Sitting of 23 April 1947

Preamble
The House met at Half past Two o'Clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  GERMANY

    Nationalisation of Industry
    Mr. Bramallasked the Secretary of State for Foreign Affair what assurances were given to the French Government in connection with the Treaty Alliance, or at any other time, with regard to the policy of nationalising industry in the British zone of Germany.
    The Minister of State (Mr. McNeil): No special assurances have been given to the French Government in connection with the Treaty of Alliance, nor at any other time, concerning the policy of socialising industry in the British zone of Germany.
    Mr. Bramall: Can the right hon. Gentleman say whether the French Government have raised any objection to the policy announced by the Foreign Secretary in this House last October?
    Mr. McNeil: Without discrimination at all, without singling out any one Power, I think it fair to say that we have had representations from various angles from a number of Powers, and we naturally want to associate them with us in the carrying out of our policy.

    Food Situation
    Mr. Peter Freemanasked the Secretary of State for Foreign Affairs whether he will make a statement on the recent food demonstrations in Germany, giving the amount of food that was being received, irrespective of the rationed amounts to which the population is entitled.
    Mr. McNeil: I would refer my hon. Friend to the statement made by my hon. Friend the then Chancellor of the Duchy of Lancaster on 2nd April, in reply to Questions by my hon. Friends the Members for Ipswich (Mr. Stokes) and Bedford (Mr. Skeffington-Lodge).
    Mr. Freeman: Is the right hon. Gentleman aware that the reports of German conditions are so serious that they indicate that the people are not getting even as much as one thousand calories a day in some areas, and as a result them is a great increase in the number of accidents and many are collapsing in the streets and starving? Can he take all practical steps to prevent the Germans starving in this way?
    Mr. McNeil: I could not accept the rather sweeping statements made by my hon. Friend, but I can assure him that, since these occurrences, the matter has been urgently reviewed, and several steps to improve conditions and to prevent any recurrence are being taken.
    Major Guy Lloyd: Would the right hon. Gentleman be prepared to refute the impression in certain sections of the Press that these demonstrations were largely due to the inefficiency of the administration by the Germans themselves, whereas in fact it was a genuine famine hunger in Germany which was the real cause of the demonstrations?
    Mr. McNeil: I am afraid I could not completely accept that. The difficulties were more caused by distribution faults than by a scarcity of rations.
    Sir Waldron Smithers: Can the Minister say whether the shortage of food in Germany is due to misappropriation of foodstuffs by the Russians?
    Mr. Bramallasked the Secretary of State for Foreign Affairs why measures to remedy the food situation in the Ruhr and Rhineland were not taken before disturbances broke out in those areas.
    Mr. McNeil: Since my hon. Friend's Question on 3rd April, further information has been received. Full responsibility for the transport of food was in fact reassumed temporarily by Military Government before the time of the demonstrations, and a special programme for moving grain from the ports by rail had been put into operation by 22nd March, which was as soon as the weather permitted.

    Cotton Spinning
    Mr. William Shepherdasked the Secretary of State for Foreign Affairs the basis on which cotton yarn is being supplied to Lancashire from the British zone of Germany.
    Mr. McNeil: The limited quantity of yarn imported into the United Kingdom from the British zone of Germany has been spun from raw material supplied from this country. Charges for the processing are based on normal Lancashire rates for spinning.
    Mr. Shepherd: Are we to understand from that answer that merchants are to be allowed to handle this, or is it to be done through Government agents?
    Mr. McNeil: I would like notice of that question.

    Bread Grains (Sources)
    Mr. Vaneasked the Secretary of State for Foreign Affairs from what regions he intends to draw the imports of bread grains needed in the British zone of Germany during the coming year.
    Mr. McNeil: Supplies of bread grains for the combined British and American zones will be obtained from the most economical sources of supply available subject only to the clause in the fusion agreement which takes account of our dollar difficulties.
    Mr. Vane: Has the right hon. Gentleman any expectation of getting greater supplies from the Russian zone of Germany and other territories East of the Elbe, from which Germany got its grain before the war without any dollar difficulties?
    Mr. McNeil: The hon. Gentleman may be assured that wherever there is grain available at comparable prices in non-dollar areas, we will utilise those resources.

    Fertiliser Production
    Mr. Peter Freemanasked the Secretary of State for Foreign Affairs whether full use is being made of the three factories near Bielefeld in Germany for the supply of artificial manures and fertilisers; and whether they are capable of producing all of these products that are required for the whole of the British zone, in order that the greatest agricultural crops can be secured.
    Mr. McNeil: These factories are authorised to operate at maximum capacity, but shortages of coal, power, transport and repair facilities have restricted output. In full production, however, they would provide only 2 to 3 per cent. of the British zone's total requirements of super phosphate fertilisers.
    Mr. Freeman: Is the right hon. Gentleman aware that if these artificial manures and fertilisers were made available they could provide much more of their own food, and probably as much as a 50 per cent. increase in this year's crop of cereals and potatoes?
    Mr. McNeil: I am sure my hon. Friend is also aware that there is not a country in Eastern Europe whose needs for super phosphate fertilisers have been satisfied.

    Commission Staff (Language Test)
    Major Tufton Beamishasked the Secretary of State for Foreign Affairs if he will now make it compulsory for all employees of Control Commission for Germany in Germany to learn elementary German within one year of taking up their appointment and lay it down that those who fail to pass the elementary test within this period shall cease to be employed, while those who can pass a test of a much higher standard than the elementary one shall receive a small rise in pay or a cash bonus.
    Mr. McNeil: Arrangements are being considered under which members of the Control Commission in Germany will be encouraged to study the German language. It is not, however, proposed to institute a compulsory language test.
    Major Beamish: Why should they only be "encouraged" to learn it? Surely it ought to be compulsory? Is it the view of His Majesty's Government that you can administer a country without speaking the language of that country?
    Mr. McNeil: I am sure the hon. and gallant Gentleman will agree that there are many experts and highly qualified technicians whose services we must have. While it is true that if they had the capacity to speak and to read German, they would be more effective, nevertheless we could not possibly do without the services of those experts.
    Colonel Ropner: Is it not very much better that employees should be discouraged from talking German badly? Is it not much better to speak through an interpreter?
    Mr. McNeil: I am afraid I could hardly agree. It is desirable that as many as possible should have a familiarity with the German tongue.
    Professor Savory: Is it not unfortunate, in view of the large number of university graduates who have taken high honours in the German language, that so few members of the Control Commission have any knowledge whatever of that language?
    Mr. McNeil: I am afraid I could not accept the inference that only a few members of the Commission know the language.
    Major Beamish: Is the Minister aware that most of the interpreters are blonde German girls who were trained in Germany to do interpreting in this country after this country was defeated, and is this not a shocking state of affairs?

    Artistes (Political Disqualification)
    Mr. Vaneasked the Secretary of State for Foreign Affairs whether the rules governing the disqualification for political reasons of musicians and actors from giving public recitals and performances are the same in all four zones of Germany.
    Mr. McNeil: Yes, Sir.

  ITALY

    Displaced Persons
    Major Beamishasked the Secretary of State for Foreign Affairs how many displaced persons, of what nationalities, are in Italy in camps and outside camps, respectively; and if he will make a full statement on the steps already taken and the steps proposed to safeguard the future of these people.
    Mr. McNeil: As the answer is necessarily long, I will, with permission, circulate it in the OFFICIAL REPORT.
    Mr. Hobson: Does the Minister's statement include the number of refugees who have come from Yugoslavia since the termination of hostilities?
    Mr. McNeil: Perhaps my hon. Friend would look at the reply, which is pretty full.
    Following is the Answer:
    It is not possible to state with any degree of accuracy how many displaced persons are at large in Italy, although the results of a recent census of foreigners in Italy may, when published, throw some light on this. U.N.R.R.A. are responsible for some 22,000 persons, mostly of Jewish race, about half of whom are living outside camps. The latest available figures for refugees who are a joint British and United States responsibility and who are housed in Allied Commission camps, show that they number 10,984, including 7,071 Yugoslavs, 1,021 Poles, 618 Albanians, 295 Hungarians, 292 Greeks and 274 Balts.
    There are also nearly 21,000 persons who have hitherto been held in camps under British control, of whom the great majority are Yugoslavs. These are being removed to the British zone of Germany where screening will be completed. Those who are found on investigation not to be war criminals or quislings but who are unwilling to return home will be given work by the authorities concerned. It is hoped that the persons in Allied Commission camps will be looked after by the Intergovernmental Committee on Refugees pending the establishment of the International Refugee Organisation. Those outside camps will continue to be an Italian responsibility as before.

    Yugoslavs
    Major Beamishasked the Secretary of State for Foreign Affairs how many Yugoslav displaced persons are in Italy in camps and outside camps, respectively; how many Yugoslavs known to be in Italy have been listed by the Yugoslav government as war criminals, traitors or quislings; how many persons in these categories have been apprehended and handed over to the Yugoslav authorities after a prima facie case had been established; and how many Yugoslavs in Italy are known to have fought under Italian or German command against the Allies.
    Mr. McNeil: About 7,000 Yugoslavs are known to be in displaced persons camps in Italy. Another 12,000 who surrendered to British Forces in 1945 are at present being moved from British camps in Italy to the British zone of Germany.

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    It is impossible to estimate how many Yugoslavs are at large in Italy until the present census which is being undertaken by the Italian Government has been completed. The whereabouts of only a small proportion of those who have been listed by the Yugoslav Government as traitors or quislings are known to His Majesty's Government. Twenty-two of these persons have so. far been surrendered to the Yugoslav authorities by the British military authorities in Italy. Until the screening of Yugoslavs in our hands has been completed it is impossible to say how many have fought under Italian or German command against the Allies.
    Major Beamish: Can the Minister say when this screening will be completed?
    Mr. McNeil: No, Sir. I am afraid I could not say any more than that we have assembled personnel and we will go ahead with the screening as quickly as possible, but it is a complex and intricate matter and I would not like to offer a date when it will be ended.
    Sir Arthur Salter: Will the right hon. Gentleman say whether every possible step is being taken to diminish the risk that Yugoslavs who would not in our sense be regarded as war criminals are sent back and treated as such?
    Mr. McNeil: I am sure that the right hon. Gentleman can be certain that we have been alive to these risks at all times and have taken all steps in our power to safeguard against them.
    Mr. Bramall: Can the right hon. Gentleman also ensure that we do not also run the risk of appearing to protect people who often fought against their own people under German and Italian command?
    Mr. McNeil: The concern is one which I understand, but the hon. Gentleman can be assured that where there is a prima facie case made against any of these individuals and where the case has been established we will take the necessary action.

    Visas (Fee)
    Major Mott-Radclyffeasked the Secretary of State for Foreign Affairs whether he is aware that a fee of 25s. is charged for the issue of an Italian visa to British subjects, whereas citizens of
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    the U.S.A. receive a similar visa free of charge; and whether he will make representations to the Italian Government to rectify this anomaly.
    Mr. McNeil: The grant of Italian visas free of charge to United States citizens is, I understand, governed by a reciprocal arrangement between the two countries. His Majesty's Government do not advocate a similar arrangement at the present time in respect of visas for British subjects, but the Italian Government are being pressed to reduce the fee charged for Italian visas granted to British subjects to the standard fee of 10 gold francs which is equivalent at present to 16s.
    Major Mott-Radclyffe: If the Italian Government do not respond to that pressure, would the right hon. Gentleman consider reciprocally increasing the price of British visas to Italian subjects?
    Mr. McNeil: I certainly would not rule that out as a reciprocal measure, but I Lope and believe that the Italian Government will listen to what are our reasonable pleas.

    British Embassy, Rome
    Mr. Vaneasked the Secretary of State for Foreign Affairs what steps were taken to obtain one of the many historic houses in Rome for His Majesty's Embassy before the decision was taken to spend £350,000 on new building.
    Mr. McNeil: Several historic houses in Rome were inspected. None of them was considered suitable for modern needs and maintenance costs would have been heavy. It was decided, therefore, to erect a residence and offices on modern lines in accordance with the policy laid down in 1943 in the White Paper on the Reform of the Foreign Service.
    Mr. Vane: Can the right hon. Gentleman say whether he intends to rebuild on the present site of the British Embassy in Rome, which I understand is a large one, or intends to buy another site?
    Mr. McNeil: I am sorry, but I cannot give an answer.
    Colonel Gomme-Duncan: Does the fact that this expensive house is to be put up mean that His Majesty's Government have now finally accepted the principle of the tied house?
    Mr. Beechman: Can the right hon. Gentleman say whether the present Lord Rennell of Rodd was consulted before this curious decision was taken?
    Mr. McNeil: I am sorry, but I did not quite hear the hon. Member's question.
    Mr. Beechman: Can the right hon. Gentleman say whether the present Lord Rennell of Rodd was consulted before this curious decision was taken?
    Mr. McNeil: I am sorry, but I do not know.
    Sir Ronald Ross: Is there no historic house of suitable size in Rome which could be modestly renovated for less than a quarter of a million pounds?
    Mr. McNeil: I am quite certain that we made careful inquiries. The matter does not end as the hon. Gentleman suggests. We had to make an estimate of what would be the subsequent cost of maintenance, and a modern house will save us money in that respect.

  TRIESTE (SEIZURE OF SHIPS)
  Professor Savoryasked the Secretary of State for Foreign Affairs whether he will give instructions to His Majesty's Ambassador in Belgrade to support the protest of the U.S. Government against the seizure by the Yugoslav authorities of Italian ships in the harbour of Trieste and insist that these ships be restored forthwith to Italy.
  Mr. McNeil: His Majesty's Ambassador in Belgrade protested to the Yugoslav Government on 17th February against the condemnation as prizes by the Yugoslav courts of nine Italian ships contrary to the terms of the Armistice. In view of the unsatisfactory nature of the reply now received from the Yugoslav Government, it is the intention of His Majesty's Government to address a further note to them in the near future.
  Professor Savory: Is the right hon. Gentleman not aware that, in addition to those nine ships, Marshal Tito has seized the wreck of the "Rex" and is reported to have sold it, and that ship, as the right hon. Gentleman is aware, was the very best of all the Italian liners?
  Mr. Gallacher: Is it not the case that the Minister and his associates are prepared to use any and every means of trying to get introduced into Yugoslavia the conditions that exist in Greece?

  GREECE AND TURKEY (U.S. AID)
  Mr. Ronald Chamberlainasked the Secretary of State for Foreign Affairs for what reason the British representative on the Security Council was instructed to oppose supervision by U.N.O. of U.S. aid to Greece and Turkey.
  Mr. McNeil: The United Kingdom representative opposed the proposal for United Nations supervision of American aid to Greece on the grounds that it was invidious to demand supervision in this case any more than in the case of a similar aid which has been and is still being given by other Powers to other countries in Europe.
  Mr. Chamberlain: Does not my right hon. Friend feel that that is really rather a weak argument, and that the Russian attitude in this matter was fundamentally sound? Further, does he not feel that here was a golden opportunity -lost to implement our professed policy of supporting and using the United Nations organisation?
  Mr. McNeil: I am delighted, of course, that my hon. Friend considers that the Russian model was the one which we should have followed, because that, of course, was what we did.
  Sir W. Smithers: Saint George for England!

  MALAYA

    Proposed Constitution
    Mr. Peter Freemanasked the Secretary of State for the Colonies whether he is aware that the new proposed Constitution for Malaya is meeting with considerable local opposition; and what steps are being taken to see that greater freedom for civil liberties is provided and the position of the existing. Sultans adequately safeguarded.
    The Secretary of State for the Colonies (Mr. Creech Jones): I would refer to my reply to my hon. Friend the Member for

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    Grimsby (Mr. Younger) on 2nd April. The report of the Consultative Committee has now been published, and a copy has been placed in the Library of the House. The report was presented to the Governor's Advisory Council on 31st March. The Council recommended unanimously that it be laid before His Majesty's Government and their Highnesses the Rulers for final consideration. I hope to receive the Governor's recommendations shortly. I am aware that, even before the publication of the constitutional proposals, points of opposition were expressed in certain quarters, but the Consultative Committee, after inviting and examining views of all interested communities, have substantially endorsed the main lines of the proposed scheme. The liberty of the individual and other safeguards are provided in the proposal.
    Mr. Gammans: Will the right hon. Gentleman say what opportunity this House will have, and when, to discuss these important recommendations and any action which may follow them?
    Mr. Creech Jones: Facilities for debating this matter should be discussed with the Leader of the House. It is my intention to make all the necessary papers available to the House.
    Mr. Walter Fletcher: Will this Report include the findings of the Cheeseman Committee set up under the Constitution?
    Mr. Creech Jones: Yes, that is my intention.
    Mr. Peter Freeman: May I ask whether, as a result of the Japanese invasion, Malayan political opinion has developed very considerably, and whether legitimate grievances will be carefully considered?
    Mr. Creech Jones: All these factors are taken into account in the Constitution of the country, and all communities have had an opportunity of putting their views forward.

    Disturbances, Kedah
    Mr. Gammansasked the Secretary of State for the Colonies whether he will now give a further report on the disturbances in the State of Kedah in Malaya.
    Mr. Creech Jones: The Governor of the Malayan Union has informed me that the situation has greatly improved since 12th

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    March, when I replied to an earlier Question by the hon. Member on this subject. I am placing in the Library of the House a summary of the reports which I have received on the general background to the disturbances. A further report on alleged discrimination in wages rates, for which I have called, is still in preparation.

