see why he should not bear a pretty heavy share of the tax. We must not forget that it is the producer, and, in fact, the equity shareholder, who takes the major risk in this country, and he is to receive no protection in the form of an upper limit. I do not say that I want the tax altered now, but I hope that in any future taxation the right hon. Gentleman will pay attention to the position of the ordinary shareholder and producer, because I think he is now being asked to bear an impossible burden.

    903
    The question is, can he bear it? He can bear it on one condition, and that is that there are profits. We are putting an awful lot of taxation on profits and some of us are apt to forget that the condition of a successful tax on profits is that there must be profits. Can industry shoulder this burden? I think that three months ago the answer would have been an unhesitating "Yes." There was prosperity and every sign of prosperity in a very marked degree. To-day the situation is a little changed. The confidence upon which all else depends in a capitalist system has been temporarily shaken. Markets are stagnant. There has been the sharp fall in security values amounting to several hundreds of millions, to which I referred earlier in my speech. There is no reason why that should not be corrected, but it is disquieting because a continuance of declining equnity values, with the resulting depreciation of investment values, might have serious results.
    There is already a decline in the consumption of consumer goods in this country, and if capital investment is next checked, then all economic activity is bound sooner or later to suffer. You cannot avoid it. It is much easier to check an upward trend than to start an upward trend. It is much easier to shake confidence than to restore or to maintain confidence. I feel strongly that in order to justify this tax to the Committee the Chancellor must take steps to restore confidence in the business circles of the country. Otherwise, there will be a danger that we might get into that recession which all the gloomy Jeremiahs are talking about and all the dons of Oxford and Cambridge are urging us to prepare against. If we are going into that recession it will be a case of good-bye to the National Defence Contribution and the estimated revenue from it. I would, therefore, venture to suggest to my right hon. Friend that he is only justified in bringing forward a proposal of this kind, which in itself is fair and simple and has many merits, unless he can give some assurance that he, at any rate, is satisfied with the present economic situation, that the upward rend of commodity prices has not yet been reached, and that the prosperity of industry will be sufficient, unless something unexpected happens, to justify imposing such a large additional burden.
    6.40 p.m.
    Colonel Wedgwood: I am astonished at the amazing chorus of support which this tax has produced. I feel like Rip Van Winkle come back from a long, long sleep. I remember in this House just as cordial a chorus of abuse of this profits tax. I remember that a Chancellor, needing money, surrendered this tax on account of the opposition raised to it from every quarter of the House. To-day I listened to my right hon. Friend speaking from this Box and my right hon. Friend the Leader of the Liberal party, and heard them complain that the tax is not heavy enough and that more is wanted. When I vote against this tax to-night I will, as will the bulk of the party behind me, vote against it not because they wish it had been higher, but because they wish it had never been invented. If they do not do it now they will do it later on because this tax, which was imposed in 1920, was removed by a Labour Chancellor of the Exchequer, Mr. Snowden, in 1924 for very adequate reasons.
    I am against the tax because it is a bad tax. It is bad because it is a tax on productive industry. Productive industry is what this country depends upon. All people who live upon the backs of productive industry are to be exempted and productive industry itself is being selected for penalisation. That, to begin with, seems to me like insanity. I am not at all certain that the worst of the old National Defence Contribution was that it induced the City of London and the company directors to support this tax in order to escape the other. This is a tax on all productive industry whether profits increase or not. A tax on all productive industry can have only one effect. It must restrict production and increase prices. The plain economics are perfectly well known to every Member. In addition to increasing the price of the articles produced, anything which restricts production means throwing men out of productive work. It is proposed by this tax to levy a toll upon production and to exempt from that toll all those people who are battening upon the producers. It exempts, in the first place, the whole of the landlord interests. Nothing is to be levied upon them, although prices of land are rising miraculously wherever new millions are poured out in making a road. The ground landlord is exempted. The first charge, or rather, I should say,

    905
    the first charges upon productive industry are exempted. Next, it exempts all the money-lenders, all the people who advance money to producers. Just when we see all over the rest of Europe the passionate resentment of the producers against the money-lenders here we have the exact reverse policy and penalise the producer and exempt from taxation the money-lender. I do not mean moneylenders in an offensive way. I am a money-lender myself and you exempt me in that capacity.
    Mr. Keeling: Will the right hon. and gallant Gentleman state his authority for saying that either banks or other moneylenders will he exempt?
    Colonel Wedgwood: I did not say banks. I mean the money-lender, the debenture shareholder, and even the preference shareholder apparently gets off without paying this tax. It is left upon those people who are definitely taking the risk of trying to increase production. Contrast the attitude of this Government towards the same problem only six years ago. Six years ago it was felt that the rates fell so heavily upon productive industry in this country that they were reduced by two-thirds, and everybody in the House welcomed the change, for the reason that it reduced the burden upon productive industries, tended to increase production, to reduce prices and to employ more people. It was pointed out at that time that the rates were an overhead charge on those industries, and that as an overhead charge they tended to force up the cost of production. Now the whirligig has gone round to such an extent that you put on a tax which is far heavier that the amount of the rates you remitted. Every reason and argument which led you to take off the old burden of the rates has been forgotten, and has been replaced by a completely inverted argument in favour of putting a tax on productive industries, because it is hoped they are going to have a good time.
    Every argument which I have ever used against the Corporation Profits Tax can be, and ought to be, used by every other Member of this House against this tax. It will increase pro tanto unemployment, it will increase pro tanto the price of everything produced in this country; and, finally, it will hit the very branch of our trade which has been suffering most severely of late years, and which we most
    906
    wish to increase in the interests of employment and in the interests of our shipping; for those industries which most certainly will suffer most severely from this tax are those engaged in the export trade. If those who are producing goods in the home trade are taxed they can put up their prices and get back the tax from the consumer; but that cannot be done in the case of the export trade to neutral markets. If costs of production go up we lose the export trade, our ships lose their cargoes, the exchange does not come in, we cannot buy goods in exchange for the goods we are selling, and the whole industry of the country suffers. This tax is not merely penalising the productive industries of this country, but selecting for special penalisation those which are engaged in the export trade.
    We are not merely exempting landlords and the money-lenders; we are going further. I ask the Committee to consider this really serious point. We know that this tax was supported by the City and by what is called industry. When it was proposed, from bench after bench it was said, "Here is industry willing to pay just as much money in a different way, if only you will make it a profits tax." Everybody threw up their hands and said, "If industry prefers it this way, let us take the money this way." But who is it that speaks for industry? Besides the ground landlords and besides the money-lenders there is rising now in this country another large class living upon industry, the directors and the stiff-collar brigade. They also are to be exempt under this tax.
    The Chancellor of the Exchequer in his speech to-day pointed out that there are some companies which are director-controlled, and he made special provision for seeing that director-controlled companies did not manage to evade the tax completely. But does any hon. Member know of one company in this country which is not director-controlled? Has any hon. Member ever attended a company meeting as an ordinary shareholder? How few of us shareholders do, and if we do what sort of influence have we in controlling that company? Every company is director-controlled, and it is quite time that we should realise that the interests of directors and of shareholders are diametrically contrary and opposite. [Laughter.] Am I putting it too strongly, speaking as one shareholder to another?

    907
    If the shareholders really control these companies and these directors, do you think that directors' salaries would have gone up in quite so astonishing a way as they have done since the War? Do you think the remuneration of directors is all confined to the directors' fees? Directors' salaries, coupled with a percentage of the net or gross profits, constitute a toll upon the profits of every company, and when I see that all the City directors put forward this excellent scheme for a tax on profits, which exempts their salaries, their bonuses and their commissions, I am not at all surprised at their unanimous support for this particular form of tax. All those who are battening on industry are exempted, and all those who take part in production are taxed.
    It may he said that it is necessary to have this tax because the money is wanted. I say get the money from Income Tax and Super-tax. That, at any rate, does not select red-headed men for taxation, as this scheme does. That, at any rate, is fair as between all taxpayers. It would not exempt the man who has invested his money in American companies or in Indian companies and punish the man who has kept his investments in this country. It does not drive British companies to take up foreign domicile in order to escape taxation. It does not push down the price of all equity shares so that the Chancellor will lose in his Death Duties what he is trying to gain out of this tax.
    This tax is the production of the City of London, but not of the City of London alone. The hon. Member for the City of London (Sir A. Anderson) told us that the City always knew on which side their bread was buttered, and therefore they supported this tax; and my hon. Friend the Member for Bishop Auckland (Mr. Dalton) told us in his advocacy of this tax some little time ago that the Fellows of All Souls believed in it. When the City of London and the Fellows of All Souls get together in the City article of the "Daily Herald," well—I do not see our Fellows of All Souls present. I sometimes think that the Fellows of All Souls make the mistake of imagining that they are the Twelve Apostles. The policy of this country used to be directed neither by the City nor Oxford dons. It used to be directed by Members of Parliament who
    908
    understood something about political economy, and something about the need of this country to foster and to promote every productive industry and to see that those who batten on industry "did not get away with it."
    6.55 p.m.
    Mr. Gluckstein: I have a great liking and admiration for the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood), but I always have a comfortable feeling when I hear him talking on one side that I must inevitably be on the other, because a more determined champion of lost causes than he is I have never seen.
    Colonel Wedgwood: I must ask my hon. Friend what cause it is I have ever supported which he considers lost?
    Mr. Gluckstein: The one the right hon. and gallant Gentleman has just been advocating.
    Colonel Wedgwood: This tax will soon be damned as it was before, when I opposed it.
    Mr. Gluckstein: Well, that is a question which perhaps had better be decided hereafter. I should like to join in the chorus of congratulations to the Chancellor of the Exchequer on his proposals to-day. With many other people who did not speak on the last occasion I had serious misgivings about the old National Defence Contribution, and those misgivings were certainly not allayed when I read the speech of the late Sir Austen Chamberlain, introducing the Corporation Profits Tax in which he stated what has already been read by the hon. and gallant Member for Central Wandsworth (Colonel Nathan) as to the Government's reasons in 1920 for not introducing the National Defence Contribution which was only recently introduced. I thought that the' reasons which the Chancellor of the Exchequer then gave might very well have been present to the minds of the Treasury officials, if they were not present to the mind of the present Prime Minister when he was Chancellor of the Exchequer in considering and rejecting the last proposal.
    However, that has now gone, and we have got in its place a much better scheme, but there are one or two points on which I should like to offer a com-

    909
    ment. There was the criticism of a letter by Lord Home in this morning's "Times." I can quite understand the Chancellor of the Exchequer being very anxious, with comparatively a small sum of money, not to lose any of it, but I should have thought that if he could not give any assistance to the ordinary equity shareholder on the lines suggested in the original Corporation Profits Tax—and no doubt he has very good reasons for coming to that decision—something ought to be done to bring preference shareholders into this scheme. I am not at all satisfied that they ought to be allowed to go scot-free. I am not very happy about the Chancellor's suggestion that they cannot be taxed, nor am I very happy at the reasons which he gave for that view, and I do hope that between now and the introduction of the new Clauses in the Finance Bill it will be found possible to bring preference shareholders within the scope of the tax, because that will not mean a loss of any tax, but will simply mean spreading the tax over a larger number of people.
    I think that the sense of the Committee is that preference shareholders ought to bear this new tax. [HON. MEMBERS: "No!"] Well, certain people seem to have that view, and I hope that the Chancellor will consider it again. I was a little astonished at the view of the hon. and gallant Member for Central Wands-worth about the difference between 4 and 5 per cent. and had he read the speech of Mr. Austen Chamberlain more carefully he would have found in that speech a very good reason why the Chancellor decided that he would tax companies and not individuals. His words were:
    "Companies incorporated with a limited liability enjoy privileges and conveniences by virtue of the law, for which they may well be asked to make some acknowledgment. But partners in private partnership pay Super-tax not merely on profits divided, but on undivided profits placed to reserve. No such charge falls on undivided profits of limited liability companies"—
    a point which the hon. Member for Huddersfield (Mr. Mabane) made once and even twice, but as far as I could see unsuccessfully. I am sure that the Chancellor must be satisfied that the original objection to this tax was prompted by a sincere and genuine desire to see it more equitably imposed. It was not because anybody desired to avoid payment, although I think that hon. Members on
    910
    the Socialist benches suggested that, but it was because of the enormous complexity of the tax and its inequality and unfair incidence. The Chancellor said on a previous occasion that there was no such thing as a good tax. Most hon. Members of the Committee would have agreed with that sentiment, but as far as one can have a good tax, this is because it has the merit of being simple, certain, direct, easy to collect, easy to understand and is to be levied for a fixed period of only five years. I should have thought that its simplicity would have appealed to all industrialists. It will certainly be inexpensive to collect, and it will enable industry to make a contribution to the national need. The Chancellor must have been quite satisfied that the £25,000,000 will be found by industry and will be willingly found. The old tax had one supreme demerit. One of the prominent Members of this House said of it:
    "Once you get away from the system of taxing all individuals and industries equally, and you try to select, either by the amount of their profits or by any other test, which of the industries you will tax, you are inevitably led into confiscation."
    Those seem to me to be most admirable and orthodox sentiments. They were expressed by the hon. and learned Member for East Bristol (Sir S. Cripps), who then spoilt their effect by adding that he regarded it as a "valuable precedent brought forward by the Chancellor of the Exchequer." The present tax, unlike the old, will be fair. We all know that this tax has got to be imposed because of the rearmament programme. I have not heard it suggested in this Debate that it served the present Chancellor right and that he had muddled the foreign policy of the Government to such an extent that now he had to carry the baby and pay for his earlier muddling. I do not hear cheers now from the Socialist party.
    Sir Stafford Cripps: Hear, hear!
    Mr. Gluckstein: I cannot rank the hon. and learned Member as an entirely faithful supporter of the Socialist party. I want to read the observations which were made at Torquay on 16th June by a Noble Lord who is regarded as a very sound international thinker by the Socialist party. Lord Cecil said:
    "One conclusion which I have been forced to draw … is that it is quite impossible for any country to remain in safety without

    911
    adequate protection to meet a sudden attack by its neighbours. I am forced to the conclusion, which I would much rather not have reached, that if other countries in Europe insist on piling up armaments, it becomes essential for us, at any rae in some degree, to follow suit."
    I have always understood that the Noble Lord was regarded by the Socialist party as the only sound Conservative.
    It has been said that the Chancellor consulted the City of London and industry, and it seemed to be suggested that the Chancellor had surrendered to the city. I do not share that view. I think that he did what he was bound to do as a Chancellor looking for revenue, and that was to consult those persons who might be in a position to let him have the revenue. There is a good precedent for consultation. I hope that hon. Members in the Socialist party will not entirely scorn the words of one who was at that time a very faithful Member of the Socialist party. Mr. Snowden, in 1924, in the days before he had become a wrecker and a saboteur—in those days he was sometimes called the Iron Chancellor—said this when withdrawing the Corporation Profits Tax and I am sorry that the hon. and gallant Member for Central Wandsworth did not quote all of his speech, because there are admirable portions at the end which I now intend to read:
    "Circumstances are quite different now. Trade is had and the captains of industry, the great leaders of industry, unite in saying that the Corporation Profits Tax is one of the factors hindering the development of trade. I think, therefore, that the time has come for the Corporation Profits Tax to announce positively its last appearance."—[OFFICIAL REPORT, 29th April, 1924; col. 1613, Vol. 172.]
    Reading those words, it rather looked to me as if Mr. Snowden had been consulting the City and doing the very thing which was reprehensible in a Chancellor of the Exchequer in a National Government. It is quite obvious that the Chancellor must consult with the City, and it is because he has done that that this new tax is going to prove successful instead of unsuccessful. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) described the proposal to tax the cooperative societies under this Measure as vicious. I have always been doubtful about the support of the Socialist party for the Co-operative movement; it has not been as frank and free as it might
    912
    have been. But I must remind the Members of the Socialist party that if they are going to tell us it is wrong that the Co-operative movement should be taxed under this new scheme, some time ago, before I was interested in public affairs, there was a great Commission on Income Tax, and, as usual with Commissions on Income Tax there were majority and minority reports. This very question about the taxation of the co-operative societies was then specifically raised and, while the majority report decided that it would be equitable for co-operative societies to be liable to Income Tax, the minority report, whose authors included a member of a co-operative society and two or three members of the Socialist party decided, not surprisingly, that it would not be equitable. But they said:
    "If there was in the United Kingdom, as there is in the United States of America, a corporations tax levied specially on corporations as such, it would no doubt be proper that a co-operative society should, as a separate legal entity, be liable to that tax."
    It seems to me that this is such a tax, and I therefore hope that the Chancellor, if he ever had it in mind to withdraw, will be fortified by those words of the report and will not dream of making any concessions to the co-operative societies. I had intended to raise the question of professional men being subjected to this tax. At first sight I came to the conclusion that they ought to be liable to the tax, but, having heard the Chancellor and the explanation which he gave, I am bound to recede from that view, and come to the conclusion that if he wants to keep this tax simple he cannot bring them into the net. There would be too many complications and difficulties involved. I do not know whether some other machinery could be devised to bring them in, because I do not think that, generally speaking, professional men desire to avoid paying their fair share towards rearmament. I imagine that they are just as interested in seeing the country is properly protected as industry itself.
    I welcome the provision for remission of tax in the Special Areas. That is a constructive effort to help these places. Could it not be extended to places which are not literally within the Special Areas, but might be included under the special powers of certification conferred on the Minister of Labour under the Special

    913
    Areas (Amendment) Act? Could not something be done to help industries migrating to Special Areas which are not Special Areas within the meaning of the Act? I want again to congratulate the Government on bringing forward this revised proposal. I feel certain that it will enjoy the support of the majority of the people of this country, and that it will succeed in raising the money which the Government need.
    7.13 p.m.
    Mr. Holmes: I, too, would like to join in congratulating the Chancellor of the Exchequer on the reception which he has had for his new version of the National Defence Contribution. I think, as he himself indicated, that he has been a little fortunate. If this new version had been introduced originally into the Budget, there would probably have been some gasping and expressions that this tax was a very hard and severe one. As it is, the Chancellor, bringing in this new version, appears before us, not as a taxing master who is going to take something away from us, but almost as a Salvation Army officer who is going to bestow something upon us. I want to refer once again to the fact that it is an entire illusion to say that the profits of industry in this country go into the hands of a few rich men. If hon. Members will examine the share registers of the large companies which are carrying on the great majority of the big trades of this country, they will find that by dividing the number of shareholders into the total capital of the companies, the average shareholding is between £100 and £200. Only the week before last a large and well-known company held its annual meeting, and the Noble Lord who presided said that they had 51,000 shareholders. The total capital of this company is just under £7,000,000. The average shareholding of that company was about £130. It is the same right through industry.
    We have reached the time, so far as this country is concerned, when industry is what may be termed community-financed. Two or three generations ago, conditions were entirely different. All the property of this country, in land, houses, trade and industry, was in the hands of a few people. The working people were then urged—I am going back two generations—to buy a house for themselves, and they were encouraged to
    914
    borrow the money through building societies and local authorities, in order that they might get a stake in the country. It was thought to be a salutary thing, and it was; but we have gone far beyond that to-day. Trade and industry are gradually being owned by the workers of the country, because of their subscriptions to the issues that are made, and through their purchases of shares in various companies. Those of us who have the privilege of seeing the lists of applications for issues that are made, observe that there are applications for £10, £20, £30 and £50 worth, and the result is that nearly every issue is divided into an average of between £100 and £200.
    This is a development which should be encouraged. Industry is gradually becoming owned by the workers, but not in the way proposed by hon. Members opposite. It is the result of gradually increased prosperity and increased wages. Men and women are able to save money and to invest it in the best of all possible ways, in the shares of the companies of this country. This is a matter which the Chancellor of the Exchequer should take into account, even when he imposes a tax of this kind. As a result of the acquisition of shares by thousands of people, as I have been describing, the dividends that are distributed to-day are not in large cheques, but in very small sums, thousands of small dividend warrants, spread all over the country. Those warrants are cashed and spent, and the general trade of the country is improved; things are made better all round. If a tax of this kind is put on, it must necessarily reduce the dividends paid by the companies, and that will reduce the amount spread over the country by means of the dividend warrants. Consequently it reduces the amount which can be spent by the recipients. I hope that the Chancellor of the Exchequer will consider from time to time to what extent the rate of National Defence Contribution and the standard rate of Income Tax can be reduced, and to what extent the graduation of Surtax can be altered; especially whether the imposition of Surtax should commence with persons earning £1,000 per annum instead of, as at present, £2,000 per annum.
    The next point is with regard to tax evasion and avoidance. To a certain extent, they are dealt with in the Bill. Here,