  GIBRALTAR (STATE LOTTERY)
  Mr. Skeffington-Lodgeasked the Secretary of State for the Colonies why he has approved a State lottery in Gibraltar; and whether he will make a statement.
  Mr. Creech Jones: This is not an innovation in Colonial territories. The introduction of a Government lottery in Gibraltar has been approved, because public opinion there has for a long time past been strongly in favour of this means of raising revenue and has asked for it because, while other forms of taxation are being examined and developed, additional revenue is urgently required to finance important housing and other public projects; and because there has been an appreciable outflow of funds from Gibraltar into the Spanish State Lottery operated in neighbouring Spanish town's, with consequent loss of foreign exchange. The announcement of this decision has been received with general satisfaction in the Colony.
  Mr. Skeffington-Lodge: Is this to be taken as a precedent for the adoption and running of State lotteries in other parts of the Empire, because, if so, it is going seriously to disturb a lot of people at home, particularly if we are to have a State lottery here?
  Mr. Creech Jones: This was in response to a very special request in Gibraltar, and, as I said, it is not an innovation in Colonial territories.
  Captain John Crowder: Will people in this country be able to have tickets?
  Mr. Hector Hughes: As one of the reasons that a State lottery was authorised appears to have been that there was a considerable outflow of money from Gibraltar into Spain, is it now put forward as a reason why we should have a State lottery in this country, that a lot of British money is going from this country into the Eire lottery?
  Sir R. Ross: Will it be possible for the profits of this lottery to go to the unfortunate refugees now in Northern Ireland?
  Mr. Creech Jones: Every effort is being made to transfer to Gibraltar refugees in Northern Ireland, but that is quite a different question from the one on the Order Paper.

  CYPRUS (STATUS)
  Mr. Keelingasked the Secretary of State for the Colonies whether Lord Winster's announcement to the people of Cyprus that the island is to remain under British sovereignty is in accordance with the policy of His Majesty's Government.
  Mr. Creech Jones: Yes, Sir. Lord Winster based his statement on my reply to the hon. Member for Mile End (Mr. Piratin) on 11th December last, that no change in the status of Cyprus is contemplated.
  Mr. Keeling: Could the Secretary of State say whether this decision was communicated to the Cypriot delegation recently in London?
  Mr. Creech Jones: Yes, Sir, they met me, and I made the position perfectly clear.
  Mr. Bramall: Is my right hon. Friend aware that the delegation which came here to support union with Greece had the support of all political parties, and of public bodies in the whole of Cyprus?

  CAMEROONS

    Cattle Raising
    Mr. Hector Hughesasked the Secretary of State for the Colonies whether the development of cattle raising is being contemplated as part of the development scheme for the Cameroons, these being one of the nearest potential sources of supply of meat to the United Kingdom.
    Mr. Creech Jones: I assume that my hon. Friend is referring to the recently established Cameroons Development Corporation. The ex-enemy estates taken over by that body are not situated in areas suitable for cattle development. The development of stock in pastoral areas will be covered by measures in the Nigerian Government's 10-year development plan.
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    Before meat of the quality suitable for overseas markets can be made available, however, it will be necessary to control transmissible disease, develop the existing poor pastures, and provide supplementary foodstuffs.
    Mr. Hughes: As a point of explanation, may I say that I was not referring to the Cameroons Development Corporation, I was referring to the uplands of the British Cameroons. Is my right hon. Friend aware that stock raising is extensively carried out with great success in the French Cameroons; that the British Cameroons offer a great potential source of meat supplies for this country; and they are much nearer to us than Australia, New Zealand, or the Argentine, which at present supply us?
    Mr. Creech Jones: I am fully aware that the Question related to cattle breeding in certain parts of the Cameroons, but, as I pointed out, those lands are not suitable—the lands which were formerly under German control.

    Development Corporation
    Mr. Skinnardasked the Secretary of State for the Colonies if he is now in a position to announce the full composition of the Cameroons Development Corporation; and the arrangements made for its meeting.
    Mr. Creech Jones: As the answer is rather long, I will, with my hon. Friend's permission, circulate it in the OFFICIAL REPORT.
    Mr. Skinnard: Can the Secretary of State inform us whether the chairmanship is to be a full-time appointment, or whether the Secretary for Development in Nigeria will continue to hold both posts?
    Mr. Creech Jones: We are not in a position to say whether it will be fulltime work, but, as my hon. Friend is aware, the chairman is Mr. Smith, who is the Development Secretary of the Nigerian Government.
    Following is the answer:
    The following persons have been appointed by the Governor of Nigeria to be members of the Cameroons Development Corporation for a term of three years:

    Mr. F. E. V. Smith, Development Secretary, Nigeria (Chairman),

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    The Director of Commerce and Industries, Nigeria,

    The General Manager of the Nigerian Railway,

    Mr. W. J. C. Richards,

    Mr. G. G. R. Sharp,

    Mr. Manga Williams (Member of the Legislature for the Cameroons).

    The following have also been appointed for shorter terms of office:

    The Accountant General, Nigeria,

    Mr. H. W. Long.

    Meetings of the Corporation were held in January and March, and another meeting will be held in May.

  HONG KONG (WEAVING INDUSTRY)
  Commander Nobleasked the Secretary of State for the Colonies what steps are being taken to rehabilitate the Hong Kong cotton and hosiery trade; whether he is aware that the current Government price of cotton in Hong Kong is far higher than the price before the war, and about double the present English price for a similar quality; and whether he will arrange for at least token exports to this country at competitive prices.
  Mr. Creech Jones: An allocation of yarn from Japan has been secured for the Hong Kong cotton factories, and the first consignment arrived in January. A large number of knitting and weaving factories have reopened, and the industry, with official encouragement, has set up an organisation to finance a yarn pool. A Government officer was recently des-patched to investigate South-East Asian markets, and considerable exports, especially to Malaya and Siam, have already taken place. With regard to the second part of the Question, the price of Japanese yarn is controlled by the American authorities. I understand it is no more expensive than Chinese yarn. With reference to the last part of the Question, I would refer to the reply given to the hon. Member by my right hon. and learned Friend the President of the Board of Trade on 17th April.
  Commander Noble: Would the Minister give an assurance that everything possible is being done to rehabilitate this industry which, incidentally, ought to be able to make some contribution to our difficulties here today?
  Mr. Creech Jones: Yes, Sir, we are very alive to it, and will do all we possibly can.
  Major Beamish: Will the right hon. Gentleman say why the Government are buying Japanese yarn at non-competitive prices?

  BERMUDA

    Franchise
    Mr. Dribergasked the Secretary of State for the Colonies if he has considered the fact that, under the present franchise system, only 7 per cent. of the total population of Bermuda have the right to vote, together with the Governor of Bermuda's recommendation that the people of Bermuda should be educated in good citizenship during the coming years; and what steps are now being taken to resolve this incongruity.
    Mr. Creech Jones: I would invite attention to paragraph 5 of my despatch, dated 20th March, 1947, to the Governor of Bermuda, a copy of which I have presented to Parliament (Cmd. 7093).
    Mr. Driberg: May I take it from that answer that my right hon. Friend is perturbed by the open approval of the present system contained in the Governor's memorandum printed in the White Paper, and has there been any promise of speedy action in response to his excellent despatch, also printed therein?
    Mr. Creech Jones: I tried to make it quite clear in my despatch in March that I earnestly hope that before long the Legislative Council, or the Select Committee established by the House of Assembly, will make recommendations which will lead to a widening of the franchise.

    Nursing Training (Coloured Girls)
    Mr. Dribergasked the Secretary of State for the Colonies how long it will be before the plan which will provide opportunities for the training of coloured girls as nurses, referred to in the memorandum by the Governor of Bermuda on the petition from the Bermuda Workers' Association, will take effect; and if he will ensure that interim arrangements are made to remove the present discrimination against coloured applicants for training at the King Edward Memorial Hospital.
    Mr. Creech Jones: It is hoped that plans for the training of coloured girls as nurses will come into operation this year. As my hon. Friend is aware, the Government of Bermuda have been asked to take into consideration the petition presented by the Bermuda Workers' Association, and I hope that it will make recommendations in due course concerning the situation at the King Edward Memorial Hospital.
    Mr. Driberg: Meanwhile will my right hon. Friend try to stop the recruiting of white applicants from Canada and various other colonies besides Bermuda—[HON. MEMBERS: "Why?"]—so as to allow an apportunity for local recruitment?

    Workers' Association
    Mr. Dribergasked the Secretary of State for the Colonies the present membership of the Bermuda Workers' Association; what percentage of the total population of Bermuda this membership represents and what other industrial or political organisations of comparable size exist in Bermuda.
    Mr. Creech Jones: The Bermuda Workers' Association claims a membership of nearly 5,000, which represents approximately one-seventh of the Colony's total population. I am not aware of any other industrial or political organisations of comparable size in Bermuda.
    Mr. Driberg: In view of the Governor's own statement with regard to the political backwardness of the people of Bermuda, and in view of the last part of my right hon. Friend's answer, is it not clear that this is a pretty substantial organisation? Can we take it, therefore, that my right hon. Friend does not share the rather derogatory view of it expressed in the Governor's Memorandum in the White Paper?
    Mr. Creech Jones: The organisation is substantial and is of real importance in the life of Bermuda.

  ROYAL NAVY

    Discussion Groups
    Major Bruceasked the Parliamentary Secretary to the Admiralty whether he will report progress on the extension of discussion group facilities afloat.
    The Parliamentary and Financial Secretary to the Admiralty (Mr. John Dugdale): The average number of weekly discussion groups varies considerably in different commands. It is obviously more difficult to hold them in ships than it is in shore establishments, especially during the period of rapid run-down. Orders have, however, been issued for compulsory instruction including discussion groups in current affairs to be provided for all ships and establishments wherever the circumstances permit.
    Major Bruce: Will my hon. Friend say whether copies of HANSARD are available to such discussion groups?
    Mr. Dugdale: Certainly not in every ship, but I will see whether it is possible to make them available more frequently.
    Mr. Skeffington-Lodge: How is it possible to make discussion compulsory?
    Commander Noble: Do these discussions take place in working hours or afterwards?
    Mr. Dugdale: It is hoped that wherever possible they will take place in working hours.

    Electrical Branch Commissions
    Major Bruceasked the Parliamentary Secretary to the Admiralty the number of commissions granted from 23rd October, 1946, to date, in the electrical branch, and indicate how many of these came from the lower deck and the branch from which they came.
    Mr. Dugdale: Six commissions have been granted in the electrical branch from 23rd October, 1946, to date. All six were warrant electrical officers promoted direct to the rank of lieutenant (L). Three of the six were formerly telegraphist ratings, two electrical artificers and one a torpedo rating. In addition, 32 officers already commissioned were transferred to the electrical branch during the same period from other branches of the R.N. and from the R.N.V.R., including seven R.N. officers who began their career on the lower deck, three as telegraphist ratings and four as torpedo ratings.
    Major Bruce: Does my hon. Friend regard this state of affairs as giving ample opportunity for promotion from the lower deck in this new branch, as he indicated on 23rd October, 1946?
    Mr. Dugdale: Certainly, Sir. I may add that we are hoping to increase the number who are to be promoted from the lower deck. As an example, seven radio mechanics are now being considered for promotion to acting sub-lieutenant this year, under the scheme of direct promotion.
    Mr. King: Does not the solution of this question lie less with the Admiralty than with the Ministry of Education, and is it not evidence of the wisdom of raising the school-leaving age?
    Sir A. Salter: Will the hon. Gentleman protect his Department against pressure which will be likely to reduce standards of efficiency?
    Mr. Dugdale: I would like to make it quite clear that our first consideration is obviously that we should have efficient officers. I do not think that they should be limited to either one class or another.

    Welfare Committees
    Major Bruceasked the Parliamentary Secretary to the Admiralty whether he will give some further indication of the composition of welfare committees and the methods by which it is proposed to secure the democratic representation, by ballot election, of the men within the ship or establishment concerned.
    Mr. Dugdale: The announcement to the Fleet of the introduction of welfare committees stated that they would comprise an appropriate number of officers, one of whom would be the executive officer as ex-officio chairman of the committee, and a number of lower deck representatives to be chosen by ballot by the messes or groups of ratings whom they would represent. Consideration is now being given to the detailed composition of the committees and to the ballot procedure to be adopted.
    Commander Noble: Could the hon. Gentleman say what is the difference between these welfare committees and the canteen committees which have been in existence for many years?
    Mr. Dugdale: The main difference is that members will be selected by ballot, as they have been in some ships, but by no means in all, and the terms of reference will be somewhat wider than those which previously obtained for canteen committees.
    Major Bruce: Will my hon. Friend say how long it will be before the first of these committees is likely to be set up?
    Mr. Dugdale: I do not think it will be very long. Instructions regarding the detailed composition of the committees and the ballot procedure to be adopted are now in preparation and will be issued as soon as possible.
    Vice-Admiral Taylor: Will the hon. Gentleman state what the wider terms of reference are?
    Mr. Dugdale: They will appear in due course, when the details which I have mentioned here are finally completed and the A.F.O. is sent out. If the hon. and gallant Member wishes, I can let him have a copy of them in due course.

    Naval Memorial, Plymouth
    Mr. Medlandasked the Parliamentary Secretary to the Admiralty what proposals he has for the erection of a further monument on Plymouth Hoe to commemorate the men who lost their lives in the last war; what area of land the monument will occupy; and if he will consider using this money to benefit the dependents educationally or in some manner other than the erection of monuments.
    Mr. Dugdale: The existing memorial on Plymouth Hoe records the names of officers and men of the Royal Navy belonging to the port of Plymouth who gave their lives in the first world war and have no other grave than the sea. The Imperial War Graves Commission have prepared plans, which are now being considered by the Admiralty, for the extension of this memorial in order that the names of the missing and those buried at sea during the second world war may be added. The extension proposed takes the form of quadrant screen walls round the existing obelisk, and the additional space occupied is approximately 12,000 square feet. The erection of memorials to the dead and missing is the responsibility of the Commission, which is, I understand, bound by its charter to commemorate individually in this or similar manner all who have fallen in the war.
    Mr. Medland: Will my hon. Friend give us an assurance that before these proposals to increase masonry at Portsmouth, Chatham and Plymouth are decided upon,

    1021
    local authorities will be consulted and consideration given to a better method of commemorating our dead than by erecting masonry?
    Mr. Michael Foot: Will my hon. Friend agree that a further suitable way of making this commemoration would be for the Government to restore to the people of Plymouth Drake's Island, which was stolen from the people of Plymouth by some Government Department or other about a couple of centuries ago?
    Mr. Dugdale: That seems to be entirely another question. The question of my hon. Friend the Member for the Drake Division (Mr. Medland) about the general question of the erection of war memorials is a wider matter which comes under the Imperial War Graves Commission rather than the Admiralty. Questions connected with it could, therefore, best be addressed to the Secretary of State for War, who is chairman of that Commission.
    Mr. Wilson Harris: Is the hon. Member aware how strong the feeling is in Plymouth that there are already too many monuments of this kind? Does he realise how unfortunate it would be if discontent was created locally over such a matter as the commemoration of the dead?

    Personal Case
    Mr. Medlandasked the Parliamentary Secretary to the Admiralty if he is aware that on 28th March, 1947, Mrs. M. E. Roberts, 26 Corporation Road, Peverell, Plymouth, received a telegram from his department that her husband was missing, believed accidentally drowned, at Bermuda on 26th March; that on 2nd April she received a letter ordering her to return her R.N. allotment book as she was not entitled to any payment after 28th March and has since received no further communication from his Department; that evidence at an inquest held on her husband showed that he was blown through some railings in Bermuda Dockyard by a gale; and what steps are being taken to see that dependants of men who lose their lives while on foreign service are properly informed of the cause of death.
    The Civil Lord of the Admiralty (Mr. Walter Edwards): My hon. Friend has written to me about this case and I will let him have a full reply as soon as the detailed report is received from Bermuda.
    Mr. Medland: Will my hon. Friend give an assurance that when men who are abroad- lose their lives, their wives shall be properly informed instead of being left, as was the case in this instance?
    Mr. Edwards: I do not think it can be said that the wife was not properly informed. I am prepared to admit that there was, perhaps, a little haste in order to provide her with information. I can give an assurance that we shall at all times go into any case such as this and we shall do all we possibly can to make things as easy as possible for the widow concerned.

    Maltese Ratings
    Mr. Mallalieuasked the Parliamentary Secretary to the Admiralty why Maltese are not eligible for entry into the R.N. for continuous service.
    Mr. Dugdale: Experience has shown that Maltese are in general not desirous of serving outside the Mediterranean Station which would be an essential condition of a continuous service engagement, nor are they generally suitable to wider employment in more rigorous climates. There is, moreover, the difficulty of giving home leave to men not domiciled in the United Kingdom between commissions on stations far from their homes. The present practice, therefore, which is of considerable standing, is to employ Maltese as naval ratings on non-continuous service engagements for service only in the Mediterranean. The general question is, however, at present under further examination.
    Mr. Mallalieu: Is the Minister aware that difficulties of this sort have been got over in the American Navy where there is difficulty with different climates, that the Maltese make excellent seamen, and that the Navy is short of men?
    Mr. Dugdale: Let me be quite clear that I never had any intention of maintaining that they did not make excellent seamen. It is purely a question of the difficulty of employing them in wider areas, particularly, as I have said, under more rigorous climatic conditions. The point is under consideration.

    Propellent Factory (Chemists)
    Colonel Wheatleyasked the Parliamentary Secretary to the Admiralty why the production side of the Royal Naval

    1023
    Propellent factory, at Caerwent, has not yet been assimilated to the Scientific Civil Service in accordance with Admiralty Fleet Orders, although their colleagues on the inspection side of the factory who carry out similar duties were assimilated as from 1st January, 1946.
    Mr. W. Edwards: The duties of the chemists employed on the inspection side of the R.N. Propellant Factory, Caerwent, are quite distinct from those of chemists on the production side. The inspection chemists have hitherto unquestionally formed part of the chemical pool and as such were assimilated to the Scientific Civil Service along with other comparable grades of the former scientific and technical pool. The production chemists, on the other hand, have not been regarded as forming part of the chemical pool and their conditions of service have not been exactly similar. As stated in my reply to the hon. and gallant Member on 12th March, revised salary scales for these officers are under consideration in the light of discussions with the staff association concerned and the revision of scales for comparable grades in other Departments.
    Colonel Wheatley: Is the Civil Lord aware that these men are feeling, owing to the long delay in coming to a decision in their case, that they are being discriminated against and treated unfairly, because it is a long time since this question was raised?
    Mr. Edwards: I am aware of the concern in this matter. I assure the hon. and gallant Member that we are trying to speed it up as much as possible. I can assure him that we will come to a decision at the earliest opportunity.