    915
    again, perhaps I am referring to what, on the part of many people, is a delusion. When an individual is able to evade or avoid taxation, he is said to be robbing the Government, but he is doing no such thing. The Government and the Chancellor of the Exchequer have to raise a given amount of money every year in various ways. If any taxpayers are able to evade or avoid their proper payment, it simply means that other taxpayers have to pay a little more. That could not be made more clear than by this tax. The Chancellor said: "I want £25,000,000, and I can get it by putting a 5 per cent. tax on companies and 4 per cent. on private firms and individuals," but if there is considerable evasion or avoidance, the Chancellor will still want this £25,000,000. He will, therefore, have to put up the rate above 5 per cent. and 4 per cent.
    Quite apart from legislation, we ought to endeavour to bring home to the people of this country that evasion and avoidance of taxation should not be done. The law societies and the Institute of Chartered Accountants, and kindred bodies, should discourage their members from giving assistance to people who want to avoid giving their proper share of taxation. While there will always be people who will endeavour to evade or avoid taxation and, therefore, while the Chancellor of the Exchequer will have to introduce new legislation from time to time to meet the fact, I hope that there will be throughout the country greater attempts to persuade people that this sort of thing should not be done, and that people who attempt to avoid or evade what they ought to pay are people whom one ought not to know.
    7.23 p.m.
    Mr. Bellenger: I was rather pleased to hear from the hon. Member that the working class of this country are now the real possessors of trade and industry, and I was just wondering how they came to get the money to purchase that equity. I can only assume that it is due to the fact that, in 1931, when we had that Labour Government about which supporters of the Government never forget to remind us, all those working class people withdrew their money from the Post Office Savings Bank and invested it in trade and industry. I am inclined to think, however, from my knowledge of the
    916
    workers, that they own very little of trade and industry. Their refrigerators, gramophones and wireless, and everything about their houses, and their houses as well, are all owned on the hire-purchase system. I do not know where the hon. Member gets his facts on which to base his statement.
    Sir Frank Sanderson: There are 16,000,000 investors in this country.
    Mr. Bellenger: No doubt there are, but that does not prove that the working class own trade and industry. I do not want to be long upon this point. I do not think the hon. Member meant it to be taken very seriously; at any rate, I did not take it seriously. In view of speeches made by hon. Members about the productive capacity of this tax, we ought to have a clear statement from the Chancellor of the Exchequer as to what amount he expects to receive. The Prime Minister, when he withdrew the National Defence Contribution on the Second Reading of the Finance Bill, said:
    "In the meantime, he"—
    that is, the new Chancellor of the Exchequer—
    "will proceed to work out other proposals on the assumption that those proposals will be devoted to finding a simpler tax upon the profits of industry and a tax which is estimated to produce not less than £25,000,000."—[OFFICIAL REPORT, 1st June, 1937; col. 927, Vol. 324.]
    It has been stated to-day that the actual figure is lower than £25,000,000. I believe a figure of £19,000,000 has been stated to be the product of the new tax. The Committee would be reassured if they could have from the right hon. Gentleman an assurance that the tax will actually produce £25,000,000 in one year, which the Prime Minister made a sine qua non of withdrawing the other tax. It is rather difficult to estimate or to get figures on which to estimate the product of this tax. The Prime Minister, in the Debate to which I referred, said that he supposed the profits of industry to be somewhere between £600,000,000 and £700,000,000 a year, but the hon. Member for East Aberdeen (Mr. Boothby) has told us that those profits are steadily deteriorating. I do not quite see how the hon. Member arrives at that statement. From my reading of the "Economist"——
    Mr. Peat: He never said it.
    Mr. Bellenger: He said that the capital value of shares had fallen by something like £500,000,000. So far as I understood his speech, he warned the Chancellor of the Exchequer that the tax would not produce the amount that the right hon. Gentleman wanted, because the profits of industry were very precarious. Whenever I read speeches by chairmen of companies to-day, I find that they have almost invariably the same tale to tell of rising profits. The hon. Gentleman himself, who has just interrupted me, in a speech as chairman of a company with which he was connected, recently said that he thought one ought to apologise to-day for having to pay 10 per cent.
    Mr. Peat: The hon. Member is confusing me with another hon. Member with a somewhat similar name.
    Mr. Bellenger: I beg the hon. Gentleman's pardon. He reminds me who it is, and it is certainly somebody with a similar name. At any rate, one of the Government supporters apologised for having to pay 10 per cent. for his company. If only the right hon. Gentleman would tell us how he expects to get £25,000,000 out of this tax, in view of the statement made by the hon. Member for East Aberdeen—I cannot say that I entirely agree with him, because I think that the profits of industrial companies are certainly on the rise——
    Mr. Boothby: I said that this tax would be a great success if trade went up, and that it was conditional upon prosperity; but that if the slump came, it would not be a successful tax.
    Mr. Bellenger: That is equivalent to saying that if we are going on with the rearmament programme the profits will be there on which this tax will be based. We have had statements from various Members of the Government that rearmament has helped to swell the profits of industry. In fact, they used that point as an argument in the original Debate for taxing the profits by the old proposals which they brought before the House. I am inclined to agree in one respect with the hon. Member for East Aberdeen. I think that profits will deteriorate as time goes on, especially as the rearmament programme comes to its end. We shall then see whether it is possible for the right hon. Gentleman to repeal the tax.
    918
    I disagree with those who say that the tax should have been an Income Tax. We could only have a great increase in Income Tax provided that greater rebates were given to those with lower incomes, because putting an extra sixpence on the Income Tax would hit very hardly a large body of taxpayers with fixed incomes derived from salaries and wages. Therefore, I cannot support those of my hon. Friends who would vote entirely for an increase in the Income Tax. The hon. Member for the City of London (Sir A. Anderson) stated that he never made out his own Income Tax returns, and he rather suggested that very few Members of the House did so. I am one of the few that do make out their own Income Tax returns, and I suppose the reason why the hon. Member does not, and why I do, is that his income is very much larger than mine, and therefore much more complicated to understand.
    The feature of this new tax which has been dwelt upon by every speaker from the Government benches, and by one or two from our own benches, is that, I suppose for the first time in the history of taxation, the Chancellor has directly consulted with the taxpayers as to how they are to pay the tax. Previously he had a general idea of how he was going to raise this taxation, but to-day he has gone to this special class of taxpayers and asked their permission and advice as to how he is to levy the tax. I hope we shall all bear that in mind in the case of other classes of taxpayers, such as those under Schedules A, B, C and E, when we want more taxation.
    There are very few criticisms, that we can make of this tax, because it has been passed by big business, it has been passed by finance, and it has been passed by all the supporters of the Government. It is no use our putting forward Socialistic proposals as to how we would tax the country, because those who are to pay the tax have said, "We will cheerfully pay the tax; you can have this £25,000,000, and a bit more if you want it." It hardly lies in our mouths to criticise the Chancellor when he can get all the taxation that he wants to pay for his rearmament policy. It only remains for me to draw the attention of the Committee to one other feature of the proposal, and that is what I may call the new technique of taxation. It is somewhat similar to the methods that are employed in the bazaars

    919
    of the East, or in business. You first of all say that you want a certain thing. You put a price on it, and then you leave it to the other side to bargain and barter. We shall remember this when we come into the seats which the right hon. Gentleman and his supporters occupy at the present time. It will simply be for us to put our proposals before the country in an objectionable form, as the Prime Minister did, and then to withdraw them on big business giving us the taxation that we want, as they have done on this occasion.
    7.36 p.m.
    Sir John Wardlaw-Milne: I think it would he churlish on the part of any of those who so strongly criticised the proposals which my right hon. Friend put before the House a few weeks ago if they refrained to-day from congratulating him upon the new National Defence Contribution proposals as we see them in the White Paper, and, more particularly, congratulating him on carrying out very fully the undertaking which he gave to the House at the time when the first version of these proposals was withdrawn. I say at once that my right hon. Friend has earned the thanks of the Committee by carrying out his pledge most loyally, and putting forward as a proposal which simplifies the taxation and does away with a great deal, if not all, of the objections to the machinery which would have been necessary under the original proposal, and in that way carries out the wishes that were expressed by Members in all quarters of the House.
    It has been stated here to-day that trade and industry welcome these proposals, and are eager and anxious to pay this tax, but I think that that is a gross exaggeration of the situation. There is no question of any eagerness to pay this tax. I never heard of any taxpayer who was anxious to pay a tax, and I do not fancy that trade and industry to-day are any different from the trade and industry of previous days, or from individuals who are not engaged in trade and industry at all. All that we have to be thankful for, and we are, indeed, thankful for it, is the fact that, if a tax is necessary, and if the Chancellor feels that the money must be raised and should be raised from industry, for the purposes of the extra expenditure of the next few years, it
    920
    should be raised in a way which will disturb trade and industry as little as possible so that all those engaged in different branches of trade and industry will feel that they are on a firm basis in computing what their contribution is to be.
    In view, however of what has been stated here to-day, it is only right to emphasise the fact that this £25,000,000 is going to be a very serious charge, which can only be reasonably made if the conditions of increased profits which have been referred to so often in all quarters of the Committee are actually found in practice to exist in the future. My hon. Friend the Member for East Aberdeen (Mr. Boothby) stated that there had been a very considerable drop in capital values since the introduction of the Budget, and, further, that as of course is obvious, unless profits continue, this tax will not yield what the Chancellor expects.
    To my mind there has been in this Debate to-day an insufficient appreciation of the complete change in the proposals. I have stated quite clearly that I welcome the change, that it is what we asked for, and that, so far from having any grievance, we have every reason to be thankful to the Chancellor for meeting us to that extent. But, as I say, I think it has not been sufficiently appreciated what a complete change in the proposals has taken place. A tax upon excess profits, or additional profits, is one thing; a tax upon all profits is another thing altogether. As I understood the original proposal which the present Prime Minister brought forward, it was based upon the principle that the actions of the Government in recent years have brought about increased returns from industry, and to that was added the impetus given by the proposed measures in connection with rearmament. It was on those grounds that the excess profits which industry was to enjoy were to be taxed. The point I want to make is that the whole situation in that respect has entirely changed. We are now taxing, not excess profits, but all profits. That may be a very different thing, and one which was not contemplated when the proposals were originally put before the House. At the same time, we cannot complain, because apparently it is the only way to simplify the proposals and make them workable.
    A number of points have arisen in the course of this Debate and of the clear

    921
    exposition of the Chancellor this afternoon which it is perhaps suitable to leave for discussion until we come to the Committee stage of the Bill, and, therefore, I do not propose to go into details on some of these matters, but I should like to refer, in two or three words only, to a subject which I think still requires some consideration by the Committee. I was considerably impressed by the Chancellor's objections, which I think are well founded, to any proposal to limit the incidence of this tax upon ordinary shareholders to, say, 10 per cent., or whatever it may be, as in the case of the Corporation Profits Tax. I see very great difficulty in a proposal of that sort when we are introducing taxation which is to be borne by private firms as well as by companies. It is undoubtedly much more difficult, if not impossible, to make that limitation in those cases.
    Mr. Bracken: If it is right that the taxation under the N.D.C. should be 1 per cent. less in the case of private firms, surely it is equally right that there should be this 10 per cent. limitation in the case of companies?
    Sir J. Wardlaw-Milne: I do not agree with my hon. Friend; I do not think that the two things hang together at all; but I am only dealing with the practical difficulties of limiting it to a maximum of 10 per cent. As the Chancellor explained the difficulty, there appears to me to be no answer to it. I think it is a matter that might be examined, but it seems to me, as he put it, to be very difficult. On the other hand, I was not so much impressed by his argument as to the justice of this tax falling entirely upon the ordinary shareholder. I must say that that did not impress me as being so strong a case as the other. If it be possible—and I am not at this moment prepared to say that it is possible—to frame the regulations in such a way as to bring the preference shareholder in to bear part of this burden, I do not, myself, see any reason why he should not be brought in. The case of the debenture issue or loan money is, of course, totally different. That is not part of the profits of the company at all, but, as has been already said, has to be paid whether there are any profits or not. But the preference shareholder seems to me to escape altogether, and the effect upon certain companies with a very limited proportion of ordinary shares might be very serious indeed—much
    922
    greater than in the case of companies of different capital structure.
    These are matters which I think the Committee will want to consider further, but there is one major point which I specially rose to stress. This afternoon a great deal has been said on both sides of the Committee, since the Chancellor spoke, as to the fact that these proposals are in the nature of a temporary tax. The suggestion that the tax should be temporary has been received differently in different quarters of the Committee. I was not too sure whether some of the speeches from the Socialist benches were not aimed at showing how impossible it would be for a tax of this kind to be considered as temporary. Of course, I am not dealing with the question of House of Commons procedure; we all know that anything done by this Parliament may be changed in the next; we know that we cannot guarantee what our successors, or we ourselves, may do at a later date. But I think these speeches were made rather to show that it was very desirable in the view of Socialist speakers that the tax should not be temporary, but should be continued. If a tax on profits is necessary in a time when profits are possible, we who feel strongly that it should be temporary are inclined to look at the proposal with a view to see whether anything can be done to ensure it is made clear that it is the intention of Parliament at this time that the tax should be of a temporary character.
    The reason why I stress this point particularly is quite clear. A tax on excess profits would, if history in these matters is to be relied upon, come to an end in any case. The Corporation Profits Tax, if my recollection is correct, came to an end largely because of justified but continued demands for repayment. No Chancellor of the Exchequer would have desired to continue that tax, because he found that the claims against him were growing all the time. It brought its own termination with it. But this is not a tax on excess profits at all. It is a tax on the ordinary profits of industry, and there are no circumstances of that kind to bring about its termination. In fact, if what we all hope is the case, if industry is prosperous and profits continue, it may well be that the tax will yield far more than the Treasury, for whose estimates I have the greatest respect, at this moment think it is likely to do. [Interruption.] That

    923
    might be the immediate result, and it is for that reason that I am going to make a suggestion which I press my right hon. Friend to consider very seriously.
    Realising that this new tax is not likely to be forced to an end in the same way as the Corporation Profits Tax, is it not right that he should give the House some assurance that it will come to a termination at the end of five years, or when the money which the Government have stated they require from industry has been collected? I suggest that, now or at a later stage of the proceedings, the Government should accept some Amendment limiting the tax to five years or £125,000,000, whichever is sooner reached, and I would make that £125,000,000 a net figure after the loss which the Treasury will have to sustain in connection with the reduction of Income Tax. At first sight that may seem to be asking a good deal, but I put it forward quite seriously. This is not a tax which would ordinarily come to an end. Twenty-five million pounds a year is what the Chancellor has asked industry for, and, therefore, it would not be unfair or unreasonable to ask that the Government should accept some Amendment which would give an assurance in that direction.
    I should like to say a word in reference to companies operating overseas but registered here. This tax will not fall upon those registered abroad, whereas it will fall on those registered in this country, but I see no alternative to that. It is in that respect only an additional charge on the heavy Income Tax already paid by those companies, and we must consider the fact that as those charges increase there is more and more inducement for companies in that position to register abroad. I do not think it is a matter which the Chancellor could take into particular consideration in connection with this tax, but it is a very serious matter for the country as a whole to realise that we are putting in the way of those companies, which we all want to see registered here if possible, more and more attraction to register themselves abroad and avoid heavy Income Tax, and now this extra tax which is leviable here.
    I thank my right hon. Friend for having met the wishes of the House and of industry and for having put forward a tax
    924
    which is simple in its operation and which, to the extent that any tax of this kind is welcome at all, will be welcomed by all who have to pay it. I do not for a moment subscribe to the view that has been put forward so often that industry is anxious to pay it, or that there will be anything but hardship on a number of people, extending to many classes of the population, when extra taxation amounting to £25,000,000 has to be paid. With one remark of the right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) I am in entire agreement, and that is that we all often forget, perhaps particularly in this House, how dependent we all are on productive industry, and that everything we have comes from that one source. Consequently there is no doubt about the seriousness of the tax. None the less, I congratulate the Chancellor of the Exchequer on the form that it has taken.
    7.52 p.m.
    Mr. Lansbury: I do not very often agree with the hon. Member but I most thoroughly agree with his last few remarks. I think it is a very good thing indeed that hon. Members should realise that in the last resort all our salaries, all our pensions, all our incomes must be produced by someone, through labour, machinery, organisation and so on. What has struck me during the last few years, certainly since the War, is that, in spite of tremendous taxation, which in pre-war days no Chancellor of the Exchequer would ever have dreamt of, the rich seem as rich as ever—Goodwood, the Derby, society functions which seem to outdo each other each season in splendour and magnificence. We have been having some discussion here as to whether taxes can be passed on. I am not much of a juggler with figures, but experience seems to show that, in some mysterious way, when you tax certain people they become more wealthy. The more you squeeze them the more they seem to have to spend. Perhaps the Chancellor will be able to explain that mystery to simple-minded Members like myself. When we have wanted money for the social services I have listened to hon. Members who are welcoming this increase in taxation telling us that, if the taxes that we needed were imposed, the country would be ruined; there was an end to the sources from which taxation could be raised.

    925
    Over and over again we hear echoes of what happened in 1931. We were told then that the country could not afford this and that, and that we were on the high road to ruin. Six years later we are raising £1,500,000,000, not to build up anything, but for destructive purposes. We were told then that the country was on the brink of disaster. That was sheer undiluted nonsense. The country could never have recovered to its present condition if it had been, as we were told, in a bankrupt condition. What happened in 1931 was that you levied a tax on the stomachs of the poor. You starved the unemployed, the old age pensioners and the poor generally. The House would not face up to the fact that there was in the country even then plenty of work. It is an insult to our intelligence to say that the situation of relatively paltry financial difficulty that the country found itself in could not have been dealt with without semi-starving people. [Interruption.] The hon. Member will have an opportunity of speaking and he can lay me out thoroughly, but he will not be able to contradict what I am saying. We are told that we are now faced with another kind of crisis, the danger of war, and the Government are proposing to meet it by spending huge sums on armaments. Even now, whilst hon. Members are congratulating the Chancellor and thanking him, there is a discussion going on as to whether the tax ought not to be spread a little wider.
    There is only one legitimate manner of meeting such a situation as we are faced with to-day. If war comes, men's bodies will be dragged into the inferno. They will have to give their all, because that is all they have to give. In my judgment the proper way to meet this situation is to conscript wealth in the same way that you conscript men's bodies. If I believed in war, and if I believed there was a danger of war, and I had power, I should tell the country that in the event of war everyone, rich and poor, old and young, would be called upon to put into the common stock everything they had to give either of material wealth or of physical strength. I believe that if that were done in all countries there would not be any wars. I am quite certain that there is no just way of meeting the cost of war. There is nothing that can spread the burden properly except in the manner I have just proposed. All this talk about
    926
    willingness to sacrifice and all this careful balancing of what people are to pay and so on, is all beside the point, because when war comes there is only one thing to be done, and that is to win it by all means available. The consequences of a man sacrificing life or limb, or a family losing the breadwinner, are worse than those suffered by a firm losing business for the time being.
    The only fair method of taxation is to tax people according to their means. When Lord Snowden and I discussed with others how we were to meet our financial situation, which was trumpery compared with the present situation, I proposed to him what I propose now to this Committee—they will not accept it, I am sure—namely, the conscription of capital. We ought to draw a datum line below which nobody should be taxed, and then we ought to find all the money that we need by graduating the taxes upward upon those who have the means upon which to be taxed. Only by that means can you levy the burden over a proper area. I am rather sick of hearing how cheerfully people are going to pay this tax. When I meet them after they have paid it, I do not think I shall see any difference in them at all. They will be just as able to live as I am, and much better, many of them. I shall see wealth, not exactly being flaunted, but I shall see it in motor cars, entertainments and in country houses and in all the things that apparently go to make life in society. We have to endure this sort of system, which apparently makes the wealthy pay, but which, in the end, leaves them apparently better off than ever. I repeat what I said a minute ago, that wealth ought to pay for war on the same terms and make the same sacrifices as the men who give their lives—it is everything they have to give—on the, battlefield.
    8.5 p.m.
    Mr. Bracken: Unlike most hon. Members who have spoken in support of the Government, I am not going to pay the Chancellor of the Exchequer the doubtful compliment of saying that the second edition of the National Defence Contribution is better than the first edition. The first edition was not a tax but a vicious muddle. Nor can I really find any justification for the notion which runs through the whole of the Debate that the principle of the tax is acceptable to all.

    927
    I do not know what the principle is. It allows debenture holders and preference shareholders and all safety-first investors to avoid taxation—is that the principle? The ordinary shareholder, who is the real risk carrier in industry, is to pay the tax for the preference shareholder—is that the principle? The truth is that the new National Defence Contribution, while it rightly spares the small business, hits hardly the small shareholder or investor. Some very pertinent points were made in this Debate by the hon. Member for Harwich (Mr. Holmes) which were questioned by the hon. Member for Bassetlaw (Mr. Bellenger). The hon. Member for Harwich maintained that the equities of English industry were very largely owned by the small iivestors. This was strongly denied by the hon. Member for Bassetlaw. The truth is that the big industries in this country, and even the big banks, are very largely owned by the small investor. From statistics I have seen I observe that if you take a company like Imperial Chemical Industries, it has over 76,000 ordinary shareholders; the Imperial Tobacco Company has 92,000, and even the Midland Bank, a centre of capitalism, has 72,300 shareholders.
    Mr. Boothby: Does my hon. Friend know the size of the holdings?
    Mr. Bracken: They run between 100 and 300 shares, so that really when people maintain that equity holders are all large capitalists they make a mistake; some of these shareholders are probably members of the hon. Member for Basssetlaw's party. I will give that hon. Member some more information. Since these figures were collated a great change has come over shareholdings. It springs from the fixed trust movement. Over £60,000,000 worth of capital has been put into equities through fixed trusts. These trusts have brought the small investor into the position of being an equity holder in many industries. This is a point which the Chancellor of the Exchequer ought to consider. He should realise that this tax will be a hard blow to the small investor. It deals the small investor, who is not a preference shareholder or a safety-first shareholder, a very grievous blow. I want to address an appeal to the Chancellor of the Exchequer because, I am told, he is a gentleman with a tender heart, and he also
    928
    happens to sit for a depressed north-country constituency. He will realise more than anyone else that we still have in this country more than 1,500,000 unemployed. These 1,500,000 unemployed can be described as the victims of the so-called staple industries which are anything but stable.
    We are all very anxious indeed to create new sources of employment. I think that every hon. Member, whether he is a Socialist or a Conservative or any sort of Liberal, will agree that new industries are the life-blood of this country. And so I would say to the Chancellor of the Exchequer that this new taxation will be a great discouragement to new industries. People may say, "What are the new industries compared to the old staple industries of the country?" In our lifetime we have seen the establishment of new industries such as the motorcar, the cinema, artificial silk and aircraft. These are now giving great employment. They are steadily taking the place of the old staple industries. It is, indeed, a pity beyond all telling that a Chancellor, who calls himself a Liberal and should therefore be looked upon as progressively-minded should come forward and single out these risk-taking small shareholders for new and invidious taxation. The risks in supporting new industries mostly fall on the ordinary shareholder. The equity shareholder bears this risk. If industry fails he does not get any of his money back. He is the real creator of industry and he is just the person whom the Chancellor of the Exchequer singles out for special taxation.
    During this Debate so many compliments have been paid to the Chancellor of the Exchequer that we have all neglected to refer to the justification of the tax. We were told that its object was to recover some of the exceptional profits made directly or indirectly out of the rearmament programme. How is that object being fulfilled? You have in rearmament industries debenture and preference shareholders whose securities have in many cases doubled or trebled, and they are untouched. I know of one particular stock which two years ago stood at £40 and to-day it stands at £140, an increase of £100, and it is a rearmament stock and holders will not pay any part of the National Defence Contribution tax.