    Requisitioned Huts, Colwall
    Mr. Baldwinasked the Parliamentary Secretary to the Admiralty whether it is now possible to derequisition the huts outside the old disused railway tunnel at Colwall, in order that the local council may use them for temporary housing in this overcrowded district.
    Mr. W. Edwards: I understand that the hon. Member has in mind two huts erected during the war by the Admiralty at the entrance to the tunnel on land requisitioned from the Great Western Railway. I am examining the possibility
    1024
    of surrendering these huts for housing purposes and I will write to my hon. Friend as soon as possible.

    Radar and W/T Mechanics (Release)
    Mr. Skinnardasked the Parliamentary Secretary to the Admiralty why there is a difference of three groups between radar mechanics and W/T mechanics in the recent promulgation of release groups; and whether, since many of the former class have been manning W/T stations, especially in the Far Eastern areas, and the two categories are regarded as interchangeable, he will now treat them equally with respect to the rate of demobilisation.
    Mr. Dugdale: Whilst every endeavour is made to achieve a broad parity of release between categories, it has been repeatedly stated that for a number of reasons some difference in the rate of release of the various branches of the Service is inevitable. In the present case, a substantially greater proportion of radar mechanics than W/T mechanics are serving on "hostilities only" engagements and their rate of release is governed to some extent by the need to train reliefs. Contrary to my hon. Friend's suggestion, these two categories are not generally speaking interchangeable. Although in a case of acute local shortage of one category their duties might as a temporary expedient be performed by the other, such a practice would not be generally conducive to efficiency.
    Mr. Skinnard: Is the Parliamentary Secretary aware that some radar mechanics, after training, have spent the whole period of their subsequent service in the Far East as W/T mechanics, and are not exactly pleased at the discrimination between the rates of release?
    Mr. Dugdale: I am afraid that I have no skill in either of these branches and I am not competent to express an opinion, but I am informed by my advisers that there is a very considerable difference in the work required.

  COLONIAL UNDERSECRETARY (MISSIONS)
  Mr. Errollasked the Secretary of State for the Colonies how many of the working days, since the appointment of

  1025
  the Under-Secretary, has he spent outside Great Britain in connection with Government business; and if he will publish a list of these journeys, their separate purposes, durations, the numbers and grades of civil servants accompanying him and approximate individual cost of each trip.
  Mr. Creech Jones: Since the present Parliamentary Under-Secretary of State was appointed to the Colonial Office he has completed four missions abroad and he is now in New York attending the Trusteeship Council. Of the completed missions, the first was to the United States for the Trusteeship Committee of the United Nations General Assembly which met from 21st October to 16th December last, The

  —

  Absence from Country

  Duration of Conference

  Accompanied by

  Approximate cost

  £

  (2) U. N. O. Washington (Trusteeship Council).

  20.10.46 to 16.12.46

  21.10.46 to 16.12.46

  1 Supervisory Asst. Secretary; 1 Asst. Secretary;1 Asst. Principal; (Private Secretary) 1 Shorthand Typist

  2,247

  (2) South West Pacific Conference Canberra, and business in Malaya.

  24.1.47 to 18.2.47

  29.1.47 to 6.2.47

  1 Asst. Secretary; 1 Shorthand Typist

  1,572

  (3) West African Council, Accra

  8.3.47 to 17.3.47

  9.3.47 to 14.3.47

  1 Asst. Secretary; 1 Principal (Private Secretary)

  1,737

  £5,556

  MR. HENRY WALLACE'S BROADCAST
  Mr. Gammansasked the Postmaster-General if the B.B.C. broadcast on 13th April by Mr. Henry Wallace, in which the domestic and foreign policy of the United States Government was attacked, was made with the knowledge of, or after consultation with, His Majesty's Government; if there are any previous instances of a foreign statesman being granted similar facilities by the B.B.C. to criticise his own Government; and if he will offer a similar opportunity to any United States statesman who supports the domestic and foreign policy of President Truman's administration.
  The Assistant Postmaster-General (Mr. Burke): It has been the policy of successive Governments to afford the British Broadcasting Corporation independence
  second was to Canberra in January for the Conference which established the South Pacific Regional Commission, and the third was for consultations in Malaya. The fourth was to the Gold Coast in March for the second session of the West African Council, which I was personally unable to attend.
  I will circulate in the OFFICIAL REPORT a statement giving the other details for which the hon. Member has asked.
  Mr. Erroll: While I welcome these visits, I hope that the Minister will allow his Under-Secretary a little time at home.
  Following is the statement:
  in the choice of their programmes and the material which they contain. The present Government are continuing that policy and the question of consultation with them about Mr. Wallace's broadcast did, therefore, not arise. It is not proposed to intervene in the matter.
  Mr. Gammans: Will the Minister answer the second part of my Question, and also say if, in view of the fact that the B.B.C. is a monopoly whose Governors are appointed by the Government, he considers it wise or appropriate that these facilities should be provided for foreign statesmen to criticise their own Governments? If so, will General de Gaulle be allowed to criticise the French Government on the B.B.C., will Spanish Monarchists be allowed to attack Franco, will E.L.A.S. be allowed—
  Mr. Speaker: That is a hypothetical question.
  Mr. Burke: All those questions as to what the B.B.C. will do are covered by the first part of my answer. With regard to the other part of the Question, the hon. Member knows that President Truman's announcement on aid to Greece and Turkey was broadcast by the B.B.C. He also knows that last night the B.B.C. broadcast the United States Ambassador's speech at the Pilgrims' dinner.
  Hon. Members: Why not?
  Mr. Burke: This House in the last Debate asked that the B.B.C. should be given opportunities for more controversy. Now that these are being given hon. Members ought not to complain.
  Mr. Benn Levy: Will my hon. Friend firmly resist any pressure to reduce freedom of expression on the B.B.C.?
  Mr. Burke: I think that has been our policy all along.
  Sir W. Smithers: The trouble is that it is all one way.
  Mr. Gallacher: Is it not the case that Mr. Wallace has got under the skin of the American Tories and "galled the gibe" of the British Tories?
  Mr. Keeling: Can the Assistant Postmaster-General say whether any facilities are given by American broadcasting corporations to British politicians to attack His Majesty's Government?
  Mr. Gallacher: What about Churchill?
  Hon. Members: Fulton.
  Mr. Burke: The American broadcasting corporations do afford facilities, but what use private citizens make of those facilities is the affair of those private citizens.

  POST OFFICE SURPLUS
  Mr. De la Bèreasked the Postmaster-General whether, in view of the substantial surplus disclosed by the Postmaster-General in the year's working of the Post Office, steps will now be taken to devote some part of this surplus to the reduction of postal, telegraph and telephone charges, with special reference to the 30 per cent. surcharge on telephone accounts.
  Mr. Burke: The surplus for the current year is expected to be substantially below that for 1946–47, and my right hon. Friend does not think that the time is ripe for him to adopt the hon. Member's suggestion.
  Mr. De la Bère: Is the Minister aware that this matter cannot be lightly dismissed, indeed, that it cannot be dismissed at all? Is he aware that the British public are today being asked to pay very excessive sums for the services which they receive and that something should be done about it without any equivocation or evasion or attempt to get out of what is obviously a just and right thing to do?
  Mr. Burke: I am sure that my hon. Friend would regard it as most unsatisfactory to consider the surplus in one year without considering the possibility of it not being recurrent.
  Mr. De la Bère: Is the hon. Gentleman aware that it is thoroughly disgusting?

  GOVERNMENT BULK PURCHASING
  Mr. W. Shepherdasked the Prime Minister what is the annual cost of bulk purchasing organisations operated by the Government.
  The Prime Minister (Mr. Attlee): No special bulk purchasing organisation has been set up by the Government and the Question does not, therefore, arise.
  Mr. Shepherd: Surely the Prime Minister will furnish to the House the cost of the bulk purchasing organisations within the various Ministries concerned?
  The Prime Minister: Whatever it is, it must be very small. I can give the hon. Member some figures. For instance, one of the largest bulk purchasing authorities is the Ministry of Food. Its entire overheads, including all normal administrative expenses of the Department, divisional food officers, administration of rationing, and cost of storage and depots, amounts to only 1.7 per cent. of the turnover. The actual amount of bulk purchasing done by the ordinary officials must be extremely small.
  Sir W. Smithers: Will the Prime Minister say whether those figures include the trading losses by the Ministry

  1029
  of Food, and is he aware that bulk purchasing inevitably involves bulk selling and that bulk purchasing is the main reason for the shortage of food and the high prices?
  The Prime Minister: If the hon. Member will believe that, he will believe anything.
  Major Lloyd: Are not the figures which the Prime Minister has quoted a typical example of what a great deal of harm can be done by a very few?
  The Prime Minister: I am replying to the Question, and I understood that the complaint was that there are too many civil servants.
  Sir W. Smithers: On a point of Order. May I ask you, Mr. Speaker, why I should be subjected to that kind of insult? May I ask you whether, if I had said a thing like that, you would not have called me to Order?
  Mr. Speaker: I am afraid that I see no point of Order there. In fact, I thought the hon. Member was giving information, and not asking for it.
  Sir W. Smithers: It is because the Government are so ignorant that I am trying to give them advice to help them.

  TOBACCO PRICE CONCESSION (FORCES)
  Mr. Errollasked the Minister of Defence, when he will raise the pay of the three Services to compensate for the extinction of their cheap tobacco and cigarettes concession.
  The Minister of Defence (Mr. A. V. Alexander): No increase of pay on this account is intended. The discontinuance of special concessions of this type was contemplated when the postwar rates of pay were fixed, as stated in paragraph 20 of the White Paper on the Postwar Pay Code (Cmd. 6715).
  Mr. Erroll: Does the Minister realise that the extinction of this concession does mean a very real hardship to the Services?
  Mr. Alexander: If I might quote the relevant words of the White Paper:
  "It follows from the institution of emoluments which are broadly comparable with industrial wages that it will not be necessary to continue the various measures which have been taken, under war conditions, to relieve
  1030
  the serving man of expenses to which the civilian is normally liable."
  Mr. Skeffington-Lodge: Will the Minister bear in mind that the members of H.M. Forces will be proud to make their contribution to the national need?
  Mr. Douglas Marshall: Will the Minister press his right hon. Friend the Chancellor of the Exchequer to reconsider this matter before the Committee stage of the Finance Bill?

  FOOD SUPPLIES

    Farm Workers
    Mr. Hurdasked the Minister of Food if he has now reached a decision on the arrangements for issuing special allowances of rationed foods to farm workers this summer.
    The Minister of Food (Mr. Strachey): Yes, Sir; the special seasonal allowances for farm workers will now be calculated on a weekly basis, which should make it easier for farmers and workers' representatives to share them out.
    Mr. Hurd: Will the Minister now treat the farm workers in the same way as he treats the coalminers and allow these extra allowances to be drawn direct, either by the farm worker or his wife?
    Mr. Strachey: I have been in touch with representatives of the farm workers on that subject and there were differences of opinion on the best way in which these allowances could be drawn. At any rate, in going some way to meet their wishes, we have now computed them on a weekly basis and simplified the amounts.
    Mr. Beechman: Will the Minister see that smallholders and families running small mixed farms receive similar consideration?
    Mr. Strachey: That is another question.
    Captain Crookshank: Will the Minister say that he has not completely closed his mind to the possibility of making these extra rations individual rations?
    Mr. Strachey: Certainly, Sir.
    Mr. McGovern: Will the Minister resist the pressure by sections of this House to give special allowances to certain sections of the community, and remember that

    1031
    large numbers of people are expecting a step-up in the allotment of food as soon as possible?
    Mr. Beechman: I beg to give notice that, owing to the unsatisfactory nature of the reply, I shall raise this matter on the Motion for the Adjournment.

    Vegetable Prices
    Mr. Beswickasked the Minister at Food the price secured by growers, wholesalers and retailers, respectively, for any date during February, for cabbages. cauliflowers and parsnips.
    Mr. Strachey: I cannot give my hon. Friend the information in exactly the form in which he asks for it, because of complication as to quality and wide differences in price from place to place. I am sending him a full summary of the weekly reports which I receive on the matter.
    Mr. Scollan: Is the Minister aware that in some parts of the Clyde Valley there are fields full of turnips, which people cannot buy in the shops and which the farmers will not lift?
    Dr. Haden Guest: May I ask the Minister to make the information which he is to supply to my hon. Friend available in the OFFICIAL REPORT.
    Mr. Strachey: Yes, Sir, if that is required.

    Bulk Purchasing
    Sir W. Smithersasked the Minister of Food if he has considered the list of some 47 imported articles of food, the prices of which have risen from 73 per cent. to over 500 per cent. for 1946, as compared with 1938; and, in the national interest, if he will cease bulk purchasing in these commodities and allow healthy competition through the normal trade channels to operate.
    Mr. Strachey: I have considered the price list of fruits which the hon. Member was good enough to send me. Some of them are imported by bulk purchase, some by "competition through the normal channels of trade" as he so much desires. A comparison of the prices which we have to pay as a result of each method of importation is therefore most instructive. I find that the seven types of fruit and vegetables contained in his list which are subject to bulk purchase have increased in
    1032
    price by between 16 per cent. and 250 per cent. On the other hand, the increases in price of the rest, which are imported by private traders, is from 175 per cent. to 980 per cent. This does not suggest that our present bulk purchasing arrangements for the more important fruits should be abandoned.
    Sir W. Smithers: May I ask the Minister why he has wriggled on this matter? My Question was about articles of food, and the right hon. Gentleman has confined himself to fruit. It is a most unfair reply.
    Mr. Strachey: The answer is that the list with which the hon. Member furnished me confined itself to fruit.
    Mr. Walkden: May I ask my right hon. Friend, in view of the information which he has given to the House, what action he proposes to take to control these people, who are undoubtedly speculators and profiteers, who care nothing for the proud honour of Britain, and whose practices are, in the main, despicable and contemptible in the eyes of the average man?
    Mr. Strachey: I cannot agree with my hon. Friend that the private fruit importers, who are importing fruit of minor varieties under open and general licence, can be described as he describes them. They are ordinary merchants, undoubtedly operating for their own private profit, but that does not mean that they are all scoundrels.
    Vice-Admiral Taylor: Would the Minister make it clear whether these comparative prices refer to identically the same articles, whether purchased through bulk purchase or by a private merchant?
    Mr. Strachey: No, Sir. If the hon. and gallant Member had listened to my reply, he would know that I said that some goods were imported by bulk purchase and others by private enterprise, and that they do not refer to the same fruits.
    Mr. W. Fletcher: Will the Minister say whether, in the comparison which he has made, he has taken exactly the same period of time?
    Mr. Strachey: Yes, Sir.
    Mr. Fletcher: Would the Minister also agree that the enormous rises in price are due not to the merchants' profits but to the rise in prices in the markets of origin?
    Mr. Strachey: In many cases, that is perfectly true.
    Mrs. Middleton: Will the Minister bear in mind that his duty, as Minister of Food, is not to defend wholesalers and retailers who are making huge profits but the housewives, who have to pay the prices to provide food for their families?
    Mr. Jennings: Is the Minister not aware that, in order to get a correct perspective on this matter, he ought to state specifically to what fruits he is alluding?
    Mr. Strachey: At the risk of boring the House, here are some more examples which I can quote. Apples, which are bulk purchased, increased in price by 135 per cent. Apricots, privately purchased, have increased by 515 per cent. Bananas, bulk purchased, increased by 250 per cent. Grapes, privately purchased, increased by 422 per cent., and so on. I could give many of these examples. It is perfectly true that, in many cases, this is not all due to private importers, and I have never said it was. But the figures are produced to refute the customary and almost diurnal charge of the hon. Member that bulk purchasing is less efficient than private buying.
    Mr. Peter Freeman: Can my right hon. Friend say whether there is any real distinction between healthy competition and big profits for profiteers?
    Sir W. Smithers: I have not the list which I supplied by me; will the Minister of Food inform the House whether all the prices mentioned are fruit prices?
    Mr. Strachey: In my main answer I said that they were the prices of fruits and vegetables.
    Sir W. Smithers: The right hon. Gentleman said that they all referred to fruit.
    Mr. Strachey: Seven types of fruit and vegetables were mentioned in my answer. It is written in the text, and the hon. Gentleman will find it in HANSARD.
    Mr. W. Fletcher: In view of the unsatisfactory nature of the replies we have received from the Minister of Food, I beg to give notice that I intend to raise the matter on the Adjournment.

BUSINESS OF THE HOUSE
Mr. Oliver Stanley: May I ask the acting Leader of the House whether he has any statement to make on Business?
The Lord Privy Seal (Mr. Arthur Greenwood): Yes, Sir. Amendments are expected to come from another place today to the Army and Air Force (Annual) Bill. As the House is aware, this Bill must receive the Royal Assent by the 30th April, and we propose to ask the House to agree to take the Amendments tomorrow (Thursday) at the end of other Business. The Motion to approve the Biscuits (Charges) (Amendments) Order announced for tomorrow (Thursday) will be postponed. I understand that the Lords Amendments to the Army and Air Force (Annual) Bill are not of a major character.
Mr. Spence: Can the Leader of the House say to what date the Biscuits Order is being postponed?
Mr. Greenwood: I think that the hon. Gentleman should wait until the announcement of next week's Business is made tomorrow. I cannot say now.

BUSINESS OF THE HOUSE
Motion made, and Question put,
"That the proceedings on Government Business be exempted, at this day's Sitting,
from the provisions of the Standing Order (Sittings of the House)."—[The Prime Minister.]
The House divided: Ayes, 253; Noes, 113.

Division No. 137.]

AYES.

[3.35 p.m.

Adams, W. T. (Hammersmith, South)

Gordon-Walker, P. C.

Mikardo, Ian

Alexander, Rt. Hon. A. V.

Granville, E. (Eye)

Montague, F

Alpass, J. H.

Greenwood, Rt. Hon. A. (Wakefield)

Moody, A. S.

Anderson, A (Motherwell)

Greenwood, A. W. J. (Heywood)

Morley, R.

Anderson, F. (Whitehaven)

Grenfell, D. R.

Morris, P. (Swansea. W.)

Attewell, H. C.

Grey, C. F.

Mort. D. L.

Attlee, Rt. Hon. C. R.

Griffiths, W. D. (Moss Side)

Moyle, A.

Austin, H. Lewis

Guest, Dr. L. Haden

Murray, J. D.

Awbery, S. S.

Gunter, R. J.

Nally, W.

Ayles, W. H.

Haire, John E. (Wycombe)

Naylor, T. E.

Bacon, Miss A

Hale, Leslie

Neal, H. (Claycross)

Balfour, A.

Hall, W. G.

Noel-Baker, Rt. Hon. P. J (Derby)

Barstow, P. G.

Hardman, D. R.

Oldfield, W. H.

Barton, C.

Hardy, E. A.

Oliver, G. H.

Battley, J. R.

Harris, H. Wilson

Paling, Will T (Dewsbury)

Bechervaise, A. E.

Harrison, J.

Parker, J.

Bellenger, Rt. Hon. F. J

Haworth, J.

Parkin, B. T.

Benson, G.

Henderson, A. (Kingswinford)

Paton, Mrs F. (Rushcliffe)

Berry, H.

Henderson, Joseph (Ardwick)

Paton, J. (Norwich)

Beswick, F.

Herbison, Miss M.

Pearson, A

Bing, G. H. C.

Hicks, G.

Poole, Major Cecil (Lichfield)

Blyton, W. R.

Hobson, C. R.

Porter, E (Warrington)

Bottomley, A. G

Holmes, H. E. (Hemsworth)

Porter, G. (Leeds)

Bowles, F. G. (Nuneaton)

House, G.

Proctor, W. T.

Braddock, Mrs. E. M. (L'pl, Exch'ge)

Hoy, J.

Pryde, D. J.

Braddock, T. (Mitcham)

Hubbard, T.

Pursey, Cmdr. H

Bramall, E. A.

Hughes, Hector (Aberdeen, N.)

Randall H. E

Brook, D. (Halifax)

Hughes, H. D. (Wolverh'pton, W.)

Ranger, J.

Brooks, T. J. (Rothwell)

Hynd, H. (Hackney, C.)

Rankin, J.

Brown, George (Belper)

Irving, W. J.

Reaves, J.

Brown, T. J. (Ince)

Janner, B.

Reid, T. (Swindon)

Brown, W. J. (Rugby)

Jay, D. P. T.

Rhodes, H.

Bruce, Maj. D. W. T

Jeger, G. (Winchester)

Richards, R.

Buchanan, G.

Jeger, Dr. S. W. (St. Pancras, S.E.)

Ridealgh, Mrs. M

Burden, T. W.

John, W

Roberts, Goronwy (Caernarvonshire)

Burke, W. A.

Jones, Rt. Hon. A. C, (Shipley)

Rogers, G. H. R.

Callaghan, James

Jones, Elwyn (Plaistow)

Ross, William (Kilmarnock)

Carmichael, James

Jones, J. H. (Bolton)

Royle, C.

Castle, Mrs. B. A.

Jones, P. Asterley (Hitchin)

Scollan, T.

Champion, A. J.

Keenan, W.

Scott-Elliot, W.

Chater, D.

Kendall, W. D.

Shackleton, E. A A

Chetwynd, G. R.

Kenyon, C.

Sharp, Granville

Clitherow, Dr. R

King, E. M.

Shurmer, P.

Cocks, F. S.

Kinghorn, Sqn.-Ldr. E.

Silverman, J. (Erdington)

Collindridge, F

Kinley, J

Skeffington, A. M.

Collins, V. J.

Kirkwood, D

Skeffington-Lodge, T C

Colman, Miss G. M.

Lang, G.

Skinnard, F. W.

Corbet, Mrs F. K. (Camb'well, N.W.)

Lavers, S.

Smith, Ellis (Stoke)

Daines, P.

Lee, F. (Hulme)

Smith, H. N. (Nottingham, S)

Dalton, Rt. Hon. H

Lee, Miss J. (Cannoek)

Smith, S. H. (Hull, S.W.)

Davies, Edward (Burslem)

Leslie, J. R.

Snow, Capt J. W.

Davies, Ernest (Enfield)

Lever, N. H.

Solley, L J

Davies, R. J (Westhoughton)

Levy, B. W.

Soskice, Maj. Sir F

Deer, G.

Lewis, J. (Bolton)

Sparks, J. A

Delargy, H. J

Lipton, Lt.-Col, M

Stamford, W

Diamond, J.

Logan, D. G.

Dobbie, W.

Longden, F.

Stephen, C.

Dodds, N. N.

Lyne, A. W.

Stewart, Michael (Fulham, E.)

Driberg, T. E. N.

McAdam, W.

Strachey, J.

Dugdale, J. (W. Bromwich)

McAllister, G.

Stross, Dr. B.

Dumpleton, C. W.

McGhee, H. G

Stubbs, A. E.

Dye, S.

McGovern, J.

Swingler, S.

Ede, Rt. Hon. J. C.

Mack, J. D.

Sylvester, C. O.

Edwards, A. (Middlesbrough, E.)

McKay, J. (Wallsend)

Taylor, H B. (Mansfield)

Edwards, W. J. (Whitechapel)

McKinlay, A. S.

Taylor, R. J. (Morpeth)

Evans, John (Ogmore)

Maclean, N. (Govan)

Thomas, D. E. (Aberdare)

Evans, S. N. (Wednesbury)

McLeavy, F

Thomson, Rt. Hn. G. R. (Ed'b'gh, E.)

Ewart, R.

McNeil, Rt. Hon. H.

Thorneycroft, Harry (Clayton)

Fairhurst, F.

Macpherson, T. (Romford)

Thurtle, E.

Farthing, W. J.

Mainwaring, W. H.

Titterington, M. F.

Fletcher, E. G. M. (Islington. E.)

Mallalieu, J. P. W.

Tolley, L.

Foot, M. M.

Mann, Mrs. J.

Tomlinson, Rt. Hon. G

Forman, J. C.

Manning, C. (Camberwell. N.)

Turner-Samuels, M.

Freeman, Peter (Newport)

Medland, H. M

Vernon, Maj. W. F.

Gibbins, J.

Mellish. R. J

Viant, S. P.

Gilzean, A.

Middleton, Mrs L

Walkden, E.

Walker, G. H.

White, C. F. (Derbyshire, W.)

Williams, Rt. Hon. T. (Don Valley)

Wallace, H. W. (Walthamstow, E.)

White, H. (Derbyshire, N.E.)

Williams, W. R. (Heston)

Watkins, T. E.

Whiteley, Rt. Hon. W.

Wills, Mrs. E. A.

Watson, W. M.

Wilkes, L.

Wyatt, W.

Webb, M. (Bradford, C.)

Wilkins, W. A.

Yates, V. F.

Weitzman, D.

Willey, F. T. (Sunderland)

Younger, Hon. Kenneth

Wells, P. L. (Faversham)

Willey, O. G. (Cleveland)

Wells, W. T. (Walsall)

Williams, D. J. (Neath)

TELLERS FOR THE AYES:

West, D. G.

Williams, J. L. (Kelvingrove)

Mr. Simmons and Mr. Hannan.

NOES.

Agnew, Cmdr. P. G.

Gridley, Sir A.

Peto, Brig. C. H. M.

Anderson, Rt. Hn. Sir J. (Scot. Univ.)

Hannon, Sir P. (Moseley)

Ponsonby, Col. C. E.

Assheton, Rt. Hon. R.

Headlam, Lieut.-Col. Rt. Hon. Sir C.

Prescott, Stanley

Baldwin, A. E.

Hollis, M. C.

Price-White, Lt.-Col. D.

Barlow, Sir J.

Holmes, Sir J. Stanley (Harwich)

Prior-Palmer, Brig. O.

Beamish, Maj. T. V. H.

Howard, Hon. A.

Ramsay, Maj. S.

Beechman, N. A.

Hudson, Rt. Hon. R. S. (Southport)

Rayner, Brig. R.

Birch, Nigel

Hurd, A.

Reed, Sir S. (Aylesbury)

Bower, N.

Hutchison, Lt.-Cm. Clark (E'b'rgh, W.)

Roberta, Maj. P. G. (Ecclesall)

Boyd-Carpenter, J. A.

Hutchison, Col. J. R. (Glasgow, C.)

Robertson, Sir D. (Streatham)

Braithwaite, Lt.-Comdr. J. G.

Jeffreys, General Sir G.

Robinson, Wing-Comdr. Roland

Buchan-Hepburn, P. G. T.

Jennings, R.

Ropner, Col, L.

Bullock, Capt. M.

Keeling, E. H.

Ross, Sir R. D. (Londonderry)

Butcher, H. W.

Kerr, Sir J. Graham

Savory, Prof. D. L.

Carson, E.

Kingsmill, Lt.-Col. W. H.

Scott, Lord W.

Channon, H.

Langford-Holt, J.

Shepherd, W. S. (Bucklow)

Clarke, Col. R. S.

Legge-Bourke, Maj. E. A. R

Smithers, Sir W.

Clifton-Brown, Lt.-Col. G.

Lennox-Boyd, A. T.

Snadden, W. M.

Crookshank, Capt. Rt. Hon. H. F. C.

Lloyd, Maj. Guy (Renfrew, E.)

Spearman, A. C. M.

Crosthwaite-Eyre, Col. O. E.

Lucas, Major Sir J.

Spence, H. R.

Crowder, Capt. John E.

Lucas-Tooth, Sir H.

Stanley, Rt. Hon. O.

Cuthbert, W. N.

MacAndrew, Col. Sir C.

Stoddart-Scott, Col. M.

De la Bère, R.

McCallum, Maj. D.

Strauss, H. G. (English Universities)

Dodds-Parker, A. D.

Macdonald, Sir P. (I. of Wight)

Stuart, Rt. Hon. J. (Moray)

Dower, Lt.-Col. A. V. G. (Penrith)

Mackeson, Brig. H. R.

Taylor, Vice-Adm. E. A. (P'dd't'n, S.)

Drayson, C. B.

McKie, J. H. (Galloway)

Vane, W. M. F.

Drewe, C.

MacLeod, J

Walker-Smith, D.

Dugdale, Maj. Sir T. (Richmond)

Macpherson, Maj. N. (Dumfries)

Webbe, Sir H. (Abbey)

Duthie, W. S.

Maitland, Comdr. J. W.

Wheatley, Colonel M. J.

Eccles, D. M.

Manningham-Buller, R. E.

White, Sir D. (Fareham)

Elliot, Rt. Hon. Walter

Marlowe, A. A. H.

White, J. B. (Canterbury)

Erroll, F. J.

Marshall, D. (Bodmin)

Williams, C. (Torquay)

Fletcher, W. (Bury)

Medlicott, F.

Williams, Gerald (Tonbridge)

Fox, Sir G.

Mellor, Sir J.

Willoughby de Eresby, Lord

Fraser, H. C. P. (Stone)

Moore, Lt.-Col. Sir T.

Galbraith, Cmdr. T. D.

Morrison, Rt. Hon. W. S. (Cirencester)

TELLERS FOR THE NOES:

Gammans, L. D.

Neven-Spence, Sir B.

Mr. Studholme and

George, Maj. Rt. Hon. G. Lloyd (P'ke)

Nicholson, G.

Major Conant.

Gomme-Duncan, Col. A.

Noble, Comdr. A. H. P.

Sixteenth Resolution read a Second time.

ORDERS OF THE DAY

  WAYS AND MEANS
  REPORT [15th April]
  Ninth and subsequent Resolutions considered.
  [For Resolutions see OFFICIAL REPORT, 22nd April, 1947; Vol. 436, c. 821–825.]

INCOME TAX: CHARGE OF TAX.
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
3.44 p.m.
Mr. Assheton: This Resolution covers the subject of Income Tax and Surtax—taxes which bear heavily upon the people of this country. Hon.
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Members will see on the last page of the Financial Statement, that the estimated revenue from these two taxes during the current year amounts to more than one-third of the revenue proposed to be raised, including those items of miscellaneous receipts, and so on, which the Chancellor told us he was not so sure of getting on a future occasion. The House will, I know, forgive the Opposition, at any rate, for wishing to devote a certain amount of time to this very important topic. Two of the major faults of this Budget are the continuing high level of expenditure and the fact that there is no incentive whatever to business enterprise and to professional men. I consider that that is a very serious blot on this Budget. We have been told frequently by the Government that it is their intention to leave 80 per cent. of the business of this country under the private enterprise system, but, although

1039
they have made that clear, they appear to have no regard whatever in their financial and budgetary proposals for the appropriate incentives which are necessary to make that system work.
I suppose it would not be too cynical to say that fear of want and hope of reward are two of the most powerful incentives, and if, happily, the fear of want is, to some extent, removed, it is all the more necessary that the hope of reward should be encouraged. Of course, we all welcome the relief on earned income. So far so good. But I want to point out that there is no sort of incentive to the entrepreneur or to the professional man on the higher earning level. This may not be a particularly popular topic, but it is of such great importance that I do not hesitate to raise it this afternoon. No doubt, hon. Members on both sides of the House recognise that current levels of taxation are penal rates. I go so far as to say that until these high rates of Income Tax and Surtax are reduced, there can be no real return to prosperity, and no real release of energy.
I do not know whether all hon. Members opposite are prepared to put themselves into the position of the business man. I want them to try to think what is the position of a business man, and what considerations occur to him when he is trying to make up his mind whether to start a new business, or a new branch of his business. He has, somehow or other, to raise the capital, and then he has to put a great deal of work into the organising of the new business. If he is already subject to a high rate of tax—and hon. Members will not forget that the rates of tax, put together, go up as high as 19s. 6d. in the £—to what has he to look forward? If he puts new capital into the development of his business, or of a new branch or new enterprise, and it goes wrong—which is always possible—he loses 100 per cent. of what he has put in. What happens if it is a tremendous success? His senior partner, the Chancellor of the Exchequer, takes anything up to 19s. 6d. in the £ of the profit. This is a most serious argument. I hope the chancellor will pay attention to it, and will be good enough to give some reply when he comes to answer the Debate.
I think every hon. Member has come to recognise and understand what is
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generally described as the deterrent of P.A.Y.E. It is not only the system of collecting Income Tax which is the deterrent; it is the fact that the tax is high. Everyone knows that when a man suddenly finds that by working a little overtime, he will bring himself into the range of full Income Tax instead of the lower rate of Income Tax, when he reaches the stage when he will pay 9s. in the £ instead of perhaps 6s., which he was paying up to that level, it immediately has a deterring effect on his effort. That point has been made by hon. Members in every quarter of the House time after time. Nevertheless, it seems difficult to impress upon hon. Members opposite—and in particular upon the Chancellor—the fact that the same sort of deterrent applies in the higher income ranges; and, what is more, deterring as it may be to have to pay 9s. in the £ as a result of increased effort, it is much more deterring to have to pay 19s. 6d. in the £ These are cold facts which I want the House to examine.
The Government have decided that a great part of our industry is to be conducted on these principles, yet they do nothing to arrange taxation so as to make it possible for it to be worked successfully. It really is folly to suppose that the same human motives which operate for a miner or a bricklayer do not operate in exactly the same way for a businessman or a professional man. We should merely be deceiving ourselves if we did not recognise that very obvious fact. It seems almost too obvious to say it, yet it is continually overlooked, and certainly appears to have been overlooked by the Chancellor of the Exchequer. Yesterday, I read this in one of the newspapers:
"The flaw in Socialist reasoning is that a man who does well for himself must necessarily do so at the expense of others. Not so. Wealth is not a static pool; it is capable of infinite expansion."
That is the point we have to keep well in mind. Of course, there are a number of other objections to these high rates of tax, some of which Were touched upon most admirably in the Budget Second Reading speech of my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson). He told us some of the dangers and difficulties with which the Board of Inland Revenue were faced.
I wish to draw the attention of the House to the premium which these high rates of taxation put upon dishonesty and