    929
    It is no exaggeration to say that ordinary shareholders in rearmament industries can hope that this tax will be passed on to the consumer. They know well of the urgency of the Government's need and of other competition for their industries' products. Shareholders in companies altogether unconnected with armaments have to pay National Defence Contribution in full. They cannot hope that the National Defence Contribution will be passed on. They are the victims of the new Chancellor of the Exchequer's brilliant ideas. I must say that I cannot congratulate him on his amateur schemes of taxation. He ordains that old established City firms with a record of 50 or 60 years steady profits shall only pay a 4 per cent. tax, whereas the hard-pressed industrialist fighting for existence must pay 5 per cent. What can be the justification for that sort of discrimination?
    I will give another instance of the effect of the new taxation. Struggling shipping companies, which are the first line of defence in days of war, must pay their National Defence Contribution, but the railway companies are to be let off. I am not complaining that railway companies are let off—I think that that is a good thing—but it would also be prudent to let off shipping. [Interruption.] I know that hon. Members above the Gangway sit for very hardly-hit industrial areas and so they ought to realise how badly shipping has been hit.
    My hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) made an appeal to the Chancellor of the Exchequer, to which I hope he will pay some attention. He mentioned the case of overseas companies registered in London. I wish I could have the attention of the Chancellor of the Exchequer in this matter, because the hon. Member for Kidderminster, who is one of his supporters—I think he might be called one of his "fans"—made an appeal to the Chancellor to consider the position of overseas companies which are registered in London but operate overseas. The Chancellor wants to tax these companies. And His Majesty's Government are apparently anxious to assist their overseas competitors. If the Chancellor of the Exchequer wants to get rid of the stigma of London being the financial centre of the world, he has found an excellent way of doing so.
    930
    These are only a few instances of the so-called principle of the National Defence Contribution. As one listened to the Debate it became only too clear that it has no principle at all. It is a sort of hit-and-miss tax. We have been told in the course of the Debate that there is no alternative to this tax, that this is our last resort, and where else could the Government turn? I apologise humbly to-night for even touching upon the word "economy." I know how unpopular it is, particularly with the Government. The cause of economy is lost. It has not been lost by the Chancellor of the Exchequer but very largely by the gentleman who preceded him. The National Government much prefer taxing to saving. After all Governments should prefer taxing to saving. Many votes can be got from taxing and very few from saving.
    When Ministers complain about the narrowness of their resources they should remember that the National Defence Contribution is their last resort because of the lush subsidies which have been paid to a number of industries during the last two years. The Chancellor of the Exchequer is not responsible and probably disagrees as much as anybody with those subsidies. But he should remember what has been thrown away on sugar beet and other industries. [Interruption.] I voted against some of them, and I think the Chancellor did likewise. I used to support the few Tories and Liberals who objected to those subsidies. I think the Chancellor of the Exchequer was one of our prized leaders. He must know that over a course of years we have just chucked money away in enormous subsidies. The great industry of agriculture was refused a real tariff but was smothered by subsidies. Consider the folly of the sugar-beet subsidy and the recent shipping subsidy. Those subsidies are beyond understanding. Eminent and prosperous shipowners have said to me: "We have been forced to take them, my boy. They were pressed upon us." And the Government come along and say: "We are in need, we want money so much for rearmament that it has been necessary to create National Defence Contribution." I think that is rather a casuistical argument.
    The policy of subsidies sprang from an orgy of extravagance by the National Government and the municipalities. It is pretty clear why it is necessary for the

    931
    Chancellor of the Exchequer to raise some new taxes. I do, however, beg him to recall his Liberal origin, and so to remember the ideas of economy of a gentleman who was, I suppose, the idol of his younger days—Mr. Gladstone. Mr. Gladstone always stressed that it was the duty of a Chancellor of the Exchequer to keep a strong hand on expenditure. That was a declaration by a statesman who was a Conservative and then became a Liberal, and rose to be Prime Minister. Now that we have a Liberal, perhaps a temporary Tory, as Chancellor of the Exchequer, perhaps we can look forward to a little enforcement of Gladstonian retrenchment and reform.
    I want to say a few words as to how the Government might have saved a little money and have thus avoided the imposition of this new National Defence Contribution, Here I am touching on rather tender feelings. I must say that if the Government had maintained a stricter control of contracts they could have stopped some of the fantastic profits made by company promoters under the rearmament programme. The other day I visited a doctor's rooms, and for want of something better to do I looked through one of the fashionable illustrated papers. This is not an attack on the Chancellor. He was not portrayed in those papers: But there were some pictures of yachts which had been bought by the new magnates of the aircraft industry. Most of those magnates sold out when the going was good, and they will be able to delight in their splendid yachts for many years to come. They exploited the Government's needs.
    There is no question that there have been most scandalous abuses in some of the contracts placed with some manufacturers, and the people who are going to pay for these abuses are not the gentlemen who cashed in, but the wretched investor who holds the baby. The Government will also pay. There has been far too much latitude given to the persons who prepared the contracts with those profiteers. It is a great pity that the National Defence Contribution does not touch some of those persons who have made exorbitant profits. But the Government seems rather timid in dealing with profiteering.
    I want to call the Committee's attention to another aspect of the Government's
    932
    policy. A couple of years ago some very far-sighted men in London warned the Government about the position of the country in relation to some of the base metals required for rearmament. They were patriotic enough to suggest that it would be a good thing to build up a reserve of raw materials. But they were looked upon as people who were anxious to make some profit out of the Government, and they were ignored. Later, the Government set up the new office of Minister for the Co-ordination of Defence, and although that Minister did not ignore these gentlemen, he was so busy that for several months he could not see them. Had the Government accepted the suggestion made to them two years ago by some of these metal companies, they would not be paying the high prices they are now paying for the raw materials for rearmament. Therefore, when they plead N.D.C. as the last resource, I say to them: "You have had many opportunities to save more money than you will get from N.D.C., but you threw them away, either through indolence or through lack of foresight."
    Let me say a few words in a most humble spirit to hon. Members who support the Socialist party. I say this to them as a supporter of the Government. Do not be in a hurry to oppose this tax. The so-called principle and the machinery of the tax can be easily used to eliminate private enterprise. Let the State, through invidious taxation, enjoy most of the earnings of the equity of industry and you will have taken the profit sting out of private enterprise. By a swift increase of an impost like N.D.C. you can nationalise industry by a few strokes of the pen. Even the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) could do it. You need not worry at all about debenture holders or preference shareholders, you can simply ignore them. Remember that the Russian Government approve of bond sales. They are satisfied if the equity of industry is controlled by the State. Therefore, the existence of debenture or preference capital will be no sort of barrier to your policies. By steepening this tax and very quietly using the machinery given to you by the present National Government you will be in such a position that with the minimum of trouble you can control a large range of British industries. You will not need to talk about

    933
    nationalising the banks and thus creating a scare as you did a few years ago. All you will have to do will be to use the machinery given to you by the Chancellor of the Exchequer and his predecessor, who is now the Prime Minister. The Socialist party may be thankful for the fact that when they left office in 1931 they did not leave it in vain. The refugees they left behind them have apparently converted the present Government.
    8.22 p.m.
    Sir John Mellor: The history of National Defence Contribution has proved two things. First, it has proved the great advantage of discussions between the Chancellor of the Exchequer and those interests which it is proposed to tax. The very good spirit in which the present proposals have been accepted by industry is partly due to the fact that industry feels that it has helped to formulate them. The history of the tax also shows that there is nothing so objectionable or discouraging to British industry as uncertainty, Nothing is so much disliked in taaation as complications. It is impossible for any tax to be devised which will work out with complete fairness and without innumerable anomalies. Any endeavours to make a tax more fair very often result in increased complications, and I am inclined to think that the taxpayers generally would prefer to endure certain anomalies and injustices than to have the situation aggravated with complications which make a tax almost impossible for them to understand. Therefore, in the progress of the present Finance Bill it is desirable that, however anxious we may be to make this tax as fair and just as possible and to remove as many anomalies as possible, we should not go so far as to destroy that simplicity which has been welcomed throughout the country, and which the Chancellor of the Exchequer has made great efforts to make a feature of the new National Defence Contribution proposals.
    I welcome most warmly the reply which was given by the Financial Secretary to a question which I asked with regard to the possibility of double taxation in the case of investment trust companies and other holding companies, and I feel that his most satisfactory reply enables me to shorten my remarks very much. I should like to observe that still we have
    934
    in these proposals the very unsatisfactory position that the ordinary shareholder not only has to pay the National Defence Contribution appropriate to the profits which will be at his disposal but also on that part of the profits appropriate to the preference dividend. I think that is aggravating the objection to this tax, namely, the discouragement of enterprise. I do not see why a company should not be allowed to deduct the amount of preference dividend as an expense from profits before assessment in the same way as debenture interest will be deducted, or else that a company should be allowed to deduct the appropriate amount of the National Defence Contribution it has to pay from the preference dividend in the same way as Income Tax.
    The Chancellor of the Exchequer in his speech pointed out that debenture interest is an expense whereas the rate of preference dividend is a question of the method of distribution. That is, of course, true, but I would point out that the privilege a company has to deduct the standard rate of Income Tax from the preference dividend is not part of the contract between shareholders as created by the articles of association, but is permitted as a result of the Income Tax Acts. Therefore, I do not see why we should distinguish the position with regard to the National Defence Contribution and Income Tax in this matter. At any rate, whatever may be the technical position in practice there is often very little difference between debenture interest and preference dividnd. It someone is forming a company it is largely a question of convenience whether they raise the money by the issue of debentures or preference shares. The real fact is that if prior charges are created, the risk to the ordinary shareholder is increased and bears a direct relationship, in the same, way as the prospect of dividend does, to the amount of capital or debentures which rank in front of the ordinary shares.
    So little distinction is there really in practice between raising money by debentures and preference shares that a recent Companies Act made it possible in this country to have a new class of capital called redeemable preference shares, which for the purposes of income are preference shares, but ultimately, being redeemable, are far more akin to debentures. It was clearly recognised by the Chancellor of the Exchequer in his speech

    935
    that without some limit to the rate of Naional Defence Contribution, similar to that which existed in the Corporation Profits Tax, it was quite possible in a company where the ordinary capital bears but small relationship to that which ranks in front of it, the amount available for distribution among the ordinary shareholders might become a minus quantity. Therefore, I feel that every effort should be made to devise some limit which will prevent that situation arising. The Chancellor of the Exchequer said that one thing which made it impossible to devise any such scheme was that you could not apply to partnerships. I cannot understand that point at all, and I hope the Financial Secretary will elaborate the argument a little further.
    There is one objection which remains in the present scheme which was very conspicuous in the original National Defence Contribution proposals, and that is the tendency it must have to drive British companies operating principally abroad to register themselves as foreign companies. I want to ask one question with regard to that. What will be the position of subsidiary companies registered abroad but controlled by British companies? Will the British companies have to pay National Defence Contribution upon the profits of these foreign subsidiaries, or will they pay only in respect of such dividends as they receive from these foreign subsidiaries? There is one further point with regard to paragraph xi of the White Paper, the exemption of public utility undertakings which are subject to statutory restrictions in regard to the prices charged or the dividends payable. Will that apply to public utility companies located abroad but controlled from this country, if owing to foreign legislation they are subject to similar statutory restrictions? I feel it is desirable that these points should be cleared up as soon as possible, in order that those who are concerned in such companies should know as quickly as possible where they stand.
    8.33 p.m.
    Mr. Owen Evans: I desire to say only a few words, because the position of Liberal Members has been indicated already by the right hon. Member for North Cornwall (Sir F. Acland). We are supporting this proposal, not because it fulfils the expectations of hon. Members on these
    936
    benches, or because it discourages excessive profits by armament manufacturers. We have always maintained that this is not the best way of doing that. We have always maintained that the only effective way is for the Government to take measures to give effect to some of the recommendations of the Royal Commission, which has also been recommended by many industrialists and by many of those who are engaged in the manufacture of arms, that is, to take some means of control which will be effective. The industrialists who gave evidence before the Commission stated definitely that they would like the Government to take this course because of the odium which has been cast on the manufacture of arms.
    We support this tax, not because we consider it is the best way of raising the money. Many hon. Members would have welcomed it in the form of another tax. When the Land Value Taxes were repealed by the present Prime Minister, he did not shut the door to the possibility of their revival. It has been pointed out by the hon. Member for Ashton-under-Lyne (Mr. Simpson) that landowners are still untouched, and that enormous fortunes have been made during the last few years, because of the increment in the value of land. Land has increased in value because of the prosperity of the country, because of factories and houses being built; and I invite the Government to consider whether, rather than to put taxation on productive industry, they should not tax what is, after all, the unearned increment in the land.
    We support this tax because it must be admitted, as has been admitted by most hon. Members in the Debate, that it is an improvement upon the original National Defence Contribution which was introduced and then dropped. Although the Leader of the Opposition congratulated the Government upon dropping the original tax in response to the views of the House, to my mind the Government's reputation has not been improved by the fact that they had to drop the tax, and I suggest to the Chancellor of the Exchequer that he should learn the lesson of the Prime Minister's experience in connection with that tax. It was a new tax and a novel one, entirely unknown, although it might have been characterised as the resurrection in another form of the Excess Profits Tax, as this tax may be called a resurrection in another form of

    937
    the Corporation Profits Tax. In imposing taxation, it would be well for the Chancellor of the Exchequer to follow the example of the great Chancellors of the past. I need only refer to the Gladstonian tradition. When Mr. Gladstone, in the middle of last century, introduced for the first time an Income Tax, he took care to consult not only the prospective Income Tax payers of those days, but the members of his Cabinet. As is reported in the late Lord Morley's biography of him, Mr. Gladstone for some months studied the question, and memoranda and reports were exchanged between members of the Cabinet, until at last he was able to convince them of the justice of the tax. In future, it would be well for this Government, or any other Government, before introducing a tax of this character, to study the problem, to study the facts, to study its probable results upon productive industry and in other directions, before bringing it forward.
    I would like to ask one or two questions about details, which no doubt would be better dealt with in Committee. I was not very much impressed by the explanation given by the Chancellor of the Exchequer of the reason partnerships or private firms should pay 20 per cent. less tax than incorporated companies. That is a very great differentiation, and I am not satisfied with the explanation given by the right hon. Gentleman. Why should a rich partnership firm pay 20 per cent. less than a struggling limited liability company? I know that the rich partnership firm might be liable to Super-tax, but surely that is no justification, for in that respect it would be in no different position from that of other private individuals who have to pay Super-tax. The other reason given by the right hon. Gentleman was that people who are engaged in partnership in industry are not paid directors' fees or managing directors' salaries in the same way as servants, and employés of limited liability companies. Surely there would be no difficulty in getting over that, because it could be dealt with by allowing a certain amount as a deduction against tax by way of salaries which should be paid to partners in the same way as they are being paid to servants of limited liability companies. There is a very substantial difference between the tax on these two forms of industrial enterprise, the tax being 20 per cent. less in
    938
    one case than in the other, which seems to me to be unjustified.
    There is another point regarding the accounting period which I should be glad if the Financial Secretary would note. To give a concrete instance, in the case of a company the accounting period of which ended on 31st December, the tax having to be paid upon the profits for that accounting period, do I gather, as the tax is payable on profits from 1st April, that in the first year of the tax it would be, for such a company, pro rata for nine months and thereafter so much for every full year until 1942, and that then the company would have to make a special balance sheet for the first three months of the year 1942, assuming that the tax came to an end at that time?
    A point which has been debated a good deal this evening is the position of the ordinary shareholder compared with the preference shareholder. I submit to the Committee that a great deal too much emphasis has been placed upon the position of the ordinary shareholder. After all, the ordinary shareholder is the only one in industry who will derive a benefit from the larger profits of industry. I am not sure that if one looked into the history of the great industrial companies, one would find that the ordinary shareholders are the ones who have always provided the money. We know, in fact, that the preference shareholders have almost invariably provided the money. I submit that the position is that this tax ranks in priority to the preference shareholders, and that the preference shareholders rank in front of the ordinary shareholders. I cannot see that in this case the ordinary shareholders, who will benefit from the increased distribution of profits, can complain very much against the method of assessing this tax.
    As regards the position of investment companies the Chancellor of the Exchequer explained that an arrangement would be made by which dividends received by investment trusts would not be subject to this tax, if they had already borne tax in the original companies. With that proposal I agree, and I would point out that while we here are always more or less up in arms against heavy Government taxation, we are much better off in this country, even with our high taxes, than they are, for instance, in the United

    939
    States and Canada to-day. The position there is that the profits of industry are all subject to double taxation. First the industry itself, the company or the corporation as the case may be, pays taxation and then, when the dividends are distributed, no deduction is made from the Income Tax which is payable by the individual recipients of those dividends. We must remember, therefore, that we in this country are not badly off, in regard to Income Tax as a charge on industry, compared with countries like the United States and some of our Dominions, particularly Canada.
    I would make one suggestion as regards investment trusts. Surely the profits of investment trusts as shown in their balance sheets are not all derived from dividends received from other companies upon which tax has already been levied. I suggest that the Chancellor of the Exchequer ought not to allow to escape that portion of the profits of investment trusts which has not already been subject to taxation. It is a point which, no doubt, the right hon. Gentleman already has in mind, but I think it well that attention should be drawn to it.
    We have heard that this tax is to be of a temporary character, and that it is intended that it shall be brought to an end in five years' time. We have also been told, and of course it is clear, that the country's expenditure is still rising. We on these benches—and I am sure my hon. Friends agree with me in this—are strongly in favour of meeting the current expenditure of the country from year to year out of taxation. It appears to me possible that even this tax will not be sufficient to meet the needs of the Chancellor of the Exchequer during the next five years. Is it not time, therefore, that he sought other sources of taxation? Speaking for myself, I would have preferred a flexible, elastic tax on income, of course with due consideration for those at the lower end of the scale. I believe that the Chancellor would have been better off if he had increased the Income Tax all round so that all would have had to pay for this increased expenditure, and had in addition an extra amount on Surtax. In this connection I would ask whether the Chancellor is satisfied that he is now deriving from the Income Tax what he ought to be deriving from it?
    940
    How much evasion is taking place? There was a committee——
    The Chairman: I am afraid the hon. Member cannot go into that question now.
    Mr. Evans: I bow to your Ruling, Sir Dennis. I would only repeat that the Chancellor will probably need an even greater sum than that provided for in this tax, and, therefore in view of the possibility that industrial profits may be reduced during the next few years, he ought to consider now, means of discovering evasion of existing taxation and see to it that all these holes are stopped.
    8.50 p.m.
    Mr. Barnes: One of the most refreshing speeches so far in this Debate was that delivered by the hon. Member for North Paddington (Mr. Bracken). I regret that so little interest is taken on the Government side in this proposed impost of £25,000,000 on industry that few supporters of the Government were here to listen to the hon. Member's remarks. I wish to endorse emphatically some of the points which he made against the Government. He said first that we were now paying the penalty for the past policy of the Government in pouring out huge subsidies to industries of all kinds in this country. His second point was that the present situation reflects the carelessness and negligence of the Government in not anticipating the enormous demand for primary commodities which their armaments policy was bound to create. The hon. Member's third point was that the Government should exercise a more rigid and determined control over contracts. Had the Government followed that policy I do not think we should be in our present financial plight. There is another point to which the hon. Member for North Paddington did not refer but which I wish to add to his list of indictments of the Government. Another aspect of the Government's policy for which we are now paying is that of foreign affairs. The foreign policy pursued by the Government in recent years has caused the international situation so to worsen that we are faced to-day with this enormous armaments expenditure.
    The hon. Member then rather naively suggested that by supporting this tax, we on these benches would find an easy road to the application of a nationalisation

    941
    policy. I am unable to support that view. In all my experience I have never known of a tax imposed before the sale of the article concerned, which could not be passed on to the consumer, and the imposition of this tax represents the transference of the main burden from the business to the consumer. The original tax, which is now buried, did make some pretence to recover for the State some proportion of the excessive profits arising from armaments expenditure but while its object may have been good, while the intention may have been admirable, it was generally admitted that administratively the tax was difficult and bad. The Chancellor of the Exchequer commends the new proposal on the ground that it is simpler administratively, but already the discussion has shown that the more one considers it the more difficulties one can see emerging from it. Even if it is simpler administratively than the old tax, its object is thoroughly bad.
    The financial and trading interests in this country demanded that the tax, whatever it might be, should not disturb the profit-making structure of capitalism and should not interfere with the speculation and gambling which take place on the stock markets of the world. Further, they demanded a tax that could be measured and passed on to the consumers and users of commodities. Those two main conditions, despite the anomalies still remaining in this latest proposal, which the financial and corporation interests of this country laid down have been met in the present proposal, and it is because of that, that I find myself in opposition to this tax.
    May I quote the Prime Minister's statement when he was introducing the Budget. In the first place, in commending the National Defence Contribution proposals to the country, his justification was that they represented some measure of recovering for the State the excess profits which a good many industrialists, and particularly those engaged on Government contracts, were reaping. It should be noted that that original objective has been entirely abandoned in the present proposal. The Government are making no pretence now to recover for the country the excessive profits that are being made through rising prices and the exploitation of the nation's needs. The second point which the Chancellor made
    942
    was with reference to indirect taxation, and that is the point that I should like to bring to the notice of the Financial Secretary. I am speaking now of the Prime Minister's statement when he introduced the Budget as Chancellor of the Exchequer. He said:
    "I might, of course, increase indirect taxation, but the prices in the shops, which particularly affect wage-earners, the lower grades of clerical workers and the smaller rentiers whose incomes are largely derived from fixed interest-bearing securities—those prices already show a tendency to rise, and I did not want to do anything to push them any higher."— [OFFICIAL REPORT, 10th April, 1937; col. 1615; Vol. 322.]
    One of my criticisms of this type of corporation tax is that the bulk, if not the whole, of it will be passed on to the consumers and users of commodities, and it is a general practice of business, when a tax is to be passed on to the consumers and users, to add a little for its own private interest and advantage as well. So far as I am concerned, this tax contravenes the statement which the Chancellor made when he was introducing the original proposals, and I think that adds to the condemnation of the general policy embodied in this new proposal and the Budget as a whole, in that, during the past few years, the Government have already extracted over £30,000,000 of additional taxation in the form of indirect taxes, and this proposal, if my deductions and arguments are correct—and I think that experience proves that they are—will be added to the burden of the consumer. This follows a steady policy of the Government's. During the whole of the six or seven years of their existence since 1931, they have steadily transferred the burden of taxation from the direct to the indirect taxpayer.
    Mr. Gluckstein: Can the hon. Member give figures in support of that statement?
    Mr. Barnes: I was just going to do so. If one analyses the increased taxation since this Government has taken office, one finds that £87,000,000——
    Mr. Gluckstein: Percentages please.
    Mr. Barnes: I have not the percentages by me at present, but I think the bulk figures prove my point even more effectively. If the hon. Member desires percentages, I am confident, from my knowledge of them, that the percentage figures will also prove my point.
    Mr. Gluckstein: Will the hon. Member allow me to tell him that on the last occasion, a few days ago, when the figures were given, they proved conclusively that the ratio between indirect and direct taxation is going down and that the ratio was something like 60 to 40?
    Mr. Barnes: What is important is the comparison between the percentages now and the percentages prevailing when the present Government took office.
    Mr. Gluckstein: And they are lower than they were.
    Mr. Barnes: I will not dispute the hon. Member's point at the moment, but the last percentage figures that I saw bore out very completely the figures that I was going to give. However, the Financial Secretary and the hon. Member can disprove these figures if they are able to do so. Since the present Government took office the revenue derived from indirect taxation has increased by £87,000,000 a year, whereas only £42,000,000 has been added to the burden of direct taxation, and in the £42,000,000 I have included the 3d. increase in the Income Tax imposed in the present Finance Bill. The £25,000,000 represented in this new National Defence Contribution proposal is not included in these figures and can be the subject of debate, but my contention is that it is a tax that can be easily measured and estimated by any business company or corporation, and, that being the case, they will undoubtedly pass it on.
    This has occurred at a time when prices have been rising much more rapidly than wages have been increasing. Prices of foodstuffs alone, quite apart from wearing apparel and other articles of common use, have advanced by 7 per cent. during the past 12 months, whereas wages have advanced only 1.3 per cent., but the general rise in the average of profits has been at the rate of 13 per cent. Therefore, when you get profits rising at the rate of 13 per cent., food rising by 7 per cent., wages moving tardily behind—and we all know from experience that wages never keep pace with an inflation period of prices—I submit that the wage-earners are much worse off than before and that the present policy of the Government has accentuated that position.
    I am sorry that the Chancellor of the Exchequer is not in his place, because I wanted to raise a matter now, to quote
    944
    some statements of the right hon. Gentleman's in the past, and to appeal to him to carry them out at the present moment, but if the Financial Secretary will undertake to convey this point faithfully to his right hon. Friend, I shall be very much obliged. There is one point for which I feel impelled to request consideration from the Treasury Bench. As has been pointed out, railway companies, gas companies and electrical undertakings that are of a public utility character or that have their dividends determined or restricted by legislation or by action on the part of this House, will escape this tax. The principle underlying that exemption is that Parliament has taken steps to ensure that they shall not be entirely free agents to exploit the community or to take advantage of any free market position.
    Again, under these proposals all owners of small business organisations whose profits are less than £2,000 a year are exempt. I submit to the Financial Secretary that a business earning up to £2,000 a year can operate on a capital of £10,000 and up to £20,000, or more. A business operating on a capital sum of that description represents a considerable turnover in commodities, and when we remember the enormous range of business that falls into this category and the fact that many of them represent the subcontracting type of organisation connected with the big armament firms, one finds it difficult to understand why this great section of businesses is allowed out of the Chancellor's net.
    I notice that co-operative societies are not numbered among this group of exemptions. I put this pertinent point to the Financial Secretary. On what method of equity in taxation, upon what basis of reasoning, on what test from the standpoint of community interests is exemption given to utility companies which are essentially at their root private organisations, the only restriction being on the amount of interest they pay in relation to the price they charge to the public, and to owners of small businesses with profits of £2,000, while this great organisation of working-class consumers, none of whom is wealthy, 70 to 80 per cent. of them receiving wages that do not come within the Income Tax limit, is to be charged on undistributed profits? This is where I desire to make a direct reference of the Chancellor himself. In introducing this tax he emphasised certain modifica-

    945
    tions as compared with the War-time Corporation Profits Tax, although the same principle applied.
    Let me draw the attention of the Committee to the views of the Chancellor in his professional capacity. We had it carefully explained to-day why this tax cannot be imposed upon lawyers, solicitors, certain branches of the medical profession, or accountants. Let me quote the Chancellor in his professional capacity as a lawyer on this type of tax as it applies to co-operative societies. He was asked to give his opinion as to the justification for imposing the Corporation Profits Tax on co-operative societies, and this is what he said:
    "The scheme of a co-operative society is in its essence this, that a number of persons who are called the members join together to make purchases of goods and to distribute those goods among themselves, the actual purchase and distribution being of necessity carried out by some managing body acting on behalf of the members. It is clear, therefore, that an excess of the so-called price at which the goods are distributed over the price at which they are bought is not profit in any ordinary sense of that word. Indeed, the main object of the society is to prevent any profit from arising at all."
    I submit to the Financial Secretary, and through him to the Chancellor, that this tax is supposed to be a tax upon profits.
    Mr. A. V. Alexander: What is the date of that judgment?
    Mr. Barnes: It was about the time when the dispute occurred over the Corporation Profits Tax. The present tax is a tax upon profits. The public utility companies, because their rate of interest is limited by Parliamentary action, are to be excused from it. That great range of small businesses with a capital up to £20,000 are also to be exempt on the ground that they are too small to come into the net. In the co-operative organisation there are £7,500,000 small people, small in the business sense, much smaller than the owners of businesses making up to £2,000 a year, and very few of them even represent that sum as their total wealth. Yet we find that that type of organisation is not to be exempted. We are entitled to ask whether there is any equity in a tax on that basis. Let me further quote the Chancellor in his capacity as a professional lawyer. He goes on to assert:
    "It is clear that the whole of the balance—that is, what is ordinarily described as profit—is nothing more than money provided
    946
    by the members in excess of what, as it turned out, was actually required for the purchase of the goods and the expenses of such purchase. There is in principle no difference whatever between that part of the balance which is handed back to the members as being not required and those parts which, with their consent, are used for purposes which are incidental to the operation of the society over and above the mere purchase of the goods which are to be distributed."
    I want the Financial Secretary to note the next point because here we are dealing with the question of the undistributed profits. It is on the undistributed surplus of the co-operative societies that this tax will fall.
    "It may be urged with great force that, whatever the technical legal position may be, a society's surplus is in no real sense a profit either to the society or to its members, and that there is no rational ground for imposing a tax even on that part of the surplus which the society retains for making necessary payments or for reserves."
    Here is a clear indication that no one can accuse a co-operative society of profiteering. Parliament under the Industrial and Provident Societies Act imposed a limit that no person can hold more than 200 £1 shares in this type of organisation. If Parliament imposes a restriction of interest on a gas company or an electric company, and if, because of that legislative act, such companies are to be excused from the payment of this tax; and if Parliament imposes a limitation of capital investment in a co-operative society, which automatically limits the total amount of interest paid to the members, why should not Parliament exempt cooperative societies on the same ground?
    Public utility companies—railway companies, gas, electricity, water and other undertakings of that kind—and the London Transport Board pay 5, 6 and up to 7 per cent. interest to their shareholders. Is not the Financial Secretary aware that the prevailing rates of interest in co-operative societies range from 3 to 3½ per cent., and that very few of them pay more than 4 per cent.? As 70 to 80 per cent. of the members of co-operative societies are not liable to Income Tax on account of the smallness of their incomes, there is no question of tax evasion in our asking for co-operative societies to be exempted. Therefore, whilst I disapprove of this tax, because I am convinced that it will be passed on to consumers, nevertheless if the Government, with its majority, decides to impose it, I

    947
    think it is only a matter of elementary justice that these 7,500,000 wage earners should be excluded if we are going to excuse the great, rich public utility corporations, and I sincerely press that point of view upon the Chancellor and the Financial Secretary.
    9.17 p.m.
    Mr. Price: As one who agreed in principle with the original National Defence Contribution, but who realised as the discussion went on that the details were of such a kind as to make the tax unworkable, I wish to say that I welcome this new tax, and regard it as a certain measure of justice, so far as it goes. I am not one of those who think that it is either possible or desirable to depend entirely on the income Tax, the Super-tax and Death Duties to provide the revenue for national finance. That would be correct if you could be sure that at all times there was complete stability of prices, with no possibilities of booms and depressions, but under the system in which we live there are continuous fluctuations. In times of depression, when prices are falling, as they did until 1931–32, the burden of the rentier and the fixed interest holder on the national income increases. The Income Tax and Super-tax then fell upon both the rentier and the equity holder. Something extra was needed then to redress the balance and it was found by a conversion scheme, and it might have been found and should have been found in other ways as well. Therefore to-day when we have entered upon a period of boom and rising prices, there ought to be some extra contribution from the equity holder and for that reason I am glad that the Government are going to obtain it, although even now I do not think it is being done in the right way.
    As the admirable speech of my hon. Friend the Member for East Ham (Mr. Barnes) has shown, there are many grave defects even now. I support his plea that at least the co-operative societies should be excluded from the effects of this tax, particularly as utility undertakings are to receive exemptions. There is a very strong reason indeed why there should be some extra taxation of equities at the present time. The profits of industrial concerns as revealed in figures published in the "Economist"
    948
    and elsewhere have shown a, rise of between 15 and 16 per cent. in the various quarters of the year 1936 as compared with the previous year. Only this morning, coming up in the train, I read the report of the speech of the chairman of the Chloride Electrical Storage Company. He stated that at the beginning of 1936 the price of lead was £15 per ton, in October it had risen to the neighbourhood of £20, by March of this year it had reached £36 and it is now about £22 per ton. He said:
    "The difficulties were all the more keenly felt because it was known that the abnormal rise in the price of lead was in great part due to speculation and not to commercial supply and demand."
    All this shows that in commodity prices there has been undue speculation. That statement is not made by a Socialist but by the chairman of a big manufacturing company in the North of England. If this tax will do something to make equity shareholders and those interested in the production of commodities and in other forms of industry contribute something extra, even though it is a little, at least it will be a gesture, and the right thing to do in the circumstances.
    I cannot agree that this tax will necessarily be passed on the consumer. The same argument might be applied to Income Tax. It all depends upon the purchasing power of the community. If a tax is imposed upon a company, that company cannot at once raise its prices. It has to consider its consumers, the public on which it has to unload its products. Unless there is increased purchasing power in the community, which can always be controlled by the central financial institution, namely, the Bank of England, there is not necessarily going to be any increased consuming power, and consequently we might get a situation, and probably would, if there were no increased purchasing power, no increased credit given to industry and no increased money put into circulation, in which there would be a consumers strike. They would refuse to pay the increased prices. That is a theoretical argument, but I maintain that it would work out in that way also in practice. Therefore, it is not a sound argument to say that this tax will automatically be passed on to the consumer.
    The Special Areas are to receive special treatment under this tax. Industries

    949
    going into those areas will not be subject to the tax. I represent a distressed area which is not the subject of the privileges of a Special Area, though we have our very special difficulties, and I wish to know whether we are to receive any extra benefits or not. Under the Special Areas Act there are to be some benefits, very poor it is true, and we have protested against the poorness of the privileges, attaching to the formation of companies which start industries in the Special Areas. I wish to know whether it will be possible for us to get any exemptions for new industries coming into the distressed areas.
    Finally, I would say that I realise, and I wish to emphasise, that in spite of this tax the main danger with which the country has been faced, namely, a boom and prices running away from consumption, will not necessarily be met unless the Government take other measures. What touches public feeling more than anything else at a time like this is the possibility that high profits may be made out of the armaments industry. I know that it is impossible to separate the armaments industry from other industries for the purposes of taxation; modem conditions are too interwoven. That is all the more an argument that, if taxation cannot do it, other measures must be taken if we are ever to escape from this danger of the armaments industry making undue profits in a time of boom like this, and what we have advocated all along, nationalisation of the armaments industry, must come first and foremost in any attempt to deal with this problem.
    9.26 p.m.
    Mr. Keeling: I want to say one brief word on the position of the building societies. My right hon. Friend the Chancellor stated in reply to a question from the opposite benches that the building societies are going to pay the tax. If he means that they are to pay the tax in full, I hope that that is not his last word.
    Mr. A. MacLaren: I do not think he said that exactly.
    Mr. Keeling: I think he said that they are going to pay the tax. Assuming that it is the intention that the building societies should pay the tax, I would like to remind him of the present position. Under the composition arrangement between the building societies and the
    950
    Treasury the building societies only pay something less than half the ordinary Income Tax on their distributed profits. In other words, they pay something less than half a crown in the £ on distributed profits. That tax is paid by every shareholder, however poor, and even if he is below the Income Tax level he cannot claim back that tax. If on top of this tax of rather less than half a crown in the £ this further tax of 1s. in the £ is to be levied, the new tax is equivalent to raising the taxation on building societies by more than one-third. That is a very severe blow, and I hope that the right hon. Gentleman will consider whether he cannot moderate this blow.
    A number of hon. Members on both sides have suggested that companies should be required or authorised to deduct from the dividends paid to preference shareholders a fair proportion of the new tax which falls on the company, so that the burden may be shared between preference and ordinary shareholders. I should like to urge strongly that that point should receive consideration. If preference shareholders paid a share of the tax there would be no unfair incidence as between one company and another, and there would be no unfair incidence as between a company and a firm or a private individual. It is true that there was no such provision in the old Corporation Profits Tax, but, at any rate, that old tax did limit the levy on the ordinary shareholder. I think my right hon. Friend had very good reason for rejecting the proposal that in the new tax there should be such a maximum to the levy on the ordinary shareholder, but the fact that he did reject that maximum seems to me a good reason why he should reconsider the suggestion that companies should be allowed to deduct part of the tax from their preference shareholders.
    9.30 p.m.
    Mr. Mabane: I think that the House in general welcomes this tax as an alternative to the tax which was formerly proposed, but at the outset I should like to refer to a matter which was mentioned particularly by the hon. Member for East Nottingham (Mr. Gluckstein), and that is whether it is wise to impose this tax in effect on the equity shareholder. I was very glad to hear the Chancellor say that he was not prepared at present, at any rate, to listen favourably to those who desired, as Lord Home desired in the

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    "Times" to-day, to distribute the tax not merely to the equity shareholder but also to the holder of preference shares, because it would be most inequitable to adopt such a proposal. In many companies the ordinary shares are high-geared. There is a large proportion of preference shares held and a small proportion of ordinary shares. In another company they may be practically all preference shares. In cases where the shareholding was heavily weighted in favour of the preference shareholding, if the incidence of the tax were to be altered, we should have an inequitable state of affairs. I was interested to notice that when the hon. Member for East Nottingham interpreted the sense of the Committee to be that the preference shareholders should bear this tax, there were loud shouts of "No" from many parts of the Committee. Therefore, it is clear that the Committee in general supports the point of view which the Chancellor expressed in his opening speech to-day.
    I feel some regret at the passage of the old National Defence Contribution as originally proposed. It was clear from the speeches made when the tax was imposed that the House in general approved the principle of the tax, but the effect on the House of the Finance Bill, with its detailed provisions, was to show that it is not always easy to put into legislative form a very good intention. In general the House would have preferred to see some sort of tax on the growth of profits rather than a tax on profits, but the attempt to give legislative form to this good intention was difficult, if not impossible, to achieve.
    I would like to point out what, I think, is the essential character of this present tax. A new principle has been introduced into our taxation with this particular tax—at any rate, on a wide scale. For the first time nearly, an advantage has been created in favour of an income received as a salary as opposed to an income received as profits. In so far as this present tax follows the example of the Corporation Profits Tax, it appears to be simple and quite easy to work. In the case of public companies there is no reason to suppose that there will be any difficulty in collecting this tax. Many hon. Members have said that the tax is simple. I think that we are going to find out that in practice it is not nearly as simple as
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    it seems, because it includes within its scope not merely the private firm but the director-owned company. We are anxious that if a tax is imposed, it should not be easy of avoidance. We are agreed also, that, in so far as a tax is equitable, it is less likely to tempt people to evade it. The Chancellor of the Exchequer has told us that the private firm is to be charged not at the rate of 5 per cent. but 4 per cent. I am very much in favour of the private firm. I think that it is an advantage to the industry of this country if business is in the hands of people who take the whole burden of financial responsibility on themselves.
    I should like to point out how the tax will fall upon private firms as opposed to companies. I was pleased to note in the Chancellor's speech that my calculations as to how the tax would fall upon companies agreed with his. I think I am correct in saying that if the tax in its present form is applied to private firms it will operate very unfavourably as against private companies. I have made some calculations as to how the tax will fall upon private firms and upon companies, earning various amounts of profit. It is important to remember that in the case of a private firm no deduction is allowable under this tax for the salaries of the partners. That is to say, the whole of the earnings of the concern are liable to taxation, whereas, in the case of companies, a deduction may be made for the fees and salaries of directors.
    I have made my own rough calculation of the sort of salary that would be paid in those companies, earning various degrees of profit, and my calculation agrees, I think, with general practice. In the case of a private firm, no tax will be payable if only up to £2,000 profits are earned as in the case of a private company. If the profits are £3,000, after allowing for normal directors' salaries, the private firm pays £48, and the private company nil. Similarly, if the profits are £4,000, the private firm pays £96 and the company nil; £5,000, the private firm £144, and the company £60; £10,000, the private firm £384, and the company £244. On what I believe to be the normal salaries, it is not until profits reach £50,000 that the private firm really comes on to equal terms with the company. I would ask the Chancellor of the Exchequer to consider a concession. I am gratified to notice that he has not been

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    asked for any concession so far as I have heard to-day. Therefore, perhaps I may be put down as the first on the list, and that a concession may be made in favour of private firms or partners. They are liable to be hit rather badly, as the tax falls at present. I was delighted to hear the Chancellor declare that, in the case of the directors of a company, he intended to make a provision for salaries up to a certain percentage of the profits or a lump sum. That will be a valuable and important provision to have in prospect.
    I want to ask one or two questions about tax avoidance in respect of director-owned companies or private firms. The last thing we want to do in this Committee is to have taxes introduced which may be easily avoided. It is very difficult to prevent tax avoidance with this new proposal, unless legislative provisions which have not yet been presented are brought forward. I do not say that such practices will be followed, but they would be less likely to be followed if everyone felt that the taxation was fairly distributed. In the case of a partnership or a private firm, what is to prevent the partners appointing particular people to be salaried employés, if they were likely to be taxed under the Chancellor's proposals, thus reducing the profits to nil? One of the partners may have a wife and children; what is to prevent his appointing his wife as business adviser at a sufficiently substantial salary to absorb all the profits? In the case of director-owned companies likely to attract considerable taxation, what is to prevent the directors resigning their positions as directors and becoming salaried employés at salaries sufficient to absorb all the profits, and appointing dummy directors? There are considerable difficulties in the treatment of private companies and private firms, and it is our duty to endeavour to assist the Chancellor to overcome them.
    I agree with most hon. Members that, in general, the proposed tax is, subject to what I have pointed out, a simple one, and is to be preferred to the old National Defence Contribution, which seemed to have, as its Achilles heel, the difficulty of computing capital. Complaints have been made that the present tax will not attract sufficient revenue, but I think the calculations upon which Income Tax is based are sufficiently accurate to lead the Committee to suppose that the Estimates put before us by the Chancellor of the Ex-
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    chequer are not likely to be far wrong. I was sorry to hear from the Opposition side of the Committee suggestions that a straight Income Tax ought to be preferred to this tax, and the suggestion was supported once or twice from other parts of the Committee. A straight Income Tax is not to be preferred, because it would hit persons in receipt of fixed salaries, for example, municipal and civil servants, attack officers and other ranks of the Army, Navy and Air Force, and affect everybody who is on a fixed earning basis.
    In these days when there is some possibility, or likelihood, of a rise in prices, it is most undesirable to contemplate such a prospect, I prefer this tax on profits, although it is extraordinarily difficult to operate, to a tax which would undoubtedly have the effect of lowering, even though only to a modest degree, the standard of living of those who are not likely to benefit directly by the improvement in general prosperity which is now fortunately upon us. I trust that, for that reason, there will be no further pressure that this tax should be a straight Income Tax, and that every effort will be made by hon. Members to see that the tax is worked fairly and equitably and, as my hon. Friend the Member for the City of London {Sir A. Anderson) said, that it brings to us a sufficient measure of rough justice.
    9.45 p.m.
    Mr. David Adams: It is a pleasure to add my congratulations to the Chancellor of the Exchequer for the very lucid statement with which he submitted his proposal to-day. Unlike its predecessor this proposal bears the stamp of full Cabinet responsibility. Had it been possible for the original National Defence Contribution to receive sufficient consideration from Members of the Cabinet, there would not have been the contretemps which ensued. In addition, the present proposals have received the consideration of industry, and I have wondered why it should not be practicable, in all cases of taxation upon industry, for the Chancellor, having estimated the amount of his requirements, to allow industry to determine the form and method of raising the taxation required. That may appear to be revolutionary, but I am certain that it is a sound business proposition, and one that would avoid the possibility of what ensued in the case of