1041
extravagance in administration. If we recall the history of the Excess Profits Tax—now happily removed—all those who were familiar with its working will remember that it led to immense extravagance in the administration of businesses. When 100 per cent. of what is being spent comes out of the pocket of the Chancellor of the Exchequer, that produces upon the man spending the money an effect which it is not very difficult to understand. Then again, this high rate of taxation encourages speculation of the worst kind. All speculation is not bad. Far from it. A great deal of speculation is necessary to the sound working of our economic system. But some speculation is bad and the very sort of speculation which is of the worst kind is that which is encouraged by taxation at these penal levels. This high taxation brings out all the worst in private enterprise and discourages all the best. The penal effect of this high taxation has been recognised by the Chancellor in the way in which he dealt with the salary of the Prime Minister. I entirely endorse what my right hon. Friend said in his Second Reading speech, as to the desirability of enabling the Prime Minister to do his duty, and to carry on his work with dignity and efficiency. But I would draw the attention of the House to the fact that there are others besides the Prime Minister who should do their duty with dignity and efficiency. What is the position of the high court judge, the businessman, the professional man?
Mr. James Callaghan: He gets an allowance.
Mr. Assheton: If we look at the rates of tax which are disclosed in the Financial Statement, the position of a successful professional man will be appreciated. It is quite impossible for him, during those few years in his life when he is able to earn at a high level of income, to save enough money to provide for his widow even a modest income, comparable to his way of life. The other day I quoted something which I read in a newspaper which brought this home, namely, the fact that £4,500 must now be saved to produce an income that will buy a packet of cigarettes every day. It begins to make one wonder where this taxation is leading us when £4,500 has to be saved in order to produce enough income, at 2½ per cent., less the current
1042
rate of tax, to buy one packet of cigarettes a day. That just shows the lengths to which our taxation has gone.
Professional men are exactly similar to all other men in the way they react to these deterrents. It is becoming increasingly obvious that there is a vast amount of under-employment in this country in every sphere. That is to be found among professional men just as much as in any other section of the community. Why? Because there comes a period beyond which it hardly seems worth while for them to exert themselves. It may be said that that is very deplorable and lamentable; but it is very human, and very understandable. Is it surprising that a barrister does not want to sit up all night with a wet towel round his head, studying a brief for which he would normally receive a handsome fee, when he now gets hardly anything out of it? That is what is happening also with many other professional men. Look at the hardship which is imposed by such a system.
If this country is to survive, and if trade is to flourish, we must have fuller employment. It is not merely sufficient that everybody should be on some pay roll. What is important is, that the whole resources of the country should be exploited to the full, that we should all be pulling our weight and doing our utmost to produce as much as we can for the country. Fuller production would mean more exports, and the possibility of solving the Chancellor's great problem of the balance of payments. I beg the Chancellor to remember, that private enterprise cannot succeed if the rewards and the prizes are removed. Many, or at any rate some hon. Members opposite, object to the system of private enterprise. I understand the objections they have. I do not agree with them, but I understand them. But for, goodness' sake let us be realistic enough to appreciate that we will not get through our difficulties unless we allow the system of private enterprise, within the field in which the Government allow it to operate, to succeed according to the ordinary methods on which it is worked. Do not let the House blind itself—and do not let the House encourage the Chancellor to blind himself by doctrinaire theory—to the facts which are before us. I say that nothing but a substantial reduction—and a substantial reduction before

1043
long—in the rate of Income Tax and Surtax can save this country and enable a decent standard of life to be preserved in this country for all. These things I know, are not popular. These things are perhaps not welcome to every audience in this country. But I believe that unless the Government have the courage to realise them, and to put them plainly before the people, there is very little chance of recovery.
4.0 p.m.
Mr. Jennings: I rise to support the plea put forward by my right hon. Friend, and I make no apology for doing so, because last year I made the same plea. I should like the Chancellor of the Exchequer and hon. Members to recall the time when I was sitting on those benches on the other side, and when this rate of high taxation was proposed in this House. There was a feeling almost of despair that we had raised the rate of Income Tax to such a high figure as 10s. in the pound. But we went away from this House feeling that as we were at war, there was no burden that the country, and all the individuals comprising the nation, were not prepared to bear for the victory that we felt sure would result. But, now we are in a time of peace, there is no justification whatever for this penal system of taxation at the rate of 9s. in the pound and at the rate of Surtax which people are expected to bear today.
We are getting into an appalling situation as regards people who are endeavouring to keep up a certain standard of life. After all, we cannot all live in Acacia Avenue on some housing estate. [HON. MEMBERS: "Why not?''] There are people in a professional way of life. There are for instance His Majesty's judges. They have their station in life to keep up, just as much as the Prime Minister who is given a special allowance. The professional people are doing a very important job in this country. When they have carried out their full year's employment it is very hard on them to find that, in some cases, they have as little as 6d. in the pound left to them, apart from certain small allowances the Chancellor has graciously given them. It is a very big deterrent on them. No hon. Member opposite would give his best if he got nothing in the end for it. I think there is no need to apologise for human nature; it
1044
is much the same on that side of the House and on this. I have yet to see the man who can convince me that he is working for nothing. He must have an incentive.
High taxation is having a dangerous effect on two classes of individuals. The middle class in this country have borne a tremendous burden of taxation. We have people today who, because of their taxation, are having to sell capital in order to make their way and meet the high cost of living today. They are people who were thrifty. After all, thrift is a good thing to admire in this country, when we need it. People set aside, after their labours, out of their hard-won earnings, a certain amount of capital. Now they find themselves with the tremendous burden of Income Tax at the rate of 9s. in the pound. They have a certain station in life to keep up. They cannot give up their houses. They have probably become involved in large commitments, and cannot readily get out of them; and the amount of taxation levied on them is forcing them to use capital in order to live. That is an individual point of view. Taxation is having a crushing effect on a very important section of the people of this country; we need those people, and I do not think it should be the policy of any Chancellor to try to cut them completely out of existence by a penal form of taxation such as this is.
We have also the position as it affects companies. There is the case, as my right hon. Friend says, of the man who is starting a new business. He says "When I have finished at the end of the year, what have I got left? I have practically nothing of my earnings left after the Chancellor, the most senior partner, the major partner, the persistent partner, has taken his whack out of my business." More than that, existing businesses are paying in taxation, money which should go back into the businesses. [HON. MEMBERS: "Ah!"] Well, the Chancellor of the Exchequer is giving repayments of E.P.T. in order that the money should go back into businesses to rehabilitate them. We agree with that policy, but, apparently, hon. Members behind the right hon. Gentleman do not. Money is taken out of business in taxation, draining the resources of a company, preventing it from building up reserves which are necessary in order to prosper, and do the best it can. I say without any hesitation that if taxation had been reduced by

1045
one shilling or two shillings the incentives to work would have been greatly increased, and we should have had greater and accelerated production in this country.
The Chancellor may say, "Where am I to find this reduction?" I say, quite frankly, that a reduction in Income Tax could have been found by a reduction of millions in the expenditure of the country. [HON. MEMBERS: "On the social services."] I could give endless instances—[HON. MEMBERS: "Go on"]—of where this money could have been found. It is no answer to say we should cut the social services, because that is a very topical shout from the other side, and hon. Members opposite know perfectly well that it is not part of our policy to cut the social services. [HON. MEMBERS: "Oh."] That, I am afraid, is an old bird, and it will not fly today. But the Chancellor of the Exchequer must face this position. Hon. Members will have to come to it sooner or later, otherwise it will affect the employment of the people they purport to represent in this House. The Chancellor must face the question whether he is going to break the back of the people of this country by such a harsh and penal system of taxation. In war time we had to endure it for the sake of victory; we had to put all our efforts into victory. But I give him this warning, that we cannot go on taxing supposedly rich people and giving reliefs only to those at the lower end of the scale, hoping that, perhaps, at the next General Election that policy may gain some more votes. The Chancellor must, sooner or later, realise that he is going to break the backs of the people of this country with a penal system of taxation such as we have today. If he wants cooperation, if he wants full production, he must take his courage in his hands and make a substantial reduction in the rate of Income Tax, and, also, in the Surtax charges, so that people may have the human interest of their labour's reward that he has himself, and that hon. Members have, and so that we can all give of our best.
Mr. Wilkins: Many of us on this side of the House are seriously interested to know where the cuts which the hon. Member for Hallam (Mr. Jennings) has suggested can be made. Can he take two or three minutes to tell us?
Hon. Members: Answer.
Mr. Jennings: It can be saved out of the total Budget expenditure. The Chancellor of the Exchequer apparently agrees with what I have said because he stated:
"I wish to emphasise that I do not regard our total national expenditure as having reached rock bottom. There is much scope for reduction in defence expenditure yet, much scope for reduction in overseas expenditure on various kinds and for a reduction in some selected parts of our domestic expenditure.''—[OFFICIAL REPORT, 17th April, 1947; Vol. 436; c. 461.]
"A reduction in our domestic expenditure"—that is the answer.
4.15 p.m.
Mr. Spearman: I can well understand the Chancellor's caution in reducing direct taxation at this time in view of his fears of inflation; indeed, I wonder whether the fear of the damage done by inflation is not much greater than the Chancellor seems to admit, or surely he would be taking more strenuous steps than he has yet done to combat it. Does he realise that the present inflationary situation is so distorting production that it is causing an enormous amount of concealed unemployment, which may have catastrophic results on production in this country? Inflation is not necessarily caused by increasing purchasing power; it is caused by an excess of purchasing power over the supplies available. I should have thought that the Chancellor would do everything he could to provide conditions under which inflation could be avoided, not by the unpleasant method of cutting down expenditure, but by increasing production. The job is to make these two legs match, and to have an equilibrium between the supply of goods and the demand for them. Is the Chancellor always going to choose the course of making these two legs match by shortening the long leg, rather than lengthening the short leg? I know by bitter experience that the chopping off of a leg is the easier thing to do, but it is a very painful business. The Chancellor's job should be to lengthen the short leg.
I am not sure that the present crippling taxation on earned income is not proving a very great deterrent to production. I will give a simple example, although it is rather an extreme case. Take the case of a man with £10,000 a year. He may double his income by a piece of luck, but 99 times out of 100 he can only double

1047
his income by an expenditure of energy which endangers his health or capital. If a man in this category increases his income by 100 per cent., the amount of income he retains is 7½ per cent., and if he doubles it again, the amount left is only 2½ per cent. Is it likely that people will risk their capital, their health or their lives to make such a trifling percentage increase? I would remind the Chancellor of the Exchequer of something I saw in a paper some time ago, which was written by a Member of his party. It was a letter which appeared just after Lord Nuffield had made one of his magnificent donations. A Socialist wrote to the paper asking where this money had come from, which Lord Nuffield had given away. He asked whether it had not come out of the pockets of the workers. A more thoughtful correspondent, in the following week, pointed out that money is not a fixed amount; that it is not the case that if you take more from one person, there is less for another, but that there is no limit to the amount to which wealth may be increased. The wealth of Lord Nuffield was made by his ingenuity, by his work and enterprise, which were beneficial not merely to him, but to the country as a whole.
I ask the Chancellor whether he cannot give an assurance that, in future, he will discriminate between unearned income and earned income to a greater extent. So long as we live under an economy where 80 per cent. is still left under private enterprise, an increased incentive should be given. Do not let us pretend that we are all saints. In all walks of life, we do things either because we are tempted by a carrot, or because we are urged on by a stick. Cannot the Chancellor of the Exchequer make it possible for incentives to be offered to increase the wealth of the country? I have the unpleasant feeling that what the Chancellor may have at the back of his mind, is that he is quite content to keep the poor poor, in order that there shall be no rich. I see that he shakes his head. I hope he will emphasise that he does not mind rich people, so long as the poor are getting richer too. When I was in America a short time ago I talked to trade union leaders, and I was very impressed by their outlook. They said that they wanted companies to do well, and that they did not mind great profits being made, so long
1048
as they got their full share. If only we could get that sort of expansionist outlook here, we should be getting out of our difficulties, of which I see no sign at the present time.
Mr. Bowles: I had not intended to speak today, but having heard hon. Members opposite pleading the miseries of the rich, and as it has so often appeared in the Press that I am one of the most wealthy Members of this House—which, incidentally, is not true—I should like to put forward my view on one or two points. If a person has £4,000 or £5,000 a year—and that is the kind of person we are talking about—I do not think he necessarily needs any more. A long time ago a friend of mine was allowed by his father something more than £4,000 a year free of tax. He met his father at a party, and told him he could not possibly live on his £4,000 a year free of tax. His father said they would not discuss it at that moment, but told him to see the solicitor in the morning. When the son went to the solicitor, his father asked, "What is all this about not being able to live on £4,000 a year?" The son said that he spent so much on this, and so much on that. "But what about those poor so and so's who live on £2,000 a year?" his father asked. That really is the point.
Hon. Members do not seem to realise that the people about whom they are talking probably number no more than 100,000. I know that before the war there were only 98,000 people receiving over £2,000 a year, although I do not know what is the position now. I am perfectly certain that a big business man does not refuse to take over a directorship because of the fear of increased taxation. What really delights them, and the people who are doing a great deal of work, particularly managing directors, is the satisfaction they get from power, and from the fact that they are doing a good job of management. I am certain that the hon. Member for Hallam (Mr. Jennings) who, I believe, is a big employer in the steel industry, gets a great deal of satisfaction from doing his job well. I do not think that it is a question of salary only. The hon. Member does his job of managing his industry with joy and success. It is worth reminding the House that that kind of satisfaction exists.

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I know that there are many devoted civil servants who work unnumbered hours of the day and night. I know that from my experience of various jobs, in relation to the work of the House. Members on both sides, particularly Ministers, know the complete devotion that we get from the draftsmen, civil servants, Officers of the House, and others who are working 14 to 16 hours a day. One knows very well that the Officers of the House do not work until one and two in the morning because they get another £1,000 a year for doing it. They are prepared to do a great deal of work for nothing, for the general good of humanity and society, and their fellow creatures. The best people are the most devoted people. They do not think, all the time, whether they will get another £500 or £1,000 a year for working harder. I am sure that Members generally will agree that what I am saying is perfectly true.
On the question of Lord Nuffield, raised by the hon. Member for Scarborough and Whitby (Mr. Spearman)—and I am not saying anything against Lord Nuffield—I remember some correspondence on the question of a gift by him of £1 million to set up a college in Oxford. The real complaint in that correspondence was this: Here was Lord Nuffield, giving away £1 million worth of capital; which, even at 5 per cent., would have brought him in £20,000 per annum, on which he would have paid 19s. 6d. in the £ tax. He was, therefore, giving away 20,000 times 19s. 6d., which belonged to the Chancellor, or would have done if he had not made that gift. That money would have gone to the Chancellor, and would thereby have helped to relieve taxation. Is not that right? It must be right. That was the real objection which certain people had to the gift, and I remember it very well, although I did not take part in the correspondence. Another complaint was to the effect that men of wealth were able to set up institutions, owing to their private munificence, possibly to advocate views which were contrary to the general good of the country. I am not saying that that was done, but there was complaint that by the use of money which otherwise would belong to the Chancellor and to the taxpayers in general, that might be done. As I say, the correspondence about the Lord Nuffield gift was concerned with what effect the giving away of 20,000 times 19s. 6d.,
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for ever, and not only for one. year, would have on the general good.
I know that there is something to be said for the view which has been advanced by the right hon. Gentleman the Member for the City of London (Mr. Assheton). If somebody asks me, let us say, to make a will, for which I might reasonably charge three guineas, it is not worth doing that work, and taking the responsibility, for the amount of "beer money" which one might have after taxation had been paid. I accept the right hon. Gentleman's argument, because I believe it is true. A barrister who sits with a cold towel round his head all night, getting ready to divorce a well-known person, is not doing the same kind of socially valuable work as other people, who are contributing to productive industries, or devoted civil servants who are carrying out heavy duties and who want no more money per annum for it. I say this because I feel that I can say it, although I am certain that the "Evening Standard" will have something to say about this tomorrow. Nevertheless, I do mean what I am saying. Do not let Members opposite think that they represent the great mass of taxpayers in the country, who are prepared to do a good day's work and are not deterred by a tax of 19s. 6d. in the £ The vast majority of them never get anywhere near that. The people who do pay that tax, get enjoyment from doing a good job, and from the sense of power which their job gives them.
Lieut.-Colonel Dower: The arguments which we have heard from the other side deal with only a very small part of the case which was put forward by my right hon. Friend the Member for the City of London (Mr. Assheton). What I am particularly concerned about is the person who has to pay a tax of 9s. in the £ when he earns another £100 a year. He may have the lower-rated scale of personal allowances, but if he increases his income at all, he has to pay 9s. on every additional pound that he earns. If he has an income of £500 or £600 per annum, and earns another £100 per annum, he has to pay 9s. on that other £100. I know that Members opposite may not like to hear this, but we on this side listened to them with great courtesy, and I think they should do us courtesy of listening to what we have to say, when advancing the view that this

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penal taxation is harming the productive effort which is so necessary to get rid of shortages, and get the country back on to its feet.
I would like to tell the Chancellor that it is much harder now for a person to make his way in the world than it was before the war. There are many more difficulties and restrictions, some of which are necessary and many of which, we believe, are unnecessary. If the Chancellor was a young man, going into the world to make his way, he would find it a much harder world in which to earn his daily bread and butter than it was when he was a young man. That condition of affairs affects many people who served this country in the Forces during the war. Many who want to reopen business have lost their goodwill, and some have lost their skill and knowledge. If these people do not make good, they lose their savings, and it is most unfair that if they do make good they should have to lose 9s. in the £ on anything which they make. I have great respect for civil servants, but there is one advantage which they have over those people who have to make their way, and that is that they do not stand to lose, as a business man does if his business goes "bust." They have not that feeling of insecurity which anyone has who has ever tried to stand on his own feet. I know that the hon. Member for Nuneaton (Mr. Bowles), in his fairness and honesty, will be the first to admit that. We on this side of the House feel that for people who have to make their way under very difficult circumstances, it is the greatest imposition to tax them at the rate of 9s. in the £.
4.30 p.m.
Mr. Bowles: The argument to which I was trying to reply was that owing to the high rate of taxation people do not put forward their best efforts.
Lieut.-Colonel Dower: I would like to tackle the hon. Gentleman on that. I agree with him to a certain extent that men are prepared to give a considerable amount of their time without reward; but they are not prepared to give their main time in which they have to consider their wives, children and dependants. That is not from selfish motives. More and more, in all sections of the community, people are considering—and I would not mind saying that nearly all hon. Members of
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this House are considering—what propel expenses they can write off against their income before it is assessed for taxation. Before the war, there were many people who did not worry themselves about that—they were giving all their energy to increasing their income, and not so much energy to seeing how they could reduce the assessable amount. Hon. Members know that when they come to look at their own Income Tax returns, they put in, as they are justified in doing, the amount of the expenses which attach to the duties of a Member of Parliament. In business, the same kind of thing is going on. More and more energy is being wasted in seeing whether another £5 or £6 can be written off against taxable income. If that time was given to trying to produce more income, it would be healthier for the country. I seriously suggest that, as soon as the Chancellor of the Exchequer is able to give even a token reduction in taxation, it will be an encouragement and inducement to people not to think that they are wrong in increasing their incomes. They should be enabled to expect that as soon as we get out of the difficulties with which we are faced, the Chancellor will give them that encouragement, which so long as the Government admit that private enterprise has a big part to play in the financial future of this country, should be given to them.
The Chancellor of the Exchequer (Mr. Dalton): While not wishing to bring this discussion to a premature close, I think it may be useful if, at this stage, I suggest a few points. We are discussing the standard rate of Income Tax and the Surtax scale. It would not be in Order for me to go at length into the other related Resolutions, but what I am saying is relevant to much that has been said on this point of why, for reasons which I explained in my Budget speech, I gave the first choice this year in tax relief to earned income relief, on the one hand, and child allowance relief, on the other. It is my considered view—and it would not be proper to go into comparative arguments at this stage—that I have done more in the way of increasing incentives and assisting those who are earning their livelihood at various levels of income by doing it in that way this year, than I would have done by making even a small reduction in the standard rate. I considered this very carefully and weighed up the alternative

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possibilities, and it seemed to me that it was better, in the circumstances of the Budget this year, to wait a year longer, at any rate, before again touching the standard rate.
It will perhaps be of interest to the House if I mention that the cost of taking sixpence off the standard rate would be in the order of £72 million in a full year and £63 million this year. That is a lot of money and comparing that cost with the cost of doing other things, it is about equal to the cost of the other two reliefs which I have mentioned, the earned income relief up to the point I have increased it, and the child allowance up to the point which I have increased that. The cost of those two together—and I will give the figures later if they are asked for—would have been about as much as the cost of taking sixpence off the standard rate—reducing the rates by sixpence and making them 8s. 6d., 5s. 6d. and 2S. 6d. The cost of taking sixpence off down the line of 9s., 6s. and 3s. is roughly the same as the combined expense of giving the earned income relief and child allowance relief which I have given. Assuming that was the amount of money which there was to give away in this particular direction, I am pretty confident, not only that I have chosen aright, but also that in relation to the arguments deployed in this Debate it was right.
The hon. Member for Scarborough and Whitby (Mr. Spearman) asked if I could differentiate further between earned and invested income. That is exactly what I am doing. If you reduce the standard rate, there is no differentiation. But if you increase the earned income relief, there is a further differentiation in favour of earned income. The Profits Tax, taking it as a whole, involves a further differentiation against investment income, because it falls solely on dividends and investment income of that class. If we take the general plan on which we have been proceeding since this Government have been in power, there has been a constant shifting of the balance in favour of earned income as compared with investment income To that extent, therefore, we have done what I understood the hon. Gentleman to desire. The hon. Member for Devizes (Mr. Hollis) was one of the protagonists of the reform for raising the child allowance. He asked for that last year in a very persuasive speech. I must not go too much into the various arguments he put, but
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he was one of those who last year pressed me to do what this year I have been able to do, that is to make an increase of £10 for each child per year. That falls generally in favour of persons who earn their own income. Most of the parents of young children who will benefit by the increase of the child allowance are people who earn the major part of their income. Generally speaking, they do not give up earning their income until they are past being fathers—there are exceptions of course.
One of the interesting things—and I think it is just in Order to refer to this—in the Report of the Board of Inland Revenue this year is Table 46. Let no one miss Table 46. That shows the proportions in which at various levels the income of those with the higher incomes—the Surtax payers in particular—comes from earned income on the one hand, and investment income on the other. I must not develop that at this stage, but perhaps I will say something about it on the Finance Bill because it is worth attention. It does show that people with large incomes fall definitely into two groups. It is extremely unusual to find a person with a large income deriving that income half from earnings and half from investments. Generally, the total income is either from earnings without investments, or from investments without earnings. These two cases between them, account for the majority of Surtax payers, and the higher we rise, the more marked is the preponderance of these two types.
I ask the House to look a little more closely at a typical case, as shown in the Financial Statement, of what the rate of Income Tax and Surtax combined really is on the various incomes, according to the family conditions of the Income Tax payer. None of these people, whether single, married without children, or married with one, two or three children, pay 19s. 6d. in the £ on their whole income, although some of the speeches we have heard this afternoon would lead us to believe that they do. We had better get this on record. There is no taxpayer, however rich, who pays an effective rate of 19s. 6d. in the £ on the whole of his income. That is prevented by the various allowances which are made, for, as in the lower levels, they are all entitled to the various personal allowances.
Mr. Assheton: I only interrupt the Chancellor to ask him to make it clear to the House that on a certain section of a man's

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income, he does pay at 19s. 6d. in the £; and, when talking about the effective rate, is not the real answer that at a certain point these people would have to pay what I call penal rates of tax?
Mr. Dalton: The point is that it is a matter of how it is looked at. I do not think there will be any dispute about what I am saying. This can be looked at from either of two angles. A man can imagine his earnings as a succession of slices, and he can see what is the tax which falls on each slice. In that way we can regulate the Surtax. That is one way of looking at it. On the other hand, surely it is not out of place to say that taxation is so much on a man's income and is an average charge over the whole of that income. That is what is called the effective rate and that is what has always been displayed. I have not revolutionised anything in the Financial Statement, but it has been customary for many years to show it in that way, under Governments of all sorts and colours, and a very useful thing it is to show. In one column there is shown the scale of income and in another column is shown what the man with a certain income pays in a year. If we relate one to the other that is the effective rate, which means the shillings and pence in the pound that a man pays in Income Tax and Surtax (if any) on his whole income. That is a very important aspect of it.
Let us take the case of a married man with two children who earns £5,000 a year. If we look at page 30 of the Financial Statement we find that, before this Government came into office, the effective rate of Income Tax on his income was 11s. 0½d. in the £. Such a man would pay £2,757 out of his £5,000. That was before a Labour Government came into office.
Mr. Assheton: But there was a war.
Mr. Dalton: Yes, there was a war.
Mr. Shurmer: We have still to pay for that war.
Mr. Dalton: There was not a Labour Government.
Lieut.-Colonel Dower: The war made it a little bit worse than the Labour Government.
4.45 p.m.
Mr. Dalton: That all depends on where a person is hit. There is nothing controversial about this. In 1945–46, before there was a Labour Government, but while the war was with us, a married man with two children with an income of £5,000 a year paid £2,757 in tax. In the following year, when the Labour Government had been in office for a year, he was only paying £2,542 or 10s. 2d. in the £ on his £5,000. That was due to the reliefs I was able to give in my first and second Budgets, in which I was able to reduce the standard rate of Income Tax by 1s. while adjusting the Surtax so that people should not get an unfair advantage from that. So this man with £5,000 a year in the first year of the Labour Government paid in tax £2,542 and under the new benefits in the present Budget he will pay £2,488. He is only paying now 9s. 11½d. in the £, so that things are, even from his point of view, slowly improving.
We can put it in this way, which I think is not an unfair way to put it. A man with £5,000 a year roughly speaking gets £50 a week tax free, which is £2,500 a year. On the other hand, if there is a man who is only getting a nominal £50 a week he does get a bit taken off and he does not get that amount tax free. All down the scale we have a number of gradations in which, when we subtract the nominal income from what the people are paid, we find a pretty steady ascent in the income scale. There is no taxpayer in this country, and if the matter is looked at mathematically there cannot in the nature of things be any taxpayer in this country, who is really paying 19s. 6d. on the whole of his income. Such an animal does not exist except, of course, in the passionate pleas we sometimes hear from the Conservative Party. I am merely establishing a simple proposition and I repeat it—there is no taxpayer who could, under our present law, pay as much as 19s. 6d. in the £ on the whole of his income.
Mr. Assheton: Nobody ever said there was.
Mr. Dalton: Oh, did they not? I have often heard it alleged, and when I was asked had I no sympathy for the person who was paying 19s. 6d. in the £, and said "No," I was accused of being an unsympathetic person. I explained that

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the reason why I had no sympathy was because such a person was an imaginary being, who does not tread upon the earth at all. There is another side to it, it is perfectly true. When an income goes above £20,000 or £30,000 or some intermediate figure—I have not the exact figure with me but it can be checked up and it is certainly more than anybody in this House is earning—that above that point, of course, 19s. 6d. is being paid. I might add that when one ascends to that height, and occupies such an important position, the interest in power and prestige and influence is much greater than the incentive given by a few more ha'pennies off the standard rate of Income Tax. I submit that at that level the incentive is in non-monetary things. A man earning such an income as that wants to make a good job of his work, and possibly wants to make his name live for ever.
Mr. Assheton: What about the Prime Minister?
Mr. Dalton: We are not talking about the Prime Minister; he does not get £20,000 a year.
Lieut.-Colonel Dower: No, £105,000 odd a year.
Mr. Dalton: Since the question of the Prime Minister's allowances has been raised, perhaps I may remind the House that I deliberately arranged a Question in the House the other day following a correspondence which I had had with the Leader of the Opposition to ascertain what the Opposition thought of this proposal. I was informed that, as I expected, the Opposition would think that this was a good proposal for the Prime Minister, and when I made a statement to that effect in the House it was generally greeted with approval and there was applause all round the Chamber. There was no supplementary question, either critical or otherwise, and therefore it went through as a generally agreed measure.
As a result all sorts of other people think they should be on a par with the Prime Minister from that point of view. But we cannot change the hierarchy of British public life in that way. The hierarchy of British public life lays down that we shall have an elected House of Commons with a Government responsible to that House, and the Prime Minister holds a unique and exceptional position whatever his party. He also incurs expenses of a unique and
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exceptional character. It is our view that he should stand in an exceptional position from that point of view, whether he happens to share the views of the party which at present has a large majority in the House, or even if, in the future, the Conservative Party should come in. But just because the Prime Minister has special treatment of that kind it does not mean that every Tom, Dick and Harry in the business world is to be allowed to place himself on the same pedestal as the King's primary adviser. Therefore I say that we do not accept this attempt to try to make this generally agreed arrangement about the Prime Minister an excuse for loosening the regulations about allowances applying to private business people. There is no intention of loosening up the present arrangements regarding expenses which are quite clear and have worked pretty well for a number of years.
Having said this, I should like to add that I cannot accept the suggestion that there should be any reduction at this stage in the standard rate of tax in addition to the reliefs I have given. I do not think the Opposition intend to oppose these reliefs, so that any argument developed here against the standard rate is an argument for reducing that rate in addition to the other reliefs I am proposing. I say that that would not be justified in the conditions of this year's finance, for reasons which I endeavoured to develop in my Budget speech. It would be an inflationary increase of purchasing power, without any assurance that we should obtain equivalent increased production in return, and we cannot this year afford anything of the kind. I have given the cost of 6d. off the standard rate as being of the order of £72 million a year in a full year, but some people have been asking for a shilling off.
Viscount Hinchingbrooke: What would that cost?
Mr. Dalton: A shilling would cost nearly £150 million a year. This is a case where you can double; there is no trick in the arithmetic and two shillings, in turn, would cost about £288 million, or nearly £300 million a year. These figures are wildly out of range of what is possible. So far as saving on the other side of the account goes it was very relevant to inquire, as some of my hon. Friends did inquire, whether it is suggested that we should aim at balancing

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the reduction in the standard rate that has been suggested against reductions in expenditure. It is out of Order, no doubt, for me to develop this at length, but I would say that it is really no good talking of economy—even with a big "E"—in the abstract. You must indicate where it is you propose to economise. In my Budget speech I said that I thought we could economise. I did not recognise the present level of total expenditure as being a minimum and I thought we could get below it. In particular I said that I thought that in the years ahead we could economise on defence and overseas expenditure generally. All over the world money is still being spent which I hope we shall be able to save. I said too that we might also be able to economise on some selected parts of our domestic expenditure; I emphasised the word "selected" because the great bulk of our domestic expenditure is, in my view, pretty static and not capable of early reduction.
Then there is the large body of expenditure on the social services and on the national debt which would, of course, be very much greater if it were not for the cheap money policy which is sometimes criticised. But even with that as a balance for the floating debt which has to be continued and renewed you have a very big expenditure, and I do not see how that can be quickly reduced over a short period of years. There is not a positive proposal before us, but I do say that in the general financial position in which we are, including the need to have this year a good surplus, the more you argue against elements in my surplus the less you can argue that the standard rate must be reduced. The more you argue against elements in the surplus—it has even been argued that the real position shows a deficit and not a surplus—the less can you argue that you should throw away at least £72 million of income tax revenue in the very vague hope of getting thereby additional incentives and production.
I hope, therefore, that the House will not desire to vote against the obtaining of this sum of money this year. With regard to the surplus, there have been suggestions that we should reduce surtax, but that I regard as totally inadmissible at the present time. I think it is a mistake, in fact, to take the surtax in these considerations separately from the general body of
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income tax. Surtax is a special device falling on incomes above 2,000 a year, but it has been to read and understood with income tax as a whole so as to give a graded scale all the way up. I merely say that I do not see my way at present to give away any more income tax revenue than will be given by the reliefs contained in my proposals.
Mr. Walter Fletcher: Speaking as one of the Tom, Dick and Harry businessmen, I would point out that these rather slighting references have their dangers. Normally there is a veneer of bonhomie by which the real Chancellor is withheld from us, but suddenly a crack appears and he makes an unworthy gibe. If you go on biting the hand that feeds you long enough it may turn against you, and it looks as if some infuriated Surtax payer has been biting the hand that robs him. The main argument on incentive will arise more appropriately on the later discussions regarding the profits tax, but I should like to say to the Chancellor and to the hon. Member for Nuneaton (Mr. Bowles) that they both left out one extremely important factor.
When they speak of directors in the business world they seem to relate their activities solely to their own personal incomes and advantage and the results which accrue to them of their endeavours. In proportion, the director of a company is usually only a very small holder indeed in the shares of his company. His main duty is to the bulk of his shareholders and the danger of having too high a level of taxation is really that in the case of the good director—and I venture to say that although he may be called Torn, Dick or Harry he is a good director in this country on the whole—his sense of responsibility to his shareholders leads him to consider the risk he is taking on their behalf and not the effect on his own income.
5.0 p.m.
If the incidence of taxation, of double taxation overseas and various other taxes which he cannot properly evade and does not try to evade, becomes too great, he must in the end say to himself, "This is a risk which I dare not and should not take." The one free permission the Government gives to everybody in business is to take a 100 per cent. loss, but when it comes to the profits, their interest becomes keener, and if, as I hope to show

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later when the Debate turns to the Profits Tax, the burden of this taxation, duplicated as it is in many cases, becomes too great, the director must say, "I cannot afford to go into this new business or to extend my present business." While he may be ready to take a good commercial risk, and I think the Chancellor will agree that that is the essence of commerce, if he has to take on a two or three to one bet against the interests of his shareholders, sooner or later there comes a point when he will not do it.
In all seriousness, if instead of jibing at the representatives of private enterprise, who do go about and create all over the world businesses which help in the export drive and which help to increase the real wealth of this country and of the Empire, he would try to see what they are really trying to do; if, instead of denigrating them, with that facility he has for cheap phrases which drive them down in the public estimation, he would see that their interest is not only in their own personal income but is also in pride in their work and in looking after the interest of their shareholders, who are the general public, the Chancellor would be doing the country and his own party a very much greater service if he took this advice.
In that connection I should like to raise one point. During the right hon. Gentleman's Budget marathon. in one of his moments of uncontrolled ebullience which occur with all too great a frequency, the Chancellor made a little jibe about the bad rate at which the Income Tax and Surtax payers had paid up. That is very germane to the question we are discussing. If taxation is evaded or paid late, sooner or later it must have some effect on the rate of taxation which has to be imposed to make up for those deficiences. I therefore think we are entitled to hear from the Chancellor a series of figures to substantiate that statement. Possibly on the Finance Bill, we ought to be told whether and why the payments have been slower this year than last, whether the payments in the higher or surtax brackets have been slower than in the lower brackets, the P.A.Y.E. or small taxation brackets. The Chancellor has made, as he does so frequently, one of those accusations which for various reasons, political or financial, he may think it is right to make, but I think it is only right that he should produce some evidence in support of the
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accusation he flung out so freely. I hope he will see the necessity for this.
Finally, I would like to say, on the whole question of the level of taxation, that we are no more an island from the point of view of finance than we are from the point of view of strategy. If industry in this country is being more heavily penalised than in other countries, and if therefore in the world's markets in which we have to compete a greater weight is being hung upon our industrialists than their foreign competitors have to bear, the export drive on which he lives and thrives, and whose failure would sink him quite irretrievably, must be damaged. I would suggest that the Chancellor must take into account the other countries where there is a more enlightened policy of encouraging and appreciating industry rather than offering it a plum one day and a kick the next. That should be in his mind when he is framing his taxation in general. We cannot contract out of competition in this world. Stability cannot be achieved inside a a vacuum, as he and some of his colleagues seem to think. I would put in a very earnest plea to the Chancellor to make some comparative study of the incidence of taxation on industry, and its increase in a very short while. The President of the Board of Trade in a recent speech clearly said that industry is shifting throughout the world. There are countries which used to be only producers of raw materials and importers of manufactured goods which are now coming into the manufacturing group. We shall have to compete with them when they start to manufacture, and if our taxation structure handicaps industry and production in this country too heavily, then in Lancashire where my constituency lies, in the textile engineering and other industries we shall suffer most severely.
When we on this side make accusations against the Government that they are too doctrinaire, I think we have in our mind very often that the Government should look more practically at what is happening outside the orbit which they control from their part-worn mandate. I suggest it would be extremely wise of the Chancellor not to continue on the path of scoring easily against the industrialists, the Tom, Dick and Harry of business, but to try to do now what he will have to in the end, namely, take them into amicable and real