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    the original National Defence Contribution.
    I never believed that the original National Defence Contribution would raise only £25,000,000. Many leading industrialists in the North of England, and I have taken the trouble to consult several, held that anything from £50,000,000 to £100,000,000 would have been raised by it, particularly in view of the fact that many concerns, with that tax and Income Tax, would be paying no less than 50 per cent. of income in taxation. Therefore, I am strongly of opinion that the Chancellor has been too modest in this matter, and should have pressed for a much larger figure than £25,000,000. Just as I believe that the present Prime Minister, when Chancellor of the Exchequer, misjudged the results of the original proposal as it would have affected industry, so I believe that the present Chancellor of the Exchequer and the Cabinet have misjudged the feeling of the country in this regard, arid that if the tax, instead of being 5 per cent., had been 10 per cent., it would have been accepted with gladness by all concerned and very cheerfully paid.
    It seems a, misfortune that the professions and the rentier class are allowed to escape, even if they are in the upper Income Tax reaches, with incomes above £2,000; and that capital increases also pay nothing. If a fortunate person disposes of a ship and makes a clear profit of, say, £12,000, or disposes of a block of land which has not been sewered or in any way developed, and makes a net profit of £12,000, or gains a clear profit on a transaction on the Stock Exchange whereby he secures a capital increase of the same sum he will pay none of this taxation; and yet the shareholders in a normal business where the profit is £12,000 will pay £600 in National Defence Contribution taxation alone. This is unjust and inequitable as between income and income.
    We are advised by the Chancellor that limited companies may deduct directors' fees, such deduction, however, being limited to a percentage on the profits, or to a lump sum. It will be very interesting to see how that will work. It may be that very considerable injustice will be done unless that aspect of directors' liability is most carefully worked out. With
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    regard to preference dividends, I am at a loss to understand why these should be allowed, like debenture and royalty charges. Debentures, as we know, are frequently advances of capital without which the concern could not continue, and royalty charges are a permanent charge from which there is no escape. It is reasonable, therefore, that these two should be relieved; but preference dividends may be very high. In some cases that I know of, the preference dividend regularly paid has been 15 per cent., and is the only dividend—I hope the Chancellor will note this—which is paid in certain companies. There are companies within my knowledge that have only two classes of shareholders—preference shareholders and deferred shareholders; and in the particular case I have in mind the preference shareholders have received for years large dividends, while the deferred shareholders have received nothing. Nevertheless, these privileged preference shareholders are to be relieved from the new taxation.
    The Special Areas, I am glad to know, are to have particular consideration. In the Special Areas new concerns, many of which have borrowed their money at high rates of interest, are placed under considerable disabilities to-day in regard to the repayment of capital, and may be relieved by the Commissioners. At the same time there are in the Special Areas many old-established concerns which are doing well and paying large dividends, and it is to be hoped that relief from this taxation will not be accorded to such concerns merely by virtue of the fact that they are in those areas.
    In my judgment, this tax is not a temporary one. To talk of it as a tax for a period of five years is, of course, a mistake; the real burden will be borne for a period of four years only. At the end of the expenditure upon armaments, concurrently, probably, with a general decline in industry, the trade revival which exists at the present moment may have passed away and it will be then that industry will, as it did before the revival of trade, seek the aid of the Government in subsidies of various forms. There is no Chancellor of the Exchequer who, recognising the beneficent attitude which he has been compelled to take towards industry in granting subsidies, will not turn once again to this tax as an equitable form of

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    taxation in virtue of the fact that Government action has contributed to the prosperity of the industry in one form or another.
    We on these benches were expected to be heartened when an hon. Member stated that the refugees who left this party a few years ago had perhaps turned the mind of the Government towards nationalisation, and that this was a sample of what would ensue and could be developed in the direction of nationalisation of industry. If the reference was to the right hon. Gentleman the Member for the Scottish Universities (Mr. Ramsay MacDonald), although he had numerous opportunities of nationalising, the only thing which he nationalised was the National Government.
    The co-operative societies are to be excluded from the ranks of public utility societies. That is clearly unjust. The Chancellor did not attempt to demonstrate the justice of his proposition. The tax can be evaded. The co-operative societies can make their expenditure and income just balance, and a return of interest can be disbursed to their members in lower-priced goods and that, I think, will inevitably ensue. It showed the folly and injustice in the original National Defence Contribution of attempting to impose taxation which the public are not prepared to pay, and, in my judgment, the co-operative movement will retaliate in that respect, and none of us should blame them for so doing. The co-operative movement is a great and beneficent one. It is clearly a public utility society per se, and ought to be treated as such. We are grateful to the Chancellor to a certain extent for his new proposition, which ceases to disorganise industry as the previous one did, but we are convinced that the amount to be raised is but half what it ought to be, and there will still be certain injustice perpetrated upon those who are paying by the relief of those who are obtaining large dividends and interest returns and are making no contribution to the defence burdens of the country.
    9.57 p.m.
    Mr. Dalton: We have had an interesting Debate on what one hon. Member has called N.D.C. Mark II. I may, perhaps, be permitted to refer to the Budget Speech of the present Prime Minister in order to get a background for the discussion. He succeeded in creating, not least in the
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    minds of some of my hon. Friends, an impression that he intended to make profiteers pay their footing in the trade revival. That impression was created not by his detailed and specific proposals but by a certain number of generalisations, and it was not until an attempt had been made to reduce these generalisations to formality in the first version of the National Defence Contribution that some of the illusions began to disappear. I suspect that there may yet linger in some parts of the Committee, and in some circles outside the House, that the same illusion, that the Government is making those who have accumulated great profits, largely by reason of the arms programme, return a large proportion of them to the Treasury. It is my hope to be able to dispel that illusion in regard to the second version before I sit down.
    The first version of the National Defence Contribution was one of the most amateurish proposals for taxation ever submitted to the House. It was riddled with criticism from start to finish of the discussion; it was riddled from all points of the compass; it was riddled from left, right and centre on grounds of administration, of faulty arithmetic regarding yield, on grounds of uncertainty created in the minds of all who might or might not be subject to it, and on grounds of gross inequity between the various persons who might be contributors. Little was left of the first National Defence Contribution at the end of the Debate on the Second Reading of the Finance Bill. It was abundantly proved that its complexity was portentous, that its uncertainty was extreme, that its yield was derisory, and that the proposition could no longer be maintained that profiteers were going to pay their footing in the trade revival. The whole thing was exploded and blown down the wind by unanswerable criticism.
    It did not take the Government long to realise that this first proposal had to be withdrawn. It was withdrawn first, because in the course of Debate, and in the influence of that Debate on public opinion outside, it had to be admitted that the arguments advanced against it were unanswerable, and it had to be withdrawn in the second place because it became clear to the Government that, had it been persisted in, in spite of all their paper majority they would have been

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    defeated on Amendments moved in Committee on the Finance Bill. It had become clear that, had my hon. Friends pressed by way of Amendment the arguments that we developed in Debate, the Government could not confidently count upon enough of their supporters to go into the Lobby behind them. It was, therefore, withdrawn for this very simple reason, which before has caused the withdrawal of Government proposals, that if persisted in the Government would have been defeated. It was withdrawn and the way was cleared for the second version.
    I desire to make full admission of any improvement that may have taken place in the second version as compared with the first. I make full admission that there is less complexity in the second version as compared with the first, and there is less uncertainty as to who will pay and how much they will pay. Some of my hon. Friends are in doubt whether they can vote against the Resolution and I am addressing my remarks as much to them as to hon. Members opposite. Some of them are in doubt whether on this issue they should not line up behind the National Government, and I am endeavouring to prevent them committing any such error. I make full admission that the second version, as compared with the first, is less complex, less uncertain, and slightly, but not much, better in respect of yield—£.25,000,000, says the Chancellor of the Exchequer, in a full year, from which, as he has admitted, there has to be subtracted £6,250,000 for loss of Income Tax, and there is a further consequential loss as developed by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), so that you get down at the outside to a net addition to the revenue of £18,000,000 at the most in a full year. What is that in proportion to the total profits being made by all 1tiese sharks and other forms of fish? What is £18,000,000 amid such riches? It may well be that the armament firms themselves, leaving out all the other profiteers, will be making profits next year greatly in excess of this figure. Therefore, the gravest objection against this tax is the ludicrous inadequacy of the yield and the contemptibly small contribution to the cost of National Defence. I will come back to that in a moment. That, I am convinced, is the gravest objection. The thing is a farce and a
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    humbug. It is not making any contribution towards the cost of National Defence which can seriously be considered. There would be grave misunderstanding if it was the unanimous opinion of this Committee that the Government by this device were facing up to the problem of meeting their enormous bill for armaments.
    But there are other objections. All pretence and all hope are here abandoned of getting any special contributions from armament makers and armament firms. That has all gone. The Prime Minister in his Budget speech created the illusion in many minds that the armament makers were being compelled to disgorge substantial profits accruing to them by reason of the arms programme. All that is abandoned; it is all gone. What are they going to pay? One shilling in the pound. [An HON. MEMBER: "Ninepence!"] With certain adjustments, reducible to 9d., as was pointed out by an hon. Gentleman who has now left the House, in a letter to the "Times" this morning. In fact it will be ninepence, or at the outside one shilling. What is that contribution compared to the enormous fortunes that they are raking in out of the necessities of their country and the feebleness of the Government in controlling the prices charged for their products?
    As has already been said, and I repeat it once more, the complete failure of the Government in this proposal now before us and in the amended Budget scheme of the Chancellor of the Exchequer to get any real contribution from the shareholders in the armament firms towards the cost of National Defence, throws us back on the last and only line of policy left open to us, namely, that all profits should be taken—not merely 9d. in the £ but all profits should be taken—out of war preparations, and that private manufacture should be supplanted and replaced by the public manufacture of armaments and munitions of war.
    There is another objection to this Resolution which has also been referred to by more than one earlier speaker, namely, the exemption of the professions. I desire here to reply for a moment to an argument adduced by the Chancellor of the Exchequer in his opening observations to-day. He suggested that there was great difficulty in drawing a practical line for taxation purposes between professions

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    on the one hand and offices and employments on the other. I beg leave to doubt that. I should have thought that it was familiar, and particularly so in Income Tax law and practice—the distinction between the professions, in which the remuneration is by fees or by piece-work, so much for the job, the total income depending on the number of jobs and the fees per job on the one hand, and offices and employments on the other hand in which remuneration is by a fixed salary and not subject to such variation as in the case of the professions. There is no difficulty at all, from that point of view, in extending this taxation so as to include incomes from professions while excluding incomes from offices or employment.
    The particular case which the right hon. Gentleman cited, of the Harley Street specialist as against a medical officer of health, is easily handled in the light of the suggestion which I have made. One is a profession and the other is an office or employment. Furthermore, as far as the smaller salaries are concerned, if there be any difficulty in making a distinction, the limit of £2,000 embodied in the White Paper and, I assume, in the Resolution, would clear away by far the greater number of doubtful cases. If the professions as distinct from offices and employment were included the thing would operate in excess of the £2,000 limit merely as an additional, and in our view quite proper, form of Surtax upon large incomes from highly remunerated professional activity. Therefore, we claim that this extension should be made, and if the Resolution should pass to-night we shall move to that effect when the Committee stage is reached.
    On the question of refunds, perhaps the Financial Secretary, who is to reply, will give us a little more elucidation. My right hon. Friend the Member for East Edinburgh asked whether we were liable to be landed in the future history of this tax, if trade goes bad a year or two from now, in the same position as with Excess Profits Duty. I put the question in this fashion: Is it or is it not possible, under the regulations governing this tax, if trade takes a turn for the worse, and if profits fall and if in any businesses a profit becomes a loss, that in certain years the yield of this tax may become a minus quantity owing to refunds falling due from the Exchequer? If he can reply on
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    that point we shall be clearer on the subject than we are at the moment.
    I pass to the limitation of five years. My right hon. Friend the Member for East Edinburgh in fact thought that this was an empty undertaking and that the Chancellor of the Exchequer must be aware that this was nothing more than a statement of pious intention entertained at this moment, liable to revision in his own mind if he remains at the Treasury, or in the mind of his successor. It was what is colloquially called "eyewash," and therefore I do not want to dwell too heavily on this as a difficulty in the scheme, but if my description should be challenged and it is thought that there was any serious merit in this undertaking, I wish to adduce this further argument to the Committee. The Government are increasing the National Debt by £400,000,000 in the next five years. If they succeed in borrowing on an average for that period at 3 per cent.—they may not. If cheap money passes away and interest rates rise—then the £400,000,000 addition to the National Debt will cost £12,000,000 a year addition to the interest charge alone, with no provision for sinking fund. This wretched little tax which is being commended for our approval to-night will little more than cover the additional interest charge alone.
    Therefore, during the period that you are so increasing the National Debt through a series of unbalanced Budgets you are adding to your debt charge in respect of these operations some £12,000,1300 a year, and surely it is hardly reasonable in the interest of sound national finance to say that you are going to introduce for that period only a tax which will bring in, after appropriate deductions have been made, only a few million pounds a year more than what you will have added to that interest charge. At the very least this tax at this rate will be required to be kept on indefinitely, until such time as you have paid off the additions which, as we think, you are improperly making to the National Debt in this period.
    There is a further very grave defect in this scheme. Why not begin to collect it this year? Under the first version of the National Defence Contribution, with its incredible complexities, with all its capital valuations and uncertainties, it would evidently have been impossible to

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    begin to collect revenue until after these valuations had been made and these complexities resolved. But that is no longer so. You are now taking credit in claiming that you have simplified the tax. You are now telling us that profits for the purpose of this tax are substantially the same as profits for the purpose of Income Tax. The right hon. Gentleman made a minor qualification about allowances for Schedule A, but that is a very small matter. Substantially, the claim is made that profits for the purpose of this tax are the same as for Income Tax. Many of the accounts are closed, the facts are known, why should you not, if you accept the principle that is embodied in this tax, let it operate this year in respect of profits relating to the year 1936–37 instead of waiting for the year 1937–38?
    The White Paper indicates that the first profits to be charged with this tax are those accruing as from the 1st April, 1937. This year the Government will get the derisory revenue of £2,000,000 from the tax. That is without making proper allowance for consequential loss of Income Tax, and when this is taken into account this miserable £2,000,000 shrinks to something little more than £1,000,000. Why not impose the tax on last year's known profits? Last year enormous profits were made. The arms profiteers did well out of their contracts with the Government, and many other people did well. Why not collect the tax this financial year in respect of those profits? Why wait for another 12 months? That is a further very grave defect of the tax that it is needlessly delayed for 12 months before it begins to bring in its miserable trickle of revenue.
    Summarising, the rates of the tax are too low and it contains a number of exemptions and limitations in regard to persons and in respect of time which should not have been made and should be removed. On the other hand it is open to two very grave defects of an opposite character. There are two respects in which the tax falls unfairly in certain directions and in which alleviation should be made if the tax is to be tolerable at all. One of these is in respect of the Special Areas and the other is in respect of the co-operative movement. [Laughter.] That statement excites laughter among those who are more in-
    964
    terested in private concerns, faced with healthy and disagreeable competition from co-operative societies. With regard to the Special Areas my hon. Friend the Member for Consett (Mr. D. Adams) pointed out, truly, that there were concerns in the Special Areas, such as a number of concerns manufacturing munitions, which are not deserving of any relief of taxation under the scheme. On the other hand there are a great many concerns in the Special Areas and also in those areas not legally special but deeply distressed, to which the remission of this little tax, although it would be a little thing, would be, if the tax is to go forward in this form, just worth while.
    Assuming that the tax is to go forward in this form, my hon. Friends and I are of opinion that there should be some more definite undertaking as to the relief to be given both as to the extent of the relief, as to the areas within which it is to be given and as to those who are to receive it outside the Special Areas, than is contained in the scheme. That point can perhaps be more conveniently discussed on the Committee stage of the Finance Bill. I would say in passing from this point that the whole treatment of the Special Areas by the Government is one of shameful neglect, and it must not be supposed that in our judgment and in the judgment of the people who live in the Special Areas the Government will have made up for their continued lethargy by small alleviations of taxation to particular concerns situated in those localities. None the less it is one of the topics touched upon in the Resolution and it is proper for us to say that we desire an amendment of it in the Finance Bill.
    I come now to the position of the cooperative movement, and I am glad the Chancellor of the Exchequer is now in the House. When my hon. Friend the Member for South East Ham (Mr. Barnes) was making a formidable indictment on this aspect of the tax the Chancellor of the Exchequer was not here. I propose to cite in a moment an important and impressive legal opinion in support of my argument. Meanwhile to put the thing broadly, the Finance Act of 1933 altered the basis of taxation of co-operative societies and imposed in our opinion penal and unjust taxation on this class of undertaking. The injustice of the Act of 1933 is carried a stage further by the present

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    proposal, which does not exempt cooperative societies from the tax. The principle of mutuality in trading has been disregarded by the inclusion of co-operative societies within the ambit of this tax. Some hon. Members may not accept the principle of mutuality in trading as sufficient grounds—apparently the hon. Member for Huddersfield (Mr. Mabane) does not——
    Mr. Mabane: No, I say that co-operative societies do not.
    Mr. Dalton: The hon. Member, I think, is misinformed. But it may perhaps abbreviate discussion if I now quote the formidable and respected legal opinion given to the Parliamentary Committee of the Co-operative Congress.
    Sir J. Simon: In what year?
    Mr. Dalton: 1920. But principles and logic are eternal; are they not?
    Sir J. Simon: The Finance Act changes from time to time.
    Mr. Dalton: If the right hon. Gentleman will allow me to cite the authority in defence of my contention, I think he will see that the argument upon which I rely is as valid now as it was in 1920; it goes to the root of the matter and deals with the essence of co-operative societies as such. I am, of course, relating this document to the White Paper and quoting an important judgment on the nature of co-operative societies in order to strengthen my argument that cooperative societies should not be subject to this National Defence Contribution. The legal opinion says:
    "The scheme of a co-operative society is in its essence this, that a number of persons who are called members join together to make purchases of goods and to distribute those goods among themselves, the actual purchase and distribution being of necessity carried out by some managing body acting on behalf of all the members. It is clear, therefore, that an excess of the so-called 'price' at which the goods are distributed over the price at which they are bought is not 'profit' in the ordinary sense of that word, indeed, the main object of the societly is to prevent any 'profit' from arising at all."
    After referring to various other arguments cited by those who desired to increase the taxation of co-operative societies in 1920 this legal opinion continues:
    "None of this money can possibly be called a 'profit' either to the society or of its individual members."
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    May I give an illustration which will appeal to hon. Members opposite?
    "The position is just the same as it would be if a man gave £1,000 to his agent to buy a motor car and the agent reported that he had secured the car for £800 and returned to his employer the £200 less his commission and expenses, and any other sum which his employer had instructed him to pay. It would not occur to anybody to say that what the employer received back was a 'profit' on the transaction."
    I have perhaps read enough to show that these arguments, valid in 1920, independent of any detailed Clauses in any Finance Act, are sufficient to justify at the present time our contention that cooperative societies should be excluded from any tax upon profits—and this is specifically called a tax on profits—by reason of the fact that by their very nature they cannot make a profit. I will read one more sentence:
    "There is no rational ground for imposing the tax"—
    in that case, the Corporation Profits Tax—
    "—even on that part of the surplus which the society retains for making necessary payments or for reserve."
    That opinion was given to the Parliamentary Committee of the Co-operative Congress: it is headed "Copy of Opinion of Sir John Simon, K.C." Perhaps the Chancellor of the Exchequer will appropriately instruct his junior who is to reply to the Debate. I think it is clear that the Chancellor will now have been persuaded at any rate to accept the Amendment which we shall move in the Committee stage to exempt co-operative societies from this impost. There is one more comment I wish to make on cooperative societies in this connection. Co-operative societies have been placed almost in the same position as arms profiteers for the purpose of this tax—almost, but not quite. Both are mulcted, one on a fictitious definition of profits, the other on profits as commonly understood, at the rate of 1s. in the £ but I am informed that there is one distinction which has been made between them. One has been consulted and the other has not. The right hon. Gentleman has taken into consultation trade and industry, as they are vaguely called, and I do not suppose that he will deny that among the representatives of trade and industry with whom he has consulted are some persons directly or indirectly interested in pro-

    967
    ducing munitions of war. The arms profiteers have been consulted as to how much and how they would like to pay.
    Sir J. Simon: I am not aware of it.
    Mr. Dalton: Surely it cannot be denied. I presume that the right hon. Gentleman has been discussing with those who claim to speak on behalf of trade and industry as a whole. Surely it is notorious that among the more influential members of these capitalistic combines are people who are concerned with the production of munitions of war. It cannot be denied, for instance, that Vickers have a remote relationship, with the Federation of British Industries. If he has any doubt, he might refer it to Sir Maurice Hankey. On the other hand, co-operative societies have not been honoured by an invitation to enter into consultations. My right hon. Friend the Member for Hillsborough (Mr. Alexander) tells me that they have been left outside these discussions. Therefore, the difference that has been drawn in the mind of the Chancellor of the Exchequer and his friends between a firm producing armaments for profit and a co-operative society trading under the principle of mutuality is that both shall be taxed the same, but that one has been consulted and the other has not.
    What are the essential facts with regard to the profit situation at this time? The total profits subject to tax can be found by a simple calculation—1s. or 9d. in the £, 5 per cent. and 4 per cent., and a yield of £25,000,000 in a full year. It is easy to calculate that the total sum of profits, according to the definition here contained, is something of the order of £600,000,000 a year. Certain extensions of the definition would raise that to an even higher figure. These profits are on the up grade and there is every reason to think that they will be greater next year.
    Mr. H. G. Williams: Due to good Government.
    Mr. Dalton: From the point of view of the profiteer. The hon. Member for South Croydon (Mr. H. G. Williams) is, indeed, living in a profiteer's paradise. Let him not look forward to any future world better than this. He has achieved to-day the best that fate has in store for him as far as that is concerned and let him make the most of his opportunity. But these profits are rising, from one cause or
    968
    another, and are likely to continue to rise. The arms makers are wallowing in windfall profits and those windfall profits are due to the impetus and magnitude of this arms programme which is in progress. As against that, it is proposed that there should be made this derisory repayment to the State and it is on the ground of the inadequacy of this proposal that I shall ask my hon. Friends on these benches to register their condemnation of the policy of the Government which has brought it forward. It is a farce. It is humbug. It is pretending to do what is not going to be done. It is gulling the public into the belief that a substantial part of these enormous gains unmerited and unearned are going to be returned to the Treasury. The part that is being returned is, I repeat, after all proper deductions have been made barely £1, 000,000 this year, though if the Government were sincere, they could bring it up this year to the yield of a full year, and next year it will be somewhere in the nature of £18,000,000.
    The total cost of defence—let us get these magnitudes into the right proportion—is to be £1,500,000,000 over five years or £300,000,000 a year on the average. The gap in the Budget, this yawning deficit, the degree to which the Budget is unbalanced this year, is £80,000,000 and the contribution that is being made toward that is £1,000,000 this year. Even in a full year the net additional revenue will be £18,000,000, towards an uncovered deficit of at least £80,000,000. Let us leave no illusion in the mind of the public as to the contemptible, the negligible character of this tax. How is it to be explained? The right hon. Gentleman has spoken some eloquent words which I ventured to quote in this House on the Second Reading of the Finance Bill. He spoke those words when he occupied a position on this side of the House and just as we admired the clarity, the cogency and the logic of the legal opinion which he rendered when he was politically in opposition, on the nature of co-operative societies, so we admired the cogency of the argument which he adduced in 1931, when he had not yet been welcomed into the bosom of the National Government which had just been formed, as to the urgent necessity of balancing the Budget, even at the bottom of the slump, even when trade was bad and the unemployment record high. The