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partnership. Without them he cannot exist, but with him I fear they will not be able to continue to carry on much longer.
Mr. Douglas Jay: Like my hon. Friend the Member for Nuneaton (Mr. Bowles) I am only provoked to intervene very briefly in this Debate by some of the arguments of hon. Members opposite. There is one argument which hon. Members opposite are neglecting which in my view disposes of their case, for reducing direct taxation, and which justifies the Chancellor in the policy he is pursuing. That simple fact is that the rise in profits since before the war has been much larger than the rise in wages. I am not sure whether that is generally realised, and it might be worth the while of some hon. Members to look at page 10 of the White Paper on the National Income, Command 7099. It is of interest to see that wages, as a percentage of the national income, actually fell between 1938 and 1945 from 41.4 per cent. to 41.3 per cent., whereas rent, interest and profits went up, as a percentage of the national income, from 33.3 per cent. to 39.1 per cent. Even if one takes 1946, wages are only slightly up, from 41.4 per cent. to 42.3 per cent., but rent, profits and interest have gone from 33.3 per cent. to 36.7 per cent. The outstanding fact is that wages have fallen as a percentage of the national income since before the war.
It follows—I am sure the Chancellor has realised this, and I know he will not forget it—that as there had been no increase in direct taxation, the actual share of the national income which the wage-earners were getting would have gone down. It is only because we have had higher direct taxation that the income of wage-earners has been maintained. It is even more interesting, I think, to look at another table on page 11 of the same White Paper, which give the figures after payment of taxes. There it is shown that even after payment of these extremely heavy taxes there is remarkably little change. Wages have gone up between 1938 and 1946 from 39 per cent. of the total national income to 44 per cent., and rent, interest and profits come down only from 37 per cent. to 33 per cent. That means that after all these enormous direct taxes on large incomes have been paid the shift is only 4 or 5 per cent. of the
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total national income one way or the other. It also follows from that that the actual money income after taxation which is going into rent, interest and profits today is much higher than it was before the war. I think that should be realised. The recipients of rent, interest and profit who, as the Chancellor pointed out, are by and large different individuals, are getting a much higher money income today after payment of taxation than they were in 1938.
For those reasons I welcome the Chancellor's decision not to make any cut in direct taxation. I welcome the increase in Death Duties which he has introduced, and I would have liked to have seen perhaps a greater increase in Death Duties to offset some of this shift of national income from wages which has occurred during the war. I hope that in his next Budget, and in further Budgets of this Government, that policy will be maintained. As against that, it seems to have been made clear today that the policy of the Opposition in this matter is a reduction in Surtax and in the standard rate of Income Tax, and a reduction in food subsidies. That would, of course, mean a heavy transfer of income away from the wage earners to wealthier sections of the community. That is, very briefly and simply, the choice before us, and I want to record my support for the alternative which the Chancellor has chosen.
Mr. Henry Strauss: Having listened to the speech of the hon. Member for North Battersea (Mr. Jay), I think I understand the Chancellor's temptation to indulge in some of the fallacies in which he has indulged, but since I wish to combat some of the views he has put forward, and which the hon. Member for Nuneaton (Mr. Bowles) had previously put forward, I will start by saying to the Chancellor that on some of the important points which he raised I find myself in agreement with him. I think the Chancellor was quite right when he said that if he were able to give only a limited reduction in taxation, he should give precedence to the personal reliefs, and that is, indeed, what the Opposition asked him to do last year. Where I think the Chancellor's speech was disappointing was that he showed so little consciousness of how great an evil direct taxation at this level is.
On the question of incentives, it seems to me that what the right hon. Gentleman

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and the hon. Member for Nuneaton said had this amount of truth in it. We all know that in many walks of life there are a great many incentives that have nothing to do with money. There is, for instance, the love of one's job, the pleasure of doing it well—and all the other incentives that we know well. There are many hon. Members who do an amount of work which certainly could not be explained by any monetary reward which they get for it. I think hon. Members in all parts of the House are familiar with that variety of incentives. What we have to consider is something that came out very noticeably in the speech of the hon. Member for Nuneaton. In all the cases that he gave of men doing extremely hard and devoted work for no great monetary reward, he mentioned safe jobs. What we have to consider, when we are thinking of the question of incentives in the national interest today, is what incentives are required to make men take great risks in unsafe pursuits. There the level of taxation can be a very real deterrent to increased work and productivity. This subject of incentives is not a problem which is mentioned and accentuated by the Opposition and which the Government deny; on the contrary, in various Government publications, and in particular in their last and most famous White Paper, the importance of incentives is very much recognised. It is not only in the case of Tom, Dick and Harry among the capitalists mentioned by the Chancellor that decreased productivity through lack of incentive is to be feared. The White Paper mentioned very important categories of manual workers where productivity has very seriously declined, and it recognises in terms the desirability of payment by results. In all those cases where incentives are recognised by the Government as necessary, a high level of taxation is a deterrent.
I find myself in agreement with the Chancellor in his general contention that it is necessary to consider the standard rate of Income Tax and Surtax together; that is logical, and I do not think I have ever taken a different course; but when the right hon. Gentleman talks about the level which the two together represent over the whole income, he is not, of course, dealing with the problem as it presents itself to the man who is already earning a certain amount and has to consider the inducement for doing more work, or taking
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more risks, to create more profits. To that man it is the rate on his next slice of income which decides whether there is any inducement or not. The case of Lord Nuffield has been mentioned. There was a case brought to the attention of the world more recently in the obituaries on the late Mr. Ford. There was an interesting article, which many hon. Members may have read, in "The Economist," which pointed out that whatever we may think of the desirability or undesirability of such vast fortunes, undoubtedly from the point of view of the country in which they were created and earned, the country bought its millionaires extremely cheaply, because of the immense benefit derived from the productivity that those men had created.
Mr. Gallacher: That is just nonsense.
5.15 p.m.
Mr. Strauss: The hon. Member for West Fife (Mr. Gallacher) supports me in the only way in which he can support me, and I welcome his assistance. Another simple recognition of the need for more incentive comes in the White Paper, where it speaks, I think quite erroneously, of shortage of manpower as though it were equivalent to a shortage of men. Of course, a shortage of manpower and a shortage of men are not the same thing. To talk about a shortage of manpower, meaning that we have too few people, is to say something that is almost useless, because, although one might make slight alterations by new labour coming in from abroad, on the whole the working population is something that is given and that we cannot substantially alter. Manpower in an industry is the product of the numbers engaged in the industry and the average amount of work each does, and that amount of work can be increased by incentives. That is recognised from time to time in the White Paper. But a level of taxation at its present rate, if it is to be long maintained, will be a great deterrent to increased work and productivity.
The only other matter I wish to mention, because it has been mentioned in so many speeches in the Debate on this Resolution, is the question of expenditure. I think it is common ground on both sides—at any rate it is common ground between the Opposition and the Chancellor of the Exchequer—that expenditure

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is too high. Very often the challenge is thrown out from the other side when we mention that expenditure is too high, "What would you reduce?", as though they themselves were not going to reduce anything. That is where they are making a quite elementary error. The course on which they are embarked is inflation. The inflation already exists. If that inflation progresses, it will reduce all rewards. It will reduce the social services. Even if the nominal payment per week which a man gets remains the same, it will nevertheless be reduced because the inflation will reduce the value of money.
To speak as though the alternatives were on the one hand some considered and carefully thought out reduction in expenditure, and, on the other hand, going on quite cheerfully as we are, is demonstrably wrong. The real alternative is between a sensible and planned reduction of expenditure and a reduction of real receipts and all nominal money values through inflation. I know that sometimes Government organs and Government supporters talk about inflation as a possible risk of the future, as though it were something which did not exist already. If any such hon. Members are sitting here today, I repeat that the existence of actual inflation has already been admitted as long ago as last January in a Government White Paper. It is expressly admitted in paragraph 19 of the "Statement on the Economic Considerations affecting relations between Employers and Workers." So to go on pretending that inflation is a mere possible risk of the future when it is an actual fact at present is to make a very great error indeed.
Those are the points I make. The Chancellor is right—assuming that he has strictly to limit the amount by which he can reduce taxation—in giving precedence to personal reliefs. In doing so he is adopting the advice the Opposition gave him at least a year ago. The point that I beg him to keep in mind is that the present level of direct taxation, if maintained for long, is disastrous. It will act as a deterrent to increased work and productivity, not only among the richer capitalists but among the ordinary wage earners. The rate of taxation need not be nearly as high as 19s. 6d. in the £ to be a deterrent to extra effort. At a much
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lower level, the tax can become a deterrent to extra effort. If, as is possible, a general reduction of that level of taxation is only possible through a reduction in expenditure, let no supporter of the Government be under the illusion that such reduction can only take place by deliberate act. It can also take place, and it will take place, if they are not careful, through the inevitable process of inflation.
Mr. Fairhurst: I am surprised at the Chancellor of the Exchequer this afternoon because he has shown absolutely no emotion and has been most unaccommodating to the Opposition in relation to the pitiful tale which has been unfolded. One would have thought, hearing the story of the impending disaster for the rich classes, that he would have taken warning. The right hon. Gentleman the junior Member for the City of London (Mr. Assheton) warned the Chancellor that he was putting a premium on dishonesty and suggested that he was tending to develop speculation of the worst possible kind by his methods of taxing the people. Surely the Chancellor of the Exchequer will take note of a warning like that and wilt think about the matter once more?
Something else besides money value requires to be taken into consideration, but I have heard nothing from hon. Members opposite this afternoon. Human values will have to be taken into account—human values that have never been taken into account by Tory Governments. Today we are insisting on the fact that these things shall receive proper consideration. There are also social standards that have to be taken into consideration. If by the grace of God I happened to have been sitting on the Benches opposite and living up to the social standard that I might have been, and if an hon. Member sitting on those Benches had been sitting over here and had the experience that some of us have had, quite naturally we should have seen things from a different angle. We should each have seen things as the other sees them.
This is not a question of emotion but a question of fact, and the fact remains that in society today there are people who cannot maintain their position on £100 a week. They are telling us this afternoon that they cannot maintain their social standards on £100 a week.
Viscount Hinchingbrooke: What about the Prime Minister?
Mr. Fairhurst: The very fact that the social standards are such that it costs so much to maintain them is a liability on the country at present because it entails hefty staffs to maintain that social standard for those people. Those staffs would otherwise be engaged in more useful work. That ought to be faced. If the Chancellor is not prepared to bring the extremes more closely together than they are today, he will fail in his job. I am satisfied that he knows his job and that the object he has in view is to bring together the extremes which have been prevalent in human society for 100 years.
Let me put this to hon. Members opposite. If their present position is such that by penal taxation their life is becoming not worth living, surely they can drift back into the artisan class and find a useful job? I have heard it said that before some of them would take on a useful job, they would commit suicide. As to the conditions that exist today, people in our station of life who for generation after generation have never known anything except fear of the future and day in day out have been eating out their hearts, are seeing things quite differently. They will change society whether hon. Members opposite like it or not. That is the fact they have to face. There is only one way it can be done, by bringing together the extremes. If we cannot bring together the extremes in a peaceful way, believe me, there will be other methods used. I am quite satisfied that our Chancellor is seeking the right way—
Mr. Nigel Birch: So am I.
Mr. Fairhurst: —and that he will do a good job and give much satisfaction to us.
5.30 p.m.
Mr. Boothby: Before we leave this Resolution, I have one brief request to make to the Chancellor, and that is that between this and the Finance Bill next year, he should give serious consideration to the question of making a differentiation between the taxation on earned and unearned incomes at the higher levels of income as well as at the lowest levels. I appreciate that there are objections to penalising retired people, old people, widows, and so on, who are living on modest incomes derived
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from fixed-interest securities. It is not fair to penalise them. However, I cannot see why the man who has the industry, the energy and capacity—and on the whole such are exceptional men—to make an income of perhaps £5,000 or £10,000 a year, and save out of his income, as he used to be able to do, should be taxed at precisely the same level as the man who happens to inherit a great fortune. The hon. Member for Oldham (Mr. Fairhurst) said that we are moving into a new society in this country. That is true, but it is not a Socialist society and it is not a Conservative society. It is becoming, inexorably, a managerial society, and that would have happened, is happening, and will happen in the unfolding of events, whatever Government sat on those Benches.
Mr. Fairhurst: the hon. Gentleman insults the intelligence of the working classes when he says that.
Mr. Boothby: Surely the hon. Gentleman does not think so ill of the working classes as not to realise that a high percentage of the managers of industry at the present time are either themselves working-class men, or of working-class origin. That is how our society has developed. Yet he is consigning what he calls the working classes to manual labour for all time. It takes the Government side of the House to do that.
Mr. Fairhurst: The hon. Gentleman is mistaken. I am not suggesting at all that the working classes are strictly and solely the labouring classes. Quite a number of the working classes may be found on the opposite benches.
Mr. Boothby: All I am suggesting is that we have gone a long way towards developing a managerial society in this country, and I suggest that many of the managers are working-class people, and will be more and more so as time goes on. I think it is a bad thing for this country that men of exceptional energy and capacity—take Mr. Henry Ford for instance, who has already been mentioned—should be denied the possibility of earning more than perhaps £3,000 or £4,000 a year, because that is what the present position involves. There is no incentive for a man of exceptional ability in this country to attempt to earn more than £3,000 or £4,000 a year. I do not think it runs very contrary to Socialist theory, so far as I

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am aware, when I say that in our present position, we want to command the full energies of every class in this country and, above all, of the managerial and executive classes and the most able men. I say there is no ethical justification for taxing those people who are making say between £3,000 and £6,000 a year at exactly the same level as the man who happens to have inherited a large fortune.
I think, therefore, that there is a stronger case for differentiating between the taxation on earned and unearned incomes at the higher levels than at the lower levels. I am not disposed to say that the Chancellor should have made very substantial cuts in direct taxation this year because, despite his protestations, despite all the "Aunt Sally's" he set up and knocked down in his Budget speech, this Budget is an approach to what I would call a counter-inflationary tendency in this country and, as such, it is to be commended. However, I ask the right hon. Gentleman to give serious consideration to this possibility of differentiation between taxation on earned and unearned income, because the fact remains that not enough incentive is being given to all classes in this country at the present time to work hard and to produce.
Mr. Sparks: I have listened with interest to the many arguments which have been advanced from the benches opposite on this question of incentive in relation to taxation, and I am amazed at what I regard as a great fallacy, namely, that the rate of taxation which is now proposed by the Chancellor is in direct antagonism to the principle of incentive. The hon. and learned Member for the Combined English Universities (Mr. H. Strauss) went so far as to make a statement that the millionaire created great wealth for the country, and he was assuming that the present rate of taxation would act in such a way as to prevent such a person from continuing to create wealth. As far as I can see it, taxation has little relationship to incentive, because capitalist organisation at the present time is directed largely to the avoidance of taking risks. Industry has become largely monopolistic in character, and its object is not the taking of risks and new development, but rather the avoidance of risk and the creation of monopoly undertakings.
Mr. Boothby: May I ask one question? What encouragement is being given to the entrepreneur in this country just now to take risks?
Dr. Morgan: It is not necessary to encourage them.
Mr. Sparks: The hon. Member asks what encouragement is being given. I would say that as long as there is a human brain, there will always be encouragements. I do not think that monetary reward is the one and only incentive to encouraging an individual no achieve something of great consequence to his country, and great satisfaction to himself. Some of the greatest men that the country and the world have ever known have not been induced by monetary reward. Some of our greatest inventors have died in poverty, and they did not invent the many things we now enjoy because of monetary reward. Therefore, I think we are quite wrong if we assume that taxation has any great relationship to incentive. The hon. Member for East Aberdeen (Mr. Boothby) referred to Henry Ford, and said there was no opportunity for an individual of exceptional capacity to achieve what Henry Ford achieved. Anyone who imagines, in the world as we know it today and in our present state of capitalist organisation, that any individual has any prospect whatever of achieving what Henry Ford started many generations ago and if anybody is foolish enough to think that he could start from humble origins and build up anything like the undertaking if Henry Ford he is quite mistaken. Quite a number of capitalist organisations already in existence would soon see to it that he was squeezed out of business before he got very far.
Mr. W. Fletcher: Is the hon. Gentleman referring only to the opportunities for brains and enterprise in this country, or outside it? Does he not realise that the argument he is using is a direct incentive to the export of brains and enterprise from this country to others where they will have better opportunities?
Dr. Morgan: Quite wrong.
Mr. Sparks: I do not think so. There was a great deal of truth in what the hon. Member for Oldham (Mr. Fairhurst) said about changes taking place in this country. I believe we are entering a new system of