    969
    right hon. Gentleman then quoted with great pleasure and appreciation the judgment of Treasury officials:
    "Continued State borrowing on the present vast scale, without adequate provision for repayment, would quickly call in question the stability of the British financial system."
    The "vast borrowing" then was at the rate of less than £40,000,000 a year. [HON. MEMBERS: "Oh!"] Yes, there was an addition of £78,000,000 to the Unemployment Fund Debt during the whole period of the Labour Government, or £70,000,000 in just over two years. What is the borrowing now? It is £80,000,000 in one year, with the promise of a continuance of that for four years more. Will not that quickly call in question the stability of the British financial system? If the quotation was good then, it is equally good now. Just one more quotation, also from Treasury officials of that day, also quoted by the right hon. Gentleman:
    "These vast Treasury loans. …"
    They were called vast when they amounted to less than £40,000,000 a year—
    "… are coming to represent, in fact, State borrowing to relieve the current State obligations at the expense of the future."
    What else is this? "That is the ordinary and well recognised sign of an unbalanced Budget." What is the truth? How comes it about that the Chancellor the the Exchequer, who saw an unbalanced Budget then as clearly as he saw the character of a co-operative society 10 years before, should to-day be allowing the stability of the State system of finance to be continuously undermined? The explanation is political; it is not economic. The explanation is that the Government is a Government full of moral and political cowardice, afraid to face all the consequences of its own policy. You want money for arms to the tune of hundreds of millions a year, to the tune of thousands of millions over a short span of years. This money is wanted by reason of the shocking mess the Government has made of the foreign policy of this country, and of the international situation, since 1931, a policy in which the Chancellor's own responsibility during his disastrous tenure of another office is personal and primary; but you will not yet tell the public where it is that your policy is leading, and an endeavour is still being made to 'conceal from the taxpayers of this country and the public
    970
    in general what is the financial cost, and what will be the cost in lowered standards of income, of this policy which has now been adopted, this policy of a great arms programme.
    The Government are endeavouring at this time to hide the truth as to the financial implications of this policy from the richer taxpayers and from the profiteers, who are naturally the political friends of the Government—most of all from them, because, maybe, if one day their eyes were opened when the bills were presented, there would be a revulsion of political feeling even in their breasts. For the reasons which I have given to the Committee, I submit that the proposal now before us is derisory and that a unanimous vote of this Committee in its favour would mislead the country into believing that there was far more in it that in fact there is; and for that reason, in order to expose the defects which I have endeavoured to enumerate, my hon. Friends will vote against this Resolution.
    10.38 p.m.
    The Financial Secretary to the Treasury (Lieut.-Colonel Colville): The Government have no reason to be dissatisfied with this day's Debate. The reception of the Financial Resolution which my right hon. Friend has submitted has been very generally favourable. Of course, the speech of the hon. Member for Bishop Auckland (Mr. Dalton) was interesting. He had been reading in the papers accounts, perhaps not always correct, but showing some tendency to suggest that there is a call for more virile attacks on the Government, and for a good deal more uncompromising attitude to every proposal of the Government. What the hon. Member has been saying is based——
    Mr. Dalton: The hon. and gallant Gentleman will, I think, admit that long before he read these reports in the papers, which may or may not be true, I attacked the previous Budget proposal for a National Defence Contribution not less vigorously than I have attacked the second.
    Lieut.-Colonel Colville: The hon. Member asked for a simple tax with a larger yield, which is exactly what we have given and which has been generally welcomed. But I cannot allow the hon. Member to escape so lightly. His speech,

    971
    which, as I say, was interesting from the point of view that I have mentioned, was fulsome in its condemnation of the Government, and not only for the proposal which they now bring to the Committee, but for all their previous records in the foreign and borne fields. I think the hon. Member went so far as to say that we were guilty of moral and political cowardice, and that we were gulling the public. All I can say is that the hon. Member and his friends have not been following the results of the recent by- elections. His views are not shared out-side the House as much as they assume. I have a greater belief in the good sense of the British electorate than to think that they will be deceived by statements such as the hon. Member has made.
    He did, however, make one or two serious observations which I should answer. His principal preoccupation was to be sure that his supporters would oppose the Resolution, and one of the principal reasons which he gave for doing so was that, bad though the tax was, it had not been started early enough; it could have been put into operation sooner and it would, therefore, have had a fuller result this year. I must correct the hon. Member on one point. He said that the yield this year would be less than £1,000,000. He is wrong, because there is no loss this year in respect of Income Tax, for the obvious reason that Income Tax assessments are based on the previous year. The hon. Member is rather over £1,000,000 out in that assertion, which is a relatively small error compared with the others that he made. He dealt with another subject which was also touched on by the hon. Member for East Ham. South (Mr. Barnes), namely, the taxation of co-operative societies. They wanted to know why the co-operative societies should be included in this tax. I believe that members of cooperative societies would not in any way wish to shirk bearing their share of the expenditure on Defence. They are not less patriotic than the members of any other section of society.
    The legal opinions which the hon. Members quoted from my right hon. Friend the Chancellor of the Exchequer were made at a time before the law was altered. One thing that has been evident during the Debate is that there has been no effort in any part of the Committee to
    972
    challenge the fact that this tax is based on Income Tax principles. We have based the tax on these principles, and both in the Committee to-day and in the reception which the tax has had outside since the White Paper was published, there has been a general acceptance of the view that we were right in doing that. Since the Finance Act, 1933, the special exemption which was enjoyed by industrial and provident societies has been withdrawn, and they are now treated as trading companies for Income Tax purposes. The Income Tax principle, on which we based our tax, should also apply in the case of co-operative societies.
    Mr. Barnes: You are exempting public utility companies, and yet not exempting co-operative societies.
    Lieut.-Colonel Colville: The position of public utility companies is entirely different. There is no such statutory limitation upon co-operative societies as there is upon public utility companies. I have only a quarter of an hour left, and this is not exempted business, and many points were raised in the Debate which I should wish to answer. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) spoke of the laying to rest of the mortal remains of the first National Defence Contribution, but I would remind him that the Phoenix rose from its ashes, and so in this case this edition of the National Defence Contribution has risen triumphantly from its ashes, and is accepted very generally on all hands. The right hon. Member criticised the yield of the tax and said that it was altogether too small. My right hon. Friend the Chancellor of the Exchequer, and the Prime Minister when he was Chancellor of the Exchequer, made perfectly plain what yield they wished to get from the tax. There can never have been any doubt in the mind of Members of the Committee as to the amount which we aimed at, £25,000,000 gross. Twenty-five million pounds is the actual amount which will be obtained from this tax, but that is offset, of course, by the allowance for Income Tax.
    The right hon. Member raised several points which will have to be dealt with in Committee when the Clauses are brought forward. He mainly emphasised that in his own view—and this was a view expressed by one or two other hon. Members, but not strongly stressed—in place

    973
    of a tax on profits an addition to the Income Tax would have been desirable. That is not the view which we hold. It has always been made plain by the Chancellor of the Exchequer that it was his intention to secure from the profits of industry a contribution for Defence purposes. From that purpose we have never wavered. The Income Tax rate, which was raised, is high indeed, and it is necessarily high for purposes which we know are necessary. In our view to have raised it further at this time would have been undesirable, and would, in fact, have affected a far larger number of individuals in the country than the tax we have proposed. Some hon. Members in all parts of the House, including the right hon. Member for East Edinburgh, urged that instead of this tax on profits the Income Tax on unearned income should have been raised. I put it to him that such a step, no matter what arrangements were made for allowances and rebates, would undoubtedly have affected a far larger number of people in all parts of the country, many of them little able to sustain this extra charge.
    Therefore, the proposal which we have made to take a contribution from the profits of industry for the purposes of Defence, is one which we stand by, and we claim that our new tax has been framed in a fair and just manner. The right hon. Member for North Cornwall (Sir F. Acland), as a former Financial Secretary to the Treasury, bore out the fact that the tax in its present form will be a very much simpler one in the Committee stage of the Finance Bill than the earlier edition of the National Defence Contribution, and I agree with him. Many points which were made to-day were Committee points, and when we get the Clauses in front of us hon. Members will have an opportunity of studying them before the Bill is taken in Committee.
    The hon. Member for the City of London (Sir A. Anderson), whose support in this matter has been of value, asked whether the words "in effect" in paragraph 6 of the White Paper, which relates to losses and wear and tear, meant that there would be a lessening of the allowances. I must ask the hon. Member to wait and see the clause for a full interpretation of these words. They are not intended to prejudice the taxpayer in any way, but to ensure that the relief
    974
    should apply to the right year. If he will await the Clause he will see that his fears are dissolved. The hon. and learned Member for Montgomery (Mr. C. Davies), who was downright in his attacks on the earlier form of this tax, was equally downright in his expression of the view that industry had given an undertaking to stand by this tax and to give the necessary money and that, although personally he would have preferred to see an addition to the Income Tax applied, he would in no way stand in the way of the present proposal, to which he gave his approval.
    The hon. and gallant Member for Central Wandsworth (Colonel Nathan) raised several points. He raised, in particular, the question of the difference between the rates of tax charged on companies and firms. He disputed the wisdom of allowing the rate of 4 per cent. for firms as against 5 per cent. for companies. As against that the hon. Member for Huddersfield (Mr. Mabane) took the contrary view and thought that the rate of 4 per cent. for firms was hardly a big enough concession having in mind the conditions under which they operate. At this late hour I do not wish to go over the ground which the Chancellor covered in his opening speech, but I claim that in fixing this difference of r per cent. in the rate the Government have made a wise decision. The hon. and gallant Member for Central Wandsworth complained that the rate of taxation in this country was already so high that there was a fear of driving away certain companies from having their headquarters here. He is sitting on the wrong benches if he holds that view, because his hon. Friends would make the rate of taxation vastly higher. They have throughout opposed the view that we should finance rearmament partly by loan, by which means alone we believe that we can save the taxpayer in this country from a heavy addition to taxation. If he holds that the rate of taxation at present is so high that there is a danger of driving firms away from this country, I hope that he will use his influence with his hon. Friends to see that they do not express the view that a higher rate of taxation should be adopted.
    The right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) was round in his condemnation of this tax. He was almost the only Member

    975
    who spoke in an uncompromising way about our proposal. He said that we were exactly undoing the work which was done by the De-rating Act, and that if it was right to remove the burden of rates from industry, it was wrong to place upon it this burden of the tax upon profits. I would point out to him and to the Committee that the relief from the burden of rates applied to every firm before they made any profit at all. Now we are suggesting a moderate charge on their profits which is of a very different character. The hon. Member for North Paddington (Mr. Bracken), who, I am sorry is not in his place, made a not very responsible speech on the subject of the crippling burdens of industry in which, he suggested, the methods that we are adopting would be likely to result. He made a particular plea for the shipping industry which, he complained, was having a difficult time. He also said that our distribution of subsidies was unwise, and gave us as an instance the case of the shipping industry. The hon. Member's contribution was a little contradictory.
    In his speech the hon. Member for East Aberdeen (Mr. Boothby) imagined a shrinkage of the industrial activity which we have at the present time, and he said if the tax were to be effective and to bring in the revenue which we desired, there had to be a prospect not only of continuance but of increased industrial activity. He was rather nervous about the state of the Stock Exchange. He referred to the conditions on the Stock Exchange at the time when the first National Defence Contribution was proposed. That effect could not be put down by any means entirely to the National Defence Contribution; a great deal must have been due to other causes. I would remind the hon. Member that
    there are other ways of testing the activity of a country besides the stock exchanges. I would ask whether there is any other country in the world in which the Government of the day could so readily ask for and receive £25,000,000 for Defence. It is due to a realisation of the paramount need for Defence, a subject on which this country is united. Even hon. Members who oppose the methods have nearly all agreed to the necessity for Defence.
    Mr. Gallacher: Question.
    Lieut.-Colonel Colville: The very fact that the hon. Member questions my statement is proof of the unanimity. Industry is in a position to stand the tax. By every proof which we look to, and every index, there is no reason to think that the present activity is receding. The indications are that the country is in for a further period of industrial activity. If that is so, we believe that the tax will not be too big a burden, that it is fairly and properly applied and that it will be recognised abroad as a further proof of our determination in this matter of Defence. In the wide knowledge abroad of this determination lies the best hope of international agreement for the preservation of peace.
    Question put,
    "That there shall be charged on any profits arising at any time during the five years commencing on the first day of April, nineteen hundred and thirty-seven, from any trade or business of any description (including, in the case of bodies corporate whose functions consist wholly or mainly in the holding of investments or other property, the holding of the investments or property), a tax not exceeding five per cent. of the amount of the profits."
    The Committee divided: Ayes, 231; Noes, 98.

    Division No. 231.]

    AYES.

    [10.59 p.m.

    Acland, Rt. Hon. Sir F. Dyke

    Boothby, R. J. G.

    Cazalet, Capt. V. A. (Chippenham)

    Acland, R. T. D. (Barnstaple)

    Bossom, A. C.

    Chamberlain, Rt. Hn. N. (Edgb't'n)

    Acland-Troyte, Lt.-Col. G. J.

    Boulton, W. W.

    Channon, H.

    Adams, S. V. T. (Leeds, W.)

    Bower, Comdr. R. T.

    Clarry, Sir Reginald

    Agnew, Lieut.-Comdr. P. G.

    Boyce, H. Leslie

    Cobb, Captain E. C. (Preston)

    Albery, Sir Irving

    Brass, Sir W.

    Colville, Lt.-Col. Rt. Hon. D. J.

    Anderson, Sir A. Garrett (C. of Ldn.)

    Briscoe, Capt. R. G.

    Cooper, Rt. Hn. T. M. (E'nburgh, W.)

    Anstruther-Gray, W. J.

    Brocklebank, Sir Edmund

    Courthope, Col. Rt. Hon. Sir G. L.

    Apsley, Lord

    Brown, Col. D. C. (Hexham)

    Crooke, J. S.

    Aske, Sir R. W.

    Brown, Brig.-Gen. H. C. (Newbury)

    Crookshank, Capt. H. F. C.

    Astor, Major Hon. J. J. (Dover)

    Bull, B. B.

    Croom-Johnson, R. P.

    Astor, Hon. W. W. (Fulham, E.)

    Burghley, Lord

    Cross, R. H.

    Baldwin-Webb, Col. J.

    Cartland, J. R. H.

    Crossley, A. C.

    Barrie, Sir C. C.

    Carver, Major W. H.

    Crowder, J. F. E.

    Beaumont, Hon. R. E. B. (Portsm'h)

    Castlereagh, Viscount

    Culverwell, C. T.

    Bennett, Sir E. N.

    Cazalet, Thelma (Islington, E.)

    Davies, Major Sir G. F. (Yeovil)

    Elliot, Rt. Hon. W. E.

    Kerr, Colonel C. I. (Montrose)

    Russell, Sir Alexander

    Dawson, Sir P.

    Keyes, Admiral of the Fleet Sir R.

    Russell, S. H. M. (Darwen)

    De Chair, S. S.

    Kimball, L.

    Salmon, Sir I.

    Dorman-Smith, Major Sir R. H.

    Lamb, Sir J. Q.

    Salt, E. W.

    Drewe, C.

    Latham, Sir P.

    Samuel, M. R. A.

    Duggan, H. J.

    Law, Sir A. J. (High Peak)

    Sanderson, Sir F. B.

    Dunglass, Lord

    Law, R. K. (Hull, S.W.)

    Sandys, E. D.

    Eastwood, J. F.

    Leckie, J. A.

    Savery, Sir Servington

    Eckersley, P. T.

    Leighton, Major B. E. P.

    Scott, Lord William

    Ellis, Sir G.

    Llewellin, Lieut.-Col. J. J.

    Seely, Sir H. M.

    Elliston, Capt. G. S.

    Mabane, W. (Huddersfield)

    Selley, H. R.

    Elmley, Viscount

    MacAndrew, Colonel Sir C. G.

    Shaw, Major P. S. (Wavertree)

    Emery, J. F.

    McCorquodale, M. S.

    Shaw, Captain W. T. (Forfar)

    Emmott, C. E. G. C.

    MacDonald, Rt. Hon. M. (Ross)

    Shepperson, Sir E. W.

    Emrys-Evans, P. V.

    McEwen, Capt. J. H. F.

    Shute, Colonel Sir J. J.

    Evans, D. O. (Cardigan)

    McKie, J. H.

    Simon, Rt. Hon. Sir J. A.

    Evans, E. (Univ. of Wales)

    Maclay, Hon. J. P.

    Sinclair, Rt. Hon. Sir A. (C'thn's)

    Everard, W. L.

    Macmillan, H. (Stockton-on-Tees)

    Sinclair, Col. T. (Queen's U. B'lf'st)

    Fleming, E. L.

    Macnamara, Capt. J. R. J.

    Smiles, Lieut.-Colonel Sir W. D.

    Foot, D. M.

    Makins, Brig.-Gen. E.

    Smith, L. W. (Hallam)

    Fremantle, Sir F. E.

    Mander, G. le M.

    Smith, Sir R. W. (Aberdeen)

    Furness, S. N.

    Margesson, Capt. Rt. Hon. H. D. R.

    Somervell, Sir D. B. (Crewe)

    Fyfe, D. P. M.

    Markham, S. F.

    Somerville, A. A. (Windsor)

    Ganzoni, Sir J.

    Mason, Lt.-Col. Hon. G. K. M.

    Southby, Commander Sir A. R. J.

    Gilmour, Lt.-Col. Rt. Hon. Sir J.

    Maxwell, Hon. S A.

    Spears, Brigadier-General E. L.

    Gluckstein, L. H.

    Mayhew, Lt.-Col. J.

    Spens, W. P.

    Goldie, N. B.

    Mellor, Sir J. S. P. (Tamworth)

    Stanley, Rt. Hon. Oliver (W'm'ld)

    Gower, Sir R. V.

    Mills, Major J. D. (New Forest)

    Storey, S.

    Grant-Ferris, R.

    Moore, Lieut.-Col. Sir T. C. R.

    Stourton, Major Hon. J. J.

    Granville, E. L.

    Morris-Jones, Sir Henry

    Strauss, E. A. (Southwark, N.)

    Gretton, Col. Rt. Hon. J.

    Morrison, G. A. (Scottish Univ's.)

    Strauss, H. G. (Norwich)

    Gridley, Sir A. B.

    Muirhead, Lt.-Col. A. J.

    Strickland, Captain W. F.

    Griffith, F. Kingsley (M'ddl'sbro, W.)

    Munro, P.

    Stuart, Hon. J. (Moray and Nairn)

    Grimston, R. V.

    Nall, Sir J.

    Sueter, Rear-Admiral Sir M. F.

    Guest, Lieut.-Colonel H. (Drake)

    Neven-Spence, Major B. H. H.

    Sutcliffe, H.

    Guest, Maj. Hon. O. (C'mb'rw'll, N.W.)

    Nicolson, Hon. H. G.

    Tasker, Sir R. I.

    Guinness, T. L. E. B.

    O'Connor, Sir Terence J.

    Taylor, C. S. (Eastbourne)

    Hannah, I. C.

    O'Neill, Rt. Hon. Sir Hugh

    Taylor, Vice-Adm. E. A. (Padd., S.)

    Hannon, Sir P. J. H.

    Owen, Major G.

    Titchfield, Marquess of

    Harris, Sir P. A.

    Palmer, G. E. H.

    Touche, G. C.

    Harvey, T. E. (Eng. Univ's.)

    Peat, C. U.

    Tryon, Major Rt. Hon. G. C.

    Haslam, Henry (Horncastle)

    Perkins, W. R. D.

    Tufnell, Lieut.-Commander R. L.

    Heilgers, Captain F. F. A.

    Pickthorn, K. W. M.

    Wakefield, W. W.

    Heneage, Lieut.-Colonel A. P.

    Ponsonby, Col. C. E.

    Walker-Smith, Sir J.

    Hepworth, J,

    Porritt, R. W.

    Ward, Lieut.-Col. Sir A. L. (Hull)

    Herbert, Major J. A. (Monmouth)

    Pownall, Lt.-Col. Sir Assheton

    Ward, Irene M. B. (Wallsend)

    Herbert, Capt. Sir S. (Abbey)

    Procter, Major H. A.

    Warrender, Sir V.

    Hills, Major Rt. Hon. J. W. (Ripon)

    Radford, E. A.

    Wayland, Sir W. A

    Hoare, Rt. Hon. Sir S.

    Raikes, H. V. A. M.

    Whiteley, Major J. P. (Buckingham)

    Holdsworth, H.

    Ramsay, Captain A. H. M.

    Wickham, Lt.-Col. E. T. R.

    Holmes, J. S.

    Rankin, Sir R.

    Williams, H. G. (Croydon, S.)

    Hope, Captain Hon. A. O. J.

    Rathbone, J. R. (Bodmin)

    Willoughby de Eresby, Lord

    Hopkinson, A.

    Rayner, Major R. H.

    Wilson, Lt.-Col. Sir A. T. (Hitchin)

    Hudson, Capt. A. U. M. (Hack., N.)

    Reed, A. C. (Exeter)

    Windsor-Clive, Lieut.-Colonel G.

    Hulbert, N. J.

    Reid, J. S. C. (Hillhead)

    Winterton, Rt. Hon. Earl

    Hume, Sir G. H.

    Reid, W. Allan (Derby)

    Wise, A. R.

    Hunter, T.

    Remer, J. R.

    Womersley, Sir W. J.

    James, Wing-Commander A. W. H.

    Rickards, G. W. (Skipton)

    Wood, Hon. C. I. C.

    Joel, D. J. B.

    Roberts, W. (Cumberland, N.)

    Wright, Squadron-Leader J. A. C.

    Jones, Sir H. Haydn (Merioneth)

    Robinson, J. R. (Blackpool)

    Jones, L. (Swansea W.)

    Ross Taylor, W. (Woodbridge)

    TELLERS FOR THE AYES.—

    Keeling, E. H.

    Rothschild, J. A. de

    Captain Dugdale and Captain

    Waterhouse.

    NOES.

    Adams, D. (Consett)

    Cripps, Hon. Sir Stafford

    Henderson, A. (Kingswinford)

    Adamson, W. M.

    Daggar, G.

    Henderson, J. (Ardwick)

    Alexander, Rt. Hon. A. V. (H'lsbr.)

    Dalton, H.

    Henderson, T. (Tradeston)

    Anderson, F. (Whitehaven)

    Davies, S. O. (Merthyr)

    Jagger, J.

    Banfield, J. W.

    Day, H.

    Jenkins, Sir W. (Neath)

    Barnes, A. J.

    Ede, J. C.

    Johnston, Rt. Hon. T.

    Barr, J.

    Edwards, Sir C. (Bedwellty)

    Jonas, A. C. (Shipley)

    Batey, J.

    Fletcher, Lt.-Comdr. R. T. H.

    Jones, Morgan (Caerphilly)

    Bellenger, F. J.

    Frankel, D.

    Kelly, W. T.

    Benn, Rt. Hon. W. W.

    Gallacher, W.

    Konnedy, Rt. Hon. T.

    Bevan, A.

    Gardner, B. W.

    Kirby, B. V.

    Broad, F. A.

    Garro Jones, G. M.

    Lansbury, Rt. Hon. G.

    Brown, C. (Mansfield)

    Gibson, R. (Greenock)

    Lathan, G.

    Buchanan, G.

    Graham, D. M. (Hamilton)

    Lawson, J. J.

    Cape, T.

    Green, W. H. (Deptford)

    Leach, W.

    Chater, D.

    Greenwood, Rt. Hon. A.

    Leslie, J. R.

    Cluse, W. S.

    Grenfell, D. R.

    Logan, D. G.

    Cocks, F. S.

    Griffiths, J. (Llanelly)

    McEntee, V. La T.

    Cove, W. G.

    Hall, J. H. (Whitechapel)

    McGhee, H. G.

    978

    979

    MacLaren, A.

    Richards, R. (Wrexham)

    Strauss, G. R. (Lambeth, N.)

    Maclean, N.

    Riley, B.

    Taylor, R. J. (Morpeth)

    MacNeill, Weir, L.

    Ritson, J,

    Thurtle, E.

    Maxton, J.

    Roberts, Rt. Hon. F. O. (W. Brom.)

    Tinker, J. J.

    Messer, F.

    Robinson, W. A. (St. Helens)

    Viant, S. P.

    Morrison, Rt. Hon. H. (Hackney, S.)

    Rowson, G.

    Watson, W. McL.

    Morrison, R. C. (Tottenham, N.)

    Sexton, T. M.

    Welsh, J. C.

    Muff, G.

    Shinwell, E.

    Whiteley, W. (Blaydon)

    Nathan, Colonel H. L.

    Silkin, L.

    Williams, D. (Swansea, E.)

    Noel-Baker, P. J.

    Simpson, F. B.

    Windsor, W. (Hull, C.)

    Oliver, G. H.

    Smith, Ben (Rotherhithe)

    Woods, G. S. (Finsbury)

    Parker, J.

    Smith, E. (Stoke)

    Pethick-Lawrence, Rt. Hon. F. W.

    Sorensen, R. W.

    TELLERS FOR THE NOES.—

    Pritt, D. N.

    Stephen, C.

    Mr. Groves and Mr. Mathers.

    Quibell, D. J. K.

    Stewart, W. J. (H'ght'n-le-Sp'ng)

    Question, "That this House do now adjourn," put, and agreed to.

    Resolution to be reported To-morrow.
    Committee to sit again To-morrow.
    The remaining Orders were read, and postponed.

  BRITISH BROADCASTING CORPORATION.
  Motion made, and Question proposed, "That this House do now adjourn."—[Captain Margesson.]
  11.12 p.m.
  Mr. G. Strauss: I desire to raise a matter of some public importance in connection with the position of the staff employed by the British Broadcasting Corporation, and, particularly, the apparent hostility of the directors of the B.B.C. to trade unions when those trade unions are exercising their normal functions among the staff of the B.B.C. I think that it is true to say that right from the very beginning there has been a considerable amount of dissatisfaction among the entire staff of the B.B.C. in regard to the facilities provided for them to make complaints or to convey their feelings on staff matters to those in control. It was, therefore, natural and right, that, when the committee known as the Ullswater Committee considered the whole constitution of the B.B.C., they reviewed this matter and made certain recommendations. Those recommendations, which were reported in February of last year, were that there should be external unions or internal associations, possibly both, and the only comment which the Ullswater Committee made on those two possible forms of representation was that they did not see that the external unions would afford a comprehensive solution of the problem of staff representation.
  In June of last year the Government made a statement to the effect that the
  980
  B.B.C. had undertaken to provide all facilities for staff associations. Shortly after that a new officer was appointed—a Mr. Pim, Director of Staff Administration—but from that day to this, as far as I know, no steps have been taken by the B.B.C. Director of Staff Administration or anybody else to provide facilities for staff representation. No pronouncement was made by the Government in regard to trade union facilities among the staff of the B.B.C., and, indeed, as far as I can tell, the B.B.C. has shown itself definitely hostile to the trade unions. They have denied to the trade unions opportunities which they receive from local authorities, Government Departments, and most responsible employers, and, by that cold-shouldering of trade unions, they have given the staff to understand, rightly or wrongly, that they would not appreciate the action of those members of the staff who desire to join trade unions. There is ample evidence for that statement. I have here considerable correspondence from the organisers of various trade unions with the B.B.C., and I should like to read two or three short extracts showing the attitude of the Director-General of the B.B.C. to trade unions. Here is a letter from the Organising Secretary of the Association of Women Clerks and Secretaries to the B.B.C. in March of last year. This request was made:
  "It is customary for Government Departments, local authorities, and other responsible authorities to give facilities for us to enable us to maintain and establish contacts with their staffs, and I feel sure your Corporation will be prepared to accept this practice and permit us to hold a meeting as suggested."
  The answer was:
  "It is definitely not our policy to allow access in the trade union sense, as that would imply a departure from our principle of nondiscrimination between staff who belong to a union and staff who do not."
  Later, this further request was made from the secretary of the same trade union:

  981
  "Our members would like to place before their colleagues a statement of the position in regard to the organisation in the form of a leaflet, a draft copy of which I am enclosing. I shall be glad to have confirmation from you that there will he no objection to the action they propose to take."
  The reply was:
  "I am sorry that we cannot give the confirmation you ask for, as by doing so we consider that both a precedent and a privilege would be established."
  From the organising secretary of the association I received a letter in regard to this and other correspondence which I have not time to quote in full:
  "We have, for some time past, been attempting to organise the women clerical staff in the B.B.C. and we have found the official attitude very unhelpful, if not definitely hostile."
  Early this year, the Electrical Trades Union wrote as follows:
  "Although we have a number of members there they are very timid at letting the establishment know that they are members of a trade union."
  The organising secretary of the National Union of Printing, Bookbinding and Paperworkers writes to me as follows:
  "I requested that facilities might be granted to hold a meeting of the workers concerned inside the establishment outside working hours, but this was definitely refused."
  The Engineering Trades Union officers stated to me that none of the ordinary facilities were provided for approaching members of the staff who were connected with the union, that numbers of the staff were frightened to belong to a trade union, and that the B.B.C. authorities refused to set up any machinery which would in effect recognise the trade unions.
  It is perfectly true that the trade union officials have on occasion discussed with the British Broadcasting Corporation certain matters in regard to remuneration and the conditions of work of members who might be in their union, and on some occasions the discussions have been quite amicable; but my point is that the British Broadcasting Corporation refuse to grant the ordinary rights of trade unions for organising membership, rights which are not special but are granted by, I think almost without exception, every public body, local authorities, Government Departments and responsible employers. That is the right of a trade union organiser to go into the premises
  982
  of a Government Department or a local authority after office hours, with, of course, the permission of the manager, and talk to the employés and ask if they desire to join a trade union and put before them the advantages of joining a trade union. That facility has been denied to trade unions who have approached the B.B.C. If Government Departments, which are more or less under the direct control of public representatives, and under the control of this House, grant this facility, it is all the more important that the B.B.C., a body which is much more indirectly under public control, should allow its staff to join trade unions without fear of victimisation. Moreover, it is important that trade unions should be allowed the same facility there as they are in other places. I am not sure how far the Postmaster-General is sympathetic to trade unions in this matter. I put a question on 3rd May to this effect:
  "whether the British Broadcasting Corporation have yet taken any steps to implement the recommendation of the Ullswater Committee that trade unions should he permitted to organise eligible employés of the corporation, in view of the fact that many grades of employés are at present not working under trade union conditions?"
  In his reply, the Postmaster-General said:
  "I am not aware that everybody is compelled to accept the policy of the Labour party."—[OFFICIAL REPORT, 3rd May, 1937; cols. 778–9, Vol 323.]
  I do not know what he meant by that, and whether he views trade unions with hostility, but I suggest that it is a most unsatisfactory state of affairs, in regard to the higher-paid members of the B.B.C. who have had no facilities after a year and a quarter since the publication of the Ullswater Committee's Report to form a staff representation. It is most unsatisfactory that the trade unions should be met with a blank wall of hostility, and that the established rights of trade unions recognised by other bodies should be refused by the B.B.C Whatever the reason, whether it is the autocratic and domineering personality of the Director-General, it is unsatisfactory and would not have the support of hon. Members in any part of the House. The matter should be carefully investigated and remedied at the earliest possible moment by the Postmaster-General.
  11.24 p.m.
  The Postmaster-General (Major Tryon): I am glad that the hon. Member, who has been anxious to raise this matter for a long time, has at last had his opportunity. I cannot accept his statement that there is general dissatisfaction throughout the whole staff of the British Broadcasting Corporation, nor his statement that there is any definite hostility towards trade unions. That is, to put it mildly, an exaggeration. The hon. Member has confused two things. In the question put to me he appeared to allude to outside trade unions, and suggested that the Ullswater Committee thought that that was a solution of the difficulty. As a matter of fact, the Ullswater Committee's report did not justify the wording of the hon. Member's question. The Ullswater Committee said that staff representation might take one of two forms—the intervention of external trade unions or the constitution of one or more internal associations. These are two different things. The Ullswater Committee pointed out a fact which the hon. Member has, I think, rather ignored in his apparently simple solution of this difficulty. They pointed out he fact that on the British Broadcasting Corporation there is a great diversity of occupations—musicians, entertainers, novelists, journalists, office staff, house staff, and so on. The work is specialised, and as a rule there are very few workers or staff in any one of these particular sub-divisions of the work. The Ullswater Committee went on to say:
  "For these reasons, it is difficult to foresee any comprehensive solution on the lines of the first alternative."
  The Committee did not recommend the solution which the hon. Member is trying to force on the B.B.C. on the strength of a Committee which did not recommend it. With reference to the second solution, that is, internal staff associations, the Committee said:
  "We think that the Corporation should make it clear that they will provide all necessary facilities for any representative organisation, whether a single staff association or smaller bodies, or representatives of appropriate groups"
  The Government accepted that recommendation and said so in a White Paper, and the B.B.C. have agreed to adopt it. In view of the fact that the B.B.C. have agreed to adopt this recommendation, it
  984
  seems to me very unfair to the B.B.C. to suggest that they are hostile to a solution which they have agreed to accept.
  Mr. Kennedy: Are we to understand that no difficulty will arise in respect of any section of the staff, including those described by the right hon. and gallant Gentleman, desiring to join what are called external associations?
  Major Tryon: Not only would there be no difficulty, but many belong to them now. My point was about the way in which the B.B.C. were to solve the very difficult internal problem of staff representation when so many different occupations were involved. As the hon. Member pointed out, the Corporation appointed a new individual to go into the matter. He was a man having great experience of these affairs, and he reported to the B.B.C. last February. Following the Paper issued by the Prime Minister in connection with a recent very celebrated case, the Corporation decided to seek the advice of the Treasury in this matter on the strength of the Prime Minister's statement that the experience of the Civil Service was available to them when they wanted advice, and the Treasury suggested that it should be studied by a small committee, and that is being done now. It is not true to suggest, therefore, that nothing has been done.
  The committee consists of Sir James Rae, of the Treasury, Mr. Bowen, late general secretary of the Union of Post Office Workers, and Mr. Darbyshire, establishment officer of the London Midland and Scottish Railway. In this extremely difficult and complicated matter the British Broadcasting Corporation are definitely in favour of setting up one or more associations, but until this committee, which has very able and experienced people on it, reports, it is not fair to blame the British Broadcasting Corporation for not taking action when they have sought this extremely valuable advice. With reference to the question of outside trade unions, the Leader of the Opposition asked whether the British Broadcasting Corporation was willing to meet representative members of trade unions with regard to their grievances. The answer is "Yes." Moreover, a number of the employés of the corporation do belong to trade unions at the present moment. Therefore, I submit, first, that

  985
  it is not accurate to suggest that the British Broadcasting Corporation is hostile to setting up staff associations, seeing that it has sought valuable advice with regard to doing so. Secondly, it is not fair to say that the British Broadcasting Corporation is hostile to trade unions, seeing that its staff are allowed to belong to trade unions.
  Mr. Kennedy: My hon. Friend has produced indications which show differently.
  Major Tryon: The hon. Member has not produced any cases beyond quoting certain letters of which I got no notice whatever. I think it is only fair, when they say they are willing to do a thing and have set up a committee to go into it, to assume that they are perfectly honourable
  986
  in their statement that they are willing to do the thing. It is only fair to assume that they are willing to carry out the recommendations of the committee.
  Mr. G. Strauss: Will they give the same facilities as those which are given by other Government Departments and local authorities to trade union organisers to go on the premises?
  Major Tryon: I have described the opportunities which they give.
  Adjourned accordingly at Twenty-nine Minutes after Eleven o'Clock.

  ROYAL NAVY (ARTIFICER APPRENTICES).
  ROYAL NAVY (ARTIFICER APPRENTICES).
  INLAND REVENUE DEPARTMENT (NEW ENTRANTS, PAY).
  INLAND REVENUE DEPARTMENT (NEW ENTRANTS, PAY).
  NATIONAL DEFENCE CONTRIBUTION.
  NATIONAL DEFENCE CONTRIBUTION.
  PUBLIC ASSISTANCE (STATISTICS).
  PUBLIC ASSISTANCE (STATISTICS).
EDUCATION.
  LEICESTER.
  LEICESTER.
  LINCOLN.
  LINCOLN.
Preamble
The House met at a quarter past four of the clock, The LORD CHANCELLOR on the Woolsack.
SHOREHAM HARBOUR BILL. [H.L.]
Read 3a, and passed, and sent to the Commons.
WHITEHAVEN HARBOUR BILL. [H.L.]
Read 3a, and passed, and sent to the Commons.
RICHMOND (SURREY) CORPORATION BILL.
Read 3a, with the Amendments, and passed, and returned to the Commons.
LONDON, MIDLAND AND SCOTTISH RAILWAY BILL.
Read 3a, with the Amendments, and passed, and returned to the Commons.

MARRIAGES PROVISIONAL ORDERS BILL.
Order of the Day for the Second Reading read.
THE EARL OF MUNSTER: My Lords, the object of this small Bill is to confirm three Provisional Orders made by the Secretary of State under the Marriages Validity (Provisional Orders) Acts, 1905 to 1924. In the first case the question as to the validity of the marriage arises from the fact that it was solemnised by a minister who was not an authorised person. In the other two cases the doubt arises from the status of the building in which the marriages took place. The Orders to be confirmed by the Bill are therefore of the normal type of Marriage Provisional Order. As the House will be aware, the Orders have no effect until they have been confirmed by Parliament. I beg to move.
Moved, That the Bill be now read 2a.—(The Earl of Munster.)
On Question Bill read 2a, and committed.

MINISTERS OF THE CROWN BILL.
Order of the Day for the House to be put into Committee read.
Moved, That the House do now resolve itself into Committee.—(The Lord Chancellor.)
On Question, Motion agreed to.
House in Committee accordingly:
[The EARL OF ONSLOW in the Chair].
Clauses 1 to 3 agreed to.
Clause 4:
Salary of Prime Minister and First Lord of the Treasury and pensions to persons who have been Prime Minister.
4.—(1) There shall be paid to the person who is Prime Minister and First Lord of the Treasury an annual salary of ten thousand pounds.
(2) Any person who, whether before or after the passing of this Act, has been Prime Minister and has as First Lord of the Treasury taken the official oath prescribed by Section five of the Promissory Oaths Act, 1868, shall he entitled to a pension of two thousand pounds a year:
Provided that no pension shall be payable under this subsection to any person so long as he is in receipt of any pension under the Political Offices Pension Act, 1869, or any salary payable out of moneys provided by Parliament, the revenues of the Duchy of Lancaster or the Consolidated Fund of the United Kingdom.
THE MARQUESS OF SALISBURY THE MARQUESS OF SALISBURY moved, in subsection (1), to leave out "and First Lord of the Treasury." The noble Marquess said: I rise to move an Amendment of a very simple kind, which arises out of the debate which took place in your Lordships' House upon the Second Reading. There is a provision in Clause 4 that if the Prime Minister is to receive the full benefit of the increased salary which the Bill provides, then he must be not only Prime Minister but First Lord of the Treasury, and many of your Lordships, when the Bill was before the House on the Second Reading, were very much astonished at this proposal. At first some of us, who were unduly suspicious I am afraid, thought it was a subtle method of excluding the possibility that the Prime Minister should sit in your Lordships' House. I frankly confess that the Lord Chancellor finally dealt with that particular case, because he showed by abundant precedents that there had been Prime Ministers in your Lordships' House who had also been First Lords of the Treasury.
We were very much impressed by that answer, but then we were left completely bewildered as to why the change was being proposed. Why henceforth should there be an effort to tie the office of Prime Minister to the office of First Lord of the Treasury? On the spur of the moment I ventured to ask the Lord Chancellor for what reason the Government had inserted this provision. His answer was that after all the Prime Minister had generally been First Lord of the Treasury, to which of course the reply is that if that has been so all the time why make any change?—it can continue to be so. There is no reason in the world why in this new Bill there Should be an effort to tie the two offices together. Then the noble and learned Viscount went on to say that the Junior Lords of the Treasury were Whips and therefore the Minister to whom they were immediately responsible ought to be at the head of the Treasury. That was exalting a fiction in our Constitution to a degree almost unknown to Englishmen who delight in fictions. Everybody knows that the Lords of the Treasury, the Whips in the House of Commons, have no more to do with the Treasury, officially, than they have to do with the Woolsack upon which the noble and learned Viscount generally sits. The Lords of the Treasury are only connected with the Treasury because that is one of the fictions which have grown up. They have one connection—they are paid by the Treasury—but that is the case with a great many other officers of the Crown. They have not even formal duties, as far as I know, connected with the Treasury.
The Lord Chancellor suggested that because of this time-honoured fiction that was a good reason why the Prime Minister, who is their immediate superior, should also nominally belong to the Treasury. In his case also the connection with the Treasury is very little more than nominal. We were, indeed, left completely at a loss to understand why this was done. We are driven to the conclusion that there must be some other subtle reason not revealed to your Lordships' House which led to this proposal, and I invite the Lord Chancellor to make a further explanation. Let me say that it is inconvenient and, if I may respectfully say so, a mistake to make these changes without due reason,
678
because it is very easy to conceive, in the formation of a Government hereafter, that this provision will be found to be very inconvenient. I have never had anything to do with the formation of a Government, and my noble friend Lord Baldwin, whose advent to your Lordships' House we have all welcomed with enthusiasm, is not here to enlighten us. But it is quite conceivable that if it became necessary for the Prime Minister to be also First Lord of the Treasury a difficulty might arise in the formation of a Government.
We are conceiving the case which underlies the whole hypothesis, that we are wanting a Prime Minister in your Lordships' House. Supposing it was convenient for the public service that the Prime Minister should sit in your Lordships' House, and this Bill passed into law, he would have to be First Lord of the Treasury or he would lose £5,000 a year, which would be very hard on him. He would therefore have to be First Lord of the Treasury. Then the House of Commons might say: "If you are going to take the First Lord of the Treasury and put him in the Upper House, we shall want some other Minister in the House of Commons to make good the deficiency which there will be in our ranks." Everybody knows the pressure there is on a Prime Minister to give as many places in the House of Commons as he possibly can and for very good reason, because there is a number of men of great capacity and legitimate ambition who desire to serve on the Front Bench.
There is always pressure on the Prime Minister of the day, and those responsible for forming a Government at that time might feel compelled to make good the loss of the First Lord of the Treasury, which office would, on the hypothesis, be in your Lordships' House. But that might be very inconvenient. It might be that you want, let us say, the Lord President or the Lord Privy Seal also to sit in the House of Lords. It might be that there was a very eloquent speaker who, by his age or infirmity, was not suitable for departmental work and who might be wanted as Lord President in your Lordships' House. It would be quite easy, I am sure, for anybody of the ingenuity of my noble and learned friend to conceive all sorts of cases where such a provision might be inconvenient. Why

679
then hamper the Governments of the future and force them to have their First Lord of the Treasury in this House supposing the Prime Minister were to be a Peer? The point is not of vast importance, but I suggest to your Lordships that there is no particular reason for this provision and, therefore, subject to whatever the Lord Chancellor may have to say, it would be wiser to strike this particular provision out of the Bill.
Amendment moved—
Page 3, line 30, leave out ("and First Lord of the Treasury").—(The Marquess of Salisbury.)
THE MARQUESS OF CREWE: Before the noble and learned Viscount replies, perhaps I might be allowed to ask for a little more information on the subject. Without attempting to adopt all the arguments that were used by the noble Marquess, I confess I do not comprehend what the precise necessity is for binding future Parliaments, in so far as future Parliaments can be bound by this Parliament, to a special connection between the Prime Ministership and the First Lordship of the Treasury. How far the noble Marquess is correct in assuming that one principal purpose of this provision is to prevent any member of your Lordships' House becoming Prime Minister, I do not feel certain. I see that it is most improbable in the immediate future that such a change in the custom which has prevailed now for a considerable number of years, whereby the Prime Minister sits in another place, is likely to be made. But I can quite conceive that it might be. I pass my eye over the now unoccupied Front Opposition Bench, and if in the future it should so happen that the result of a General Election placed a Socialist Government in power as the Party having the largest number of members in another place, I cannot conceive that a more appropriate or acceptable Prime Minister of that Party could be found than the noble Lord who leads the Opposition here. It seems to me that he would fulfil all the necessary conditions for an occupant of that position, without any disparagement of any of his colleagues here or elsewhere, far better than any other member of that Party.
I do not know how far it is presumed to be the purpose of this measure that
680
your Lordships' House should be placed in the position that no noble Lord can possibly become Prime Minister. That is a point on which my noble and learned friend will no doubt inform us. My main point is that I cannot see the purpose of so rigidly tying down the choice, in the first place, of the Party and, secondly, of the Sovereign of that time, by making an absolutely rigid provision that the Prime Minister must also be First Lord of the Treasury. I have no doubt the noble and learned Viscount will be able to give a complete if not, to me at least, an entirely satisfactory reply.
THE LORD CHANCELLOR (VISCOUNT HAILSHAM): I am afraid the noble Marquess opposite had not possibly the opportunity of hearing or reading what I had to say on Second Reading.
THE MARQUESS OF CREWE: May I explain that, although I was unfortunately presented from being present at the Second Reading, I read the whole Report of the debate in the OFFICIAL REPORT?
THE LORD CHANCELLOR: Then I am afraid I did not make myself sufficiently clear on Second Reading, because I dealt elaborately with this point about the difficulty, or supposed difficulty, of a member of this House becoming Prime Minister, and I pointed out that every Prime Minister who had ever sat in this House for the last century and a quarter, with one exception, had always been First Lord of the Treasury. Therefore, I do not think that the fact that the Bill requires the Prime Minister to become First Lord of the Treasury does present any obstacle to any member of your Lordships' House becoming Prime Minister. From 1812, the date of Lord Liverpool, down to 1894 the date of Lord Rosebery, every Prime Minister who sat in this House, and every Prime Minister who sat in either House, with one exception, and that was Lord Salisbury in 1887, was always First Lord Such statesmen as the Duke of Wellington, Lord Melbourne, Lord Beaconsfield, Lord Grey, Lord Russell, Lord Derby, Lord Aberdeen and others have all been First Lords of the Treasury. I hope, therefore, that that dispels any suggestion that this is a subtle device to defeat the possibility of a member of your Lordships' House from becoming Prime Minister. I may say that if I had thought there was any such possibility I should be

681
in favour of my noble friend's Amendment, but I hope that I have sufficiently disposed of that possibility.
Then the question was put to me: Why change? There really is no change, because you are in fact stereotyping what has been practically an invariable custom for all this time since 1812. There is the one exception when my noble friend's father was Foreign Secretary and Mr. W. H. Smith was First Lord. I have been at some little pains since the debate on Second Reading to ascertain how that came about, and I have found an account in Lady Gwendolen's Life of Lord Salisbury, and also an account in Lord Salisbury's own hand in a letter written to Lord Cranbrook, which is published in the latter's Life at page 273. Your Lordships will remember that in 1886 Lord Randolph Churchill, who was Chancellor of the Exchequer, resigned his office. Thereupon the Government was put, probably, in a little difficulty, but Lord Salisbury invited Mr. Goschen, as he then was, to become Chancellor of the Exchequer. Mr. Goschen accepted that invitation, and became a very successful Chancellor of the Exchequer.
At the beginning of 1887 Mr. Goschen was unwilling to abandon the title of Liberal, which I am sure the noble Marquess will sympathise with, and when Mr. Goschen accepted the invitation to become Chancellor of the Exchequer, he was not able to become Leader of the House in another place because he was not a Conservative, and there was a Conservative majority there. Therefore, Lord Salisbury had to find somebody else to lead the House, and he pitched upon Mr. W. H. Smith, who was then Secretary of State for War; but it was not possible, or it was not thought possible, for any one to be head of a great administrative office such as the War Office, and at the same time efficiently to lead the House of Commons, and accordingly Lord Salisbury had to find for Mr. W. H. Smith another post instead of that of Secretary of State for War. Lord Salisbury records that "I gave him my office," that is to say, the office of First Lord, in order that he might have a sinecure post, and Lord Salisbury took the Foreign Office because he had to have an office as being Prime Minister and a member of the Government. So that, so far from it being thought desirable by Lord Salisbury that the Prime Minister should be somebody
682
other than the First Lord, or that the Foreign Secretary should be Prime Minister, what happened was that Lord Salisbury was perforce compelled to take the Foreign Secretaryship because he had to give up his office to Mr. W. H. Smith.
That is recorded in the letter which was written by Lord Salisbury to Lord Cranbrook on the l0th January, 1887, a letter in which he, incidentally, invited Lord Cranbrook to become a member of the Administration. This is what he says:
"I am sorry to say I have wholly failed to induce Iddesleigh to join the Government in any other capacity than as Foreign Secretary, and from that office the inclusion of Goschen necessarily excludes him. For Goschen will not be Leader, therefore Smith must. Smith cannot work War Office and Leadership together; therefore he must have my office "—
that is that of First Lord—
"I cannot be left without an office, therefore I mast go to the Foreign Office."
Then he goes on to deal with other matters. That explains exactly how it came about that Lord Salisbury was not First Lord of the Treasury during his later Administration. I think really that that exception proves the rule, which is an instance of exceptio probat regulam, because so far from the Prime Minister, Lord Salisbury, desiring not to be First Lord, he was compelled, at great inconvenience apparently, and obviously from this reference to Lord Iddesleigh, to take the Foreign Office, because he had to hand over the First Lordship to Mr. W. H. Smith.
Somebody may say: "Why should not that state of affairs happen again? Why should not another Prime Minister, in this House, find it necessary to find a sinecure office for a Leader of the other place?" I think the answer is that nowadays it is quite commonly the case that the Lord President or the Lord Privy Seal is in another place. Mr. J. H. Thomas was Lord Privy Seal, and both Mr. Baldwin and Mr. MacDonald were successively Lord President of the Council in another place. Therefore there would not be the necessity for handing over the traditional office of the Prime Minister to the Leader of the House of Commons by reason of the necessity of finding a sinecure office for the Leader of the House of Commons. When my noble friend Lord Salisbury says that the House of Commons would very likely resent the absence of the First Lord of the Treasury from their ranks, I

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think they would be much more likely to resent the absence of the Prime Minister from their ranks. I do not think it would worry them as to whether the First Lord of the Treasury was in this House.
THE MARQUESS OF SALISBURY: The point is they would have one less office with which to reward the services of members of the House of Commons than they otherwise would have if the First Lord of the Treasury passed into this House. The only way to counteract that would be to take one of the offices (which is in this House otherwise) and to let it go to the House of Commons, but that might be very inconvenient because of the particular nature of the office in question. In other words, it would hamper the Prime Minister of the day, and force him to make a decision which is quite unnecessary, and which he could perfectly well do without.
THE LORD CHANCELLOR: The division of offices under this Bill does not provide for a separate office of First Lord in the Schedule. What is provided in Part I of the Schedule is that there shall be seventeen officers of the first rank, of which not more than fifteen shall be in another place, the others being available for this place. That would remain whoever was Prime Minister. I am rather inclined to say to my noble friend, instead of "Why change?", "Why not change?" Because we are merely doing in this Bill what has been the invariable custom, with one exception, which, as I have pointed out, rather reinforces the invariable rule which has prevailed for 120 years. In fact it has practically prevailed for a great deal longer.
In the old days the Lord High Treasurer was constantly the confidential adviser of His Majesty. The first Lord Salisbury was Lord High Treasurer in the reign of James I. I cannot say that the Lord High Treasurer was always the confidential adviser of His Majesty because in those days the Sovereign looked far more for some person friendly to himself than for a person who was the best person from the public point of view, but generally the Lord High Treasurer was the confidential head of the Government, the Prime Minister so far as there was one. After the reign of Queen Anne the office of Lord High Treasurer ceased to exist and from the reign of George I there
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were always Lords Commissioners of the Treasury. From the time of Robert Walpole, at any rate, the First Lord was practically always Prime Minister. I think there were two or three instances in the middle of the eighteenth century which were the only cases in which it was otherwise. So you really have an almost continuous record, from the time when the First Lord of the Treasury existed as an office, of its being the office of the Prime Minister.
But I do not put it merely as a matter of custom. There is a very good reason, as I think and as the Government think, for the custom having grown up and for the custom being perpetuated. The reason why the First Lord has practically always been Prime Minister is that the Treasury is not merely a financial body. I pointed out last time that of the seven Lords of the Treasury there are five who are Whips in another place. One of them is Chancellor, who is Minister of Finance and head of the Treasury in its financial aspect, and one is First Lord of the Treasury, who is head of the Treasury in what I may call its administrative aspect. While the Prime Minister is the head of the Administration and the person who co-ordinates the different Ministers under him, so the Treasury is at this moment the co-ordinating body among the permanent Ministries. It would be very inconvenient if the Treasury, as the coordinating body, was not ruled over by the First Lord who was also the co-ordinating Minister.
In the Report of the joint Select Committee on India—I think this was not a controversial portion of the Report—there is a statement about the Civil Service as it exists and is known in this country. This is what the Report says:
"Even the Cabinet has come to exercise only a very limited control over the Service,"—
that is, the Civil Service—
"control being left very largely to the Prime Minister as, so to speak, the personal adviser of the Crown, in regard to all Service matters."
So it is recognised in that Report that the Prime Minister is the person who is effectively the head of the Civil Service and the person who recommends to His Majesty, to the Crown, what is to be done about the Civil Service. In exercising these duties the Prime Minister is necessarily advised by the Permanent

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Secretary to the Treasury, who is regarded as head of the Civil Service in its official ranks, and it would be very inconvenient if the Permanent Secretary to the Treasury in advising the Prime Minister was not advising his own chief, the First Lord of the Treasury, or to put it another way, if the First Lord of the Treasury received advice from the Permanent Secretary and the Prime Minister was to the person to whom the advice normally should go.
On these grounds we think that this custom, which has grown up and has obtained for two and a half centuries and has been practically invariable for one and a quarter centuries, should be perpetuated. It has to be remembered that when this Bill has been passed the Prime Minister has necessarily to be linked up with some office. We think that it is far better that he should be linked up to the office to which the Prime Minister has been attached almost invariably for one and a quarter centuries, with the one exception which, as I have pointed out, is really an illustration of, rather than an exception to, the rule.
VISCOUNT MERSEY: May I ask whether Lord Salisbury was not twice Prime Minister without being First Lord of the Treasury? I am inclined to think that in 1900 he was not First Lord but that Mr. Balfour, as Leader in the House of Commons, was First Lord of the Treasury. Lord Salisbury sat in this House as Lord Privy Seal, I think, but at any rate not as First Lord. That is a second occasion. It seems to me that one position which might arise is that the House of Commons might not unreasonably say: "We wish to have the First Lord of the Treasury, the controller of the purse, in this House." Is not that a possible position?
Then there is another point I would like to mention. There was a very good reason for the instance which the noble and learned Viscount quoted. Had Lord Salisbury taken one of the sinecure offices—I hesitate to call them sinecures, but one of the offices occasionally referred to in the Press as sinecures—he would have received a very much smaller salary. If he had been President of the Council or Keeper of the Privy Seal—those were the original titles, "Lord" only being correctly added when the holder sat in this House—he would have been upon a lower
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level as regards salary than any other member of the Cabinet. But under this Bill he would have received the same salary as his colleagues. It seems to me that that is a very good answer to the suggestion that it would be difficult for the office of First Lord not to be associated with the office of Prime Minister. Moreover, it was only in 1909 or thereabouts—as a matter of fact I think it was earlier, in the time of Sir Henry Campbell-Bannerman—that the office of Prime Minister was first recognised. Officially we had no such office before. I do not know if the Government could answer that point.
VISCOUNT BERTIE OF THAME: I cannot see any harm in accepting the noble Marquess's Amendment. Why should we bolt and bar the door for ever to a Prime Minister sitting in this House, simply because there has only been one instance in the last forty or fifty years?—which was a very good instance indeed. One of the charms of the Constitution is its elasticity, and you are trying to do away with that by not accepting the noble Marquess's Amendment.
THE MARQUESS OF SALISBURY: I do not know whether your Lordships will allow me to add one word to the debate. I am very glad my noble and learned friend the Lord Chancellor has given a much fuller statement of the reasons why the Government were led to put this provision in. It appears that the provision was inserted not, or not principally, because the Lords of the Treasury hold the office of Whips in the House of Commons, but because of the position, as the noble and learned Viscount said, of the Treasury in the Civil Service. He read an extract from the Report of a Select Committee, which found what we may most readily accept: that the Prime Minister himself controls the Civil Service. Undoubtedly he does, but that finding does not carry with it the additional conclusion that the Treasury controls the Civil Service. Your Lordships may believe me when I say that the Treasury have been making a strong effort for many years to assume control of the rest of the Civil Service. We have all witnessed that process. I do not think it was welcomed by the rest of the Civil Service. I doubt very much whether the other offices under the Crown would be glad to think that they were

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controlled by the Treasury. They are controlled in the sense that most of the things which they recommend have to be paid for and the Treasury provides the money; in that sense they are controlled. But the hegemony of the leadership of the Treasury over the other offices, and that of the permanent head of the Treasury over the other services, has never been really admitted.
I need not say that on a question of this kind I do not desire to press an Amendment polemically, but I suggest to the Government that they should consider this point. At the debate on the Second Reading there did not appear to be any reason worth mentioning why the change should be made, but I suspected what was the real reason, and what has now turned out to be the real reason: a new effort by the Treasury to get control of the rest of the Civil Service. That is undoubtedly what was really at the bottom of it. I have no secret information, my Lords; I am not indiscreet, but it is a conclusion which my own experience led me to draw. Is it wise, when we are really engaged upon supplementing the meagre pay of the Prime Minister and other Ministers for the immense work which they do for the country, to introduce by a sort of side-wind, by some dexterous suggestion to the draftsman, a few words in order to establish the Treasury as the head of the Civil Service? We should not have known it but for the speech of the noble and learned Viscount just now. He is, of course, much too candid a man to conceal from your Lordships what the real reason was. That is the real reason: this effort by the Treasury. I do not, of course, mean to press this Amendment to a Division at the present stage, but there is a further stage of the Bill, and between now and then perhaps the Government would consider the matter again.
I confess I should not think it was wise, even if I approved of this hegemony of the Treasury, to introduce it upon the back of a Bill which is designed for a totally different purpose. I very much hope that the Government will reconsider their decision. It is a great pity, and I think if they will consult the Civil Service they will find that it is not at all in favour of the hegemony of the Treasury. It would be far better not to introduce this
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very stormy topic during the passage of a Bill which is otherwise admirable. I would ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 4 agreed to.
Clause 5 [Salary of Leader of Opposition]:
VISCOUNT ULLSWATER: On Clause 5 I should like to say a word or two and to ask for a little enlightenment. I do not propose to raise the question of the principle of paying a salary to the Leader of the Opposition. I suppose it is only in England that such a thing as that could be done or could even be thought of. I have no particular objection to it on principle; it seems to me that the difficulty is in carrying it out. My recollection goes back to the time, twenty-two years ago, when the Coalition Government was formed. Who was then the Opposition? The Coalition Government was formed—I have refreshed my memory with the dates—on May 26, 1915; and who became then the Leader of the Opposition? My recollection is that there were two. Mr. Chaplin used to pose as the Leader of the Opposition, and the representative of the Liberals was Mr. Whitley. On alternate days these two gentlemen used to take charge of the Opposition. I find that on June 3, 1915, Mr. Chaplin was the Leader of the Opposition and asked the usual question as to what business was to be conducted in the House, and so forth. On June 7 Mr. Whitley was the Leader, and he asked the same question. On June 8, however, Mr. Chaplin took command, and he retained command on June 10, but on June 15 Mr. Whitley reappeared as the Leader and took charge. Two days later Mr. Chaplin reappeared.
AS far as my recollection goes, which is, I am afraid, rather unsteady after a lapse of twenty-two years, the office of Leader of the Opposition was what you might call in Commission, but the Parties represented by the two chiefs of the Opposition were entirely different Parties and were moved by entirely different feelings. Now suppose that a similar state of things were to recur, who is going to draw the £2,000 a year? Are they going to divide it between them, and are they going to divide the money proportionately to the number of their supporters? The Bill contains a definition of who is to be considered the Leader of the Opposition: the

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gentleman in the House of Commons who leads "the Party in opposition…having the greatest numerical strength" in that House. How is that greatest numerical strength to be ascertained, and what is to happen if the two sections of the Opposition are equal, and there is no numerical superiority? Who is to decide the question? Is it to be Mr. Speaker? If so, why not say that the Leader of the Opposition is to be the person whom Mr. Speaker considers to be, for the time being, the Leader of the Opposition? What if there is no Opposition? There will then be no salary, because there will be no Leader. What if the Opposition numbers eight or ten, or a mere handful? We have seen that happen. It is not suggested, I suppose, that the Leader of a Party, we will say about the size of the Fourth Party, is to receive a salary. Those seem to me to be some practical difficulties which arise, and if the noble and learned Viscount from the Woolsack can throw any light upon these questions, I am sure I shall be very glad to receive it.
THE LORD CHANCELLOR: The answer to some of the questions addressed to me by Lord Ullswater is to be found in the Bill. He asked who was to decide which Party had the greatest numerical strength, and was it to be Mr. Speaker. If he will look at Clause 10, subsection (3) he will find these words:
"If any doubt arises as to which is or was at any material time the Party in opposition to His Majesty's Government having the greatest numerical strength in the House of Commons, or as to who is or was at any material time the Leader in that House of such a Party, the question shall be decided for the purposes of this Act by the Speaker of the House of Commons, and his decision, certified in writing under his hand, shall be final and conclusive."
That affords an answer to some, at any rate, of the questions which have been put, and I think I can answer some of the others equally easily.
My noble friend asked me what would happen if there were to be no Opposition. I imagine that in that event there would be no Leader and no salary. I do not think that the Leader of a minority would be deprived of his salary by reason of the fact of his having only a very few followers. Probably, in some respects, his duties would be even more arduous and difficult if he had so tiny a following as the noble Lord suggests.
LORD SNELL: Hear, hear.
THE LORD CHANCELLOR: I think Lord Snell will recognise that there is truth in that. It is quite true there may be a difficulty in deciding exactly who shall be the Leader of the Opposition. We have done our best by Clause 10, subsection (3) to provide for that event, by asking the Speaker of the House of Commons to certify. If my noble friend asks me as to how the Speaker of the House of Commons finds out, he probably knows better than I do how the Speaker of the House of Commons finds out all sorts of things on which he has final authority in the House, and elsewhere.
VISCOUNT ULLSWATER: I am much obliged to the noble and learned Viscount. I certainly had overlooked that particular subsection. But I do remember now that there was another occasion when I was Speaker of the House of Commons when I was asked to decide who was to be Leader of the Opposition. I think it was at a much earlier date than the time I have mentioned, 1915. On that occasion I was in great difficulties. I think it was at a time when the Labour Party came in in very considerable numbers, and I had to decide whether the remnant of the Conservative Party or the new Labour Party were to he considered the Opposition. I exercised the wisdom of Solomon, and I said: "The only way is to divide it." For some little time exactly the same process was adopted as was followed in 1915, that is to say, the office was divided between the two. As far as my recollection goes, Mr. Adamson was then Leader of the Labour Party. He used to act as Leader of the Opposition for one day and on another day—I cannot remember now who it was, it is so long ago, but the Leader of the remnant of the Conservative Party so acted. I have no doubt the Speaker will give the best decision he can but I think he may be placed in a very awkward and difficult situation.
THE LORD CHANCELLOR: I may tell my noble friend that the present Speaker of the House of Commons was consulted about this clause before it was put into the Bill.
Clause 5 agreed to.
Remaining clauses agreed to.
Schedules agreed to.
Bill reported without amendment.
House adjourned at eight minutes past five o'clock.

WALTHAM HOLY CROSS URBAN DISTRICT COUNCIL BILL. [H.L.]
Returned from the Commons, agreed to, with Amendments: the said Amendments considered, and agreed to.

UCKFIELD ELECTRICITY ORDER, 1937.
Special Order to increase the capital and borrowing powers of the Uckfield Gas and Electricity Company:
Laid before the House (pursuant to Act) for affirmative Resolution and referred to the Special Orders Committee.

AMENDMENT OF THE SCOTTISH MILK MARKETING SCHEME, 1933.
Draft amendment of the Scottish Milk Marketing Scheme, 1933, made under subsection (11) of Section 1 and Part II of the First Schedule to the Agricultural Marketing Act, 1931, as amended by the Third Schedule to the Agricultural Marketing Act, 1933, with explanatory statement by the Secretary of State for Scotland:
Laid before the House (pursuant to Act) for affirmative Resolution and referred to the Special Orders Committee.