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society in which the money incentive will recede into the background. To argue that people in managerial capacities, especially in public enterprises, are motivated very largely by the level of taxation imposed on them, is quite unsound.
Mr. Brendan Bracken: If there is no such thing as monetary incentive, why does the Chancellor of the Exchequer not only give large salaries to members of these new nationalised boards, but lush expenses, motor cars, etc.? Does he not feel that after these large salaries other incentives are necessary?
Mr. Sparks: On the theory of the right hon. Gentleman the Member for Bournemouth (Mr. Bracken), if those emoluments are doubled, automatically the individual would contribute very much more than he is already doing. That theory is absolutely absurd. I believe that hon. Members opposite are living in the days of Queen Victoria. They do not seem to realise that we are marching on to a different type of society. If there are some people in the country who will not contribute to the wealth of the nation unless they can make great wealth, largely out of the labour of other people, and wish to go abroad, they are entitled to go. But there are many other people in this country who are ready, competent and capable of taking their places and carrying on the work and responsibility of the country.
Mr. Assheton: Will the hon. Member answer this point in regard to the entrepreneur who has to provide capital for an enterprise? If he loses his capital, all is lost; but if he succeeds, the greater part of his gain goes to the Chancellor of the Exchequer. The arguments the hon. Gentleman is using do not—apply to the 80 per cent. which go to the Chancellor.
Mr. Sparks: That may be. There are individual cases which hon. Members may be able to advance, but I am dealing with the general principle of incentives in relation to taxation. I think hon. Members opposite have rather overloaded this point. I am not going to say that up to a point no monetary incentive exists, but, there is a limit, and I believe that hon. Members opposite are going far beyond that limit and assuming that unless we can cultivate the millionaire and abolish all taxation, there will be no incentive
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for individuals to give of their best to the nation. I do not believe that. I believe that my right hon. Friend is right in the standards he is fixing. I do not believe that taxation at the existing level is at all detrimental to any man giving the best of his brain and energies to the welfare of the nation.
5.45 p.m.
Mr. Hollis: First I wish to thank the Chancellor for his gracious reference to me and to say that in the way in which he put it one can hardly disagree with him. "Assuming that the amount of money to be given away were such," was the way he put it. Assuming that, we agree that the ways in which it could be given were desirable. But it is just that assumption that we want to examine. The hon. Member for Acton (Mr. Sparks), since he sees fit to twit us with being out-of-date, should read Peter Drucker's "Big Business," and he would see that he is a generation behind the times in his understanding of the present attitude of business towards monopolies. As to his point about incentives, as hon. Members have said on both sides of the House, people work for all sorts of other things besides money. But, nevertheless, money is an incentive. There remains the question of taxation, and there is such a thing as penal taxation. Hon. Members opposite are always ready to cry out about the deterrent when miners and agricultural workers have to pay Income Tax. They seem to have a belief in the moral superiority of the rich over the poor. I have nothing of the kind. I believe in the equality of man. I believe no one likes paying Income Tax. If there is an hon. Member in this House who does not dislike paying the tax, I would be glad to see him. If money were as unimportant as the hon. Member thinks it would hardly be worth while discussing financial problems at all. The hon. Member for North Battersea (Mr. Jay) gave extremely interesting statistics about the division of the national income. Surely the great question is not how the cake is sliced but how to get a bigger cake to slice.
Mr. Harrison: The other question is important too.
Mr. Hollis: Yes, and the hon. Member looks forward to the future, but we have to deal with the facts as they are now,

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and have to remember that this country is neither a Socialist nor a capitalist country, but a half and half country. I recollect that the hon. Member for Rugby (Mr. W. J. Brown) once said that there was something worse than Socialism or capitalism, and that was a condition under which neither Socialism nor capitalism can work. That is the danger of the situation into which we may be drifting today.
There are two propositions I would like to leave with the House. The first is that we have to face the fact that if we have to maintain the present level of expenditure, we must have a penal burden of taxation. That is a matter of the gravest concern, because there is a whole volume of evidence of civilisations being brought to an end by the excessive burden of taxation. I did not find much comfort in the figures which the Chancellor quoted about the relative burdens now and during the war. It is perfectly true that people bear such a burden during a crisis believing it is the price they have to pay for a secure life afterwards. When they are asked to pay in peacetime they say, "What is the point of paying now? For what? When is it going to end?" While it may be bearable during the war, it may be very dangerous, detrimental and destructive of society during peace.
The second proposition is that if we are to have this level of expenditure we have to face the fact that, however the figures are juggled with, taxation is going to be definitely a deterrent to production. That being so, we have to consider which of the different methods of taxation is the least deterrent, and that raises the question of whether we should not reconsider to a large extent the whole traditional attitude to direct and indirect taxation. We have to consider whether the old formulae about division between direct and indirect taxation have not to a very large extent now become irrelevant; whether, under modern circumstances, with the burden of taxation such as it is, and granted that it will have a bad deterrent effect, it will not have a less deterrent effect if a greater proportion is levied indirectly than if a greater proportion is levied directly. I am inclined to think that if we must have this level of taxation at all, we should shift a greater burden of it on to indirect taxation. That might once have been considered a party
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point but I do not think it is so today. I see the hon. Member for Chesterfield (Mr. Benson) is doing me the courtesy of listening to me. I hope that he will address the House. He made some valuable and interesting observations on these lines in the previous Budget Debate, and I hope that we shall have the benefit of his observations again.
We must face the fact that we are living in an extremely dangerous situation. It is absurd to throw the social services into our teeth, because if our financial system collapses, the social services will be the first thing to "go west." That is the very matter at issue—whether we can preserve the social services. There could be no more naked fraud than an insurance system under which people had to make a contribution at one price level and receive their benefits at another price level. The question is not whether we shall abandon the social services, but whether a financial policy is being pursued in this country at the moment under which the social services will survive.
Dr. Morgan: We have had an interesting discussion which seems to me to have been based on what is usually called orthodox economics. I am one of those who do not accept the orthodox economics of political economy as taught in the various leading schools, even in the London School of Economics. It is taken for granted by hon. Members opposite that the present system of political economy, built up by the business men of the country, through the mercantile system and the capitalist system, is the only one that exists. They have made no allowance, especially the hon. Member for East Aberdeen (Mr. Boothby), in talking about incentives and the relief that should be given to earned income at a higher level, for the fact that we are living in an age of monopoly. This is not an age of capitalism but an age of capitalism plus monopoly based on the private ownership of land. They have never answered the argument—
Mr. Deputy-Speaker (Mr. Hubert Beaumont): I must ask the hon. Member to address himself to the Resolution. He is getting a long way from it.
Dr. Morgan: I realise that, because the discussion so far, though based on this Resolution, has extended over the whole system—
Mr. Deputy-Speaker: The hon. Member is getting further away from the Resolution. There must be some limits, and he is outside those limits.
Dr. Morgan: I am quite agreeable to keep to the limits which have been permitted to other Members. The discussion on this Income Tax Resolution has so far been based on ordinary orthodox economics, which I do not accept. The hon. Member for Devizes (Mr. Hollis) talked of the equality of man, and said he believed in it. I maintain that not only the monetary system but the fact of the existence of a monopoly system means that the Chancellor is asking that money made under the monopoly system, and through the monopoly system, should be handed back by those who are privileged to get the benefit of monopoly.
Mr. Birch: Why does not the hon. Gentleman's party do something about it?
Dr. Morgan: My party have attempted to do that previously. The monopolistic value of land must be dealt with before land can be taxed on its value. I do not accept the ordinary definition of capital. It is very important, when hon. Gentlemen opposite are talking about the monetary system and the capitalist system, to remember that they really mean a monopolistic system. The hon. Member believes in the equality of man, not under equal conditions but under unequal conditions. I say that the whole system is wrong. The hon. Member says that civilisations have fallen through bad taxation. Which civilisation has fallen through penal taxation?
Mr. Hollis: The French Revolution and the Roman Empire.
Dr. Morgan: Neither the French Revolution nor the Roman Empire fell through excessive taxation—[Laughter.] There is always laughter in the House when the truth is being spoken. That is one of the methods adopted by hon. Members opposite when they cannot meet an argument. They say that it is farcical or they ridicule it. This question of political economy is fundamental. I disagree entirely with all the arguments from the other side of the House. In asking for this Resolution the Chancellor is simply trying to get back into the common purse something which has been taken from the common purse through the fact that the
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present capitalistic system allows the monopolists to get the bulk of the money which the community in this country has produced collectively.
The hon. Member for East Aberdeen talked about the managerial system. Under the capitalist system the bulk of the workers produce the wealth of the country from the land and from capital. The managers may assist. The owners may assist also, but the bulk of the money which is collectively put into the country is produced by the workers of the country. All this holus-bolus of trying to deceive the electors of the country about what the Chancellor is doing because he is trying to move away from the orthodox system, and is trying to do something which will bring benefit to tee workers—
Mr. Boothby: If the hon. Member thinks that managers are so useless, wily does he allow his Government to pay such enormous salaries and expenses in all the monopolies which they themselves have set up?
Dr. Morgan: The hon. Member always adopts the dodge of putting a question based on a false premise. I never said that managers were useless. That is typical of the arguments from the other side of the House. They start with a false premise and try to put one in a difficulty. I never said that managers were useless. I said that they were useful persons like workers, but I emphasise the fact that in spite of the managers and owners, the bulk of the wealth of the country is produced by the workers who work under those managers and owners.
Mr. Harrison: On a point of Order, Mr. Deputy-Speaker. Do you not think it would be advisable to have the lights out?
Mr. Deputy-Speaker: The hon. Member's desire for less light shall be complied with.
Viscount Hinchingbrooke: I was just about to say that if there was anything calculated to cause hon. Members to turn on these benches to you, Sir, and address the Chair it was the hard light beating on these benches from the windows opposite.
Mr. Deputy-Speaker: I do not know whether the noble Lord wishes to speak

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in semi-darkness. I think it would be best to see what effect there will be when the lights are extinguished.
6.0 p.m.
Viscount Hinchingbrooke: I feel inclined to apply to this Resolution on Income Tax the same tests as I applied yesterday to the Resolution on tobacco. Would large reductions in Income Tax—much larger than those given by the Chancellor—act in an inflationary way, and would they act as an incentive? There seems to be a fairly widespread disposition in the House, with which I am afraid I do not agree, that large reductions in taxation now would actively promote inflation. Now there are two sources from which the Chancellor can draw to meet a given figure of Government expenditure. They are, the sources of taxation and the sources of loans, If taxation is reduced, loans can be increased. That is a self-evident fact. We have seen throughout the war years very sharp changes in the ratio between loan receipts and taxation receipt. I am not opposed to deficit financing even at this time of high employment and economic crisis. In fact, I am pretty sure that if the Chancellor had used that method of definite financing in this Budget and reduced taxation that would have acted as an incentive and helped us to overcome the crisis faster than we shall as things now are.
Perhaps that looks a little odd to hon. Gentlemen who know my views about national savings. My opposition to national savings is not because savings provide money to meet a deficit in the Budget. It is because the interest offered on national savings is poor, because the money is inflated away and because the objects of the savings are party political. The money is inflated away because the aggregate of personal spending by the community at large—everyone's individual expenditure—coupled to the spending by the Government—national expenditure—is greater than national productivity, and not because of deficit financing per se. Reduction in Income Tax and consequential deficit financing is not, in my view, necessarily inflationary
If the Chancellor knocked a shilling off the Income Tax it ought not to be assumed that that shilling would be immediately spent in the shops. In these days it is much more likely to be used to
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reduce an overdraft, to increase a deposit, to increase the fluidity of the money market, all of which helps the Chancellor with his loan operations. The money comes back to the Chancellor but it is in another form. It comes back to him in another form after effecting an enormous easement in the individual's personal position. It is not inflationary to pipe water from one cistern into another. What is inflationary is the pressure in the cistern. That pressure, surely, is introduced by the very high level of Government expenditure placed directly alongside the aggregate personal expenditure.
Then there is the other test of incentives which has been liberally discussed this afternoon. Hon. Members opposite are in this difficulty about incentives. They seem to think it wrong for persons coming from private industry and persons who are associated with this side of the House to earn large salaries, whereas it appears to them to be quite right that the Prime Minister should have a gross salary representing £105,000 per annum, and that members of the Coal Board and the Air Transport Boards should all have high salaries. They seem to think in the case of these people that high salaries in office are associated with incentive. If they objected to that they would ensure that such salaries were not paid. Further than that, they realise the curbing effect of high taxation upon the salaries of these persons, because they agreed with the decision of the Government to put these people in a separate class where free emoluments are given and the full scale of taxation is not paid.
I believe that a large reduction in taxation ought to have been given in this Budget. It would have had an enormous effect upon incentive. A reduction of is. or 1s. 6d. in Income Tax would act as an incentive, I suggest to hon. Members opposite, in exactly the right place. This afternoon the Chancellor of the Exchequer referred us to the Tables in the Financial Statement. I take the very page he mentioned, page 30, and I look there at the scale of incomes between £350 and the more or less fictitious £100,000 which are those upon which Income Tax is paid. I am not particularly concerned with Surtax. I agree that there should be reduction in Surtax, but I think that the effect of the reduction in Income Tax of 1s. would have been much more wide-

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spread throughout this whole range of income. We want to increase incentives in the scale below £2,000 a year. It is just as important that the professional man and the small trader, and persons of that quality, earning between £350 and £2,000 should have this reduction in tax, as it is that the higher paid man should receive benefit by way of a Surtax reduction. From the Table it will be seen that a married couple with two children pay no tax at all until £400 a year is earned. After that, of course, taxation is paid on a steadily increasing scale.
For reasons which I gave to the House yesterday, I do not want to reduce taxation on the very low incomes because I do not think that it would act as an incentive. Here is a case where a shilling reduction would tackle exactly that range between the £400 a year scale and the top level. I think that ought to have been done in this Budget. There are £270. million surplus in the Budget to provide the money. I am not so concerned about the surplus. The Chancellor argued that part of that surplus might be said by us to be really and truly below the line. That may be the case. I have already said that I would not object to an unbalanced Budget this year for this purpose. Even if that £270 million was inaccurate, I would still be prepared to finish this year with a deficit. The Chancellor gave the cost of a shilling reduction as £130 million—
Mr. Dalton: It would be £144 million.
Viscount Hinchingbrooke: I beg pardon. I put the figure down wrongly. That is to be set against £270 million surplus or, if that is not accurate, against some lower figure; but if he had given it and charged that amount of £144 million, I still do not think that his Budget would have been unbalanced, though I should not object if it was for reasons which I have given. I am perfectly certain that a very large incentive would have been given to the people in this range of income, and that would have materially helped us to overcome the economic crisis.
Mr. Charles Williams: May I, in the first place, say how much I regret the fact that I was not able to be present when the Chancellor made his speech earlier today, but I had to give evidence to a Committee upstairs. I certainly quite agree that it would be better
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if, instead of our pouring money away down a great many side lanes, the Chancellor had the courage to cut a shilling off the Income Tax. Whatever the noble Lord might think, I would never suspect the Chancellor of not having the courage to go as far as that, but it certainly would take a lot of courage.
We have heard this afternoon a good deal about the higher grades of income. We have had some very astonishing but very interesting speeches about monopolies and that kind of thing. I am not going into that, though I would point out that there is one mistake which has been made in a number of speeches, and that is the idea that the Chancellor has something to give away. The Chancellor has nothing whatever to give away. All that he can do in his Budget is to refrain from taking as much as he is taking at the present time. The idea that the Chancellor can give anything away is absurd.
I want to speak about a section of the community which has not actually been mentioned this afternoon, and which has had very little notice taken of it in this and other Budgets. This is the very large section of the community living on small or comparatively small fixed incomes, and they represent many tens of thousands of people in this country. There are people of that type in almost every constituency, but, undoubtedly, in a constituency such as mine, they are in much more considerable numbers than up the country. There are men and women, some of whom have retired on pension, others of whom have retired on small means, possibly bought by themselves or inherited, but, in any case, living on fixed incomes which they cannot hope, in the ordinary case, to increase at all. These individuals today, I believe, are suffering more seriously than any other section of the community. They had, before the war, their £200 or £300 a year, and they have had piled on their shoulders a considerable weight of taxation. They have seen their income considerably reduced by taxation, but, in the main, they have not grumbled very much, though I have had a few letters from them.
The fact remains that the buying value of their income is far lower than it was before the war, apart from taxation. These are the people who are suffering most today, and, although I could make out a case for incentive on some other lines, I say that these people, taking the

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country as a whole, have had none of the increases of wages or profits, but are just living on the same income as they had before the war. Whatever the Chancellor may be able to do now—and I doubt if he can do much this year—these people, above all other people in this country, are feeling the burden of taxation most, and they are certainly far from being the least deserving people in the country. Many of them have spent a lifetime in the service of the country, some of them in the Civil Service abroad, and they are now feeling the pinch far more than other people.
6.15 p.m.
May I now say a word on dividends, which seem to be rather in the minds of hon. Gentlemen opposite just now? I have never understood, and my constituents have never understood, why it is that hon. Gentlemen opposite think that dividends which produce income and taxation are wrong. They are always telling us that it is wicked to do this and that, but, actually, there are very few people in this country who do not take up a dividend of some sort and who do not rejoice in it. On one occasion, I remember that I was saying what I wanted to see, and I put this point, both from the Income Tax point of view and the individual point of view: "Give us far larger and far more dividends everywhere. Particularly, I want far larger and far more dividends of the type which comes from capital pure and simple, and is the largest distribution of capital in this country, and that is the dividend from the co-operative society." The more we can get more dividends distributed among the people, the better it will be for them, and that is why I think it is wrong to draw a very strict line between income which comes from capital and income, not always necessarily any better deserved, which comes from other sources.
Mr. Joseph Henderson (Lord of the Treasury)Mr. Joseph Henderson (Lord of the Treasury) rose in his place, and claimed to move," That the Question be now put."

PERSONAL RELIEFS
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Lieut.-Commander Gurney Braithwaite: When, yesterday, we were discussing the question of tobacco, the Chancellor referred to the psychological changes which some times come upon hon. Members when their arguments rebound from those benches to these, and the right hon. Gentleman told us how our attitude to some of these matters changes when we are in opposition rather than supporting the Government. This Resolution will not introduce any such difficulties. We welcomed the other day the acceptance by the Chancellor of the suggestion put forward to him by some of those who sit on these benches during our long discussions of a year ago.
Mr. Speaker: I am very sorry, but I made a mistake. It was entirely my fault. I should have called upon the hon. Member for St. George's (Mr. Howard) to move his Amendment.
Mr. Howard: I beg to move, in line 10, to leave out "two," and to insert "three."
The effect of this Amendment, put quite simply, would be to raise from £1,500 to £2,100 the upper limits of earned income on which this personal relief may be claimed and automatically granted as of right. I think that direct taxation at its present level is becoming a matter of increasing concern to all hon. Members. It has been called penal taxation in all quarters of the House, and it is having a really damaging effect on our whole national economy.
Not the least damaging effect is the difficulty of providing the greatest possible incentive, together with a fair reward—judged solely on merit—to persons who have exceptional intellectual abilities, experience, or technical or professional qualifications, and who, by reason of those exceptional capabilities, are, in fact, making an outstanding contribution to the national effort. There is probably a higher percentage of these people in the range of income with which this Amendment is concerned than in any other range. This difficulty is by no

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means confined to the commercial and industrial field. As everybody must know who is interested in higher educational establishments, the salaries of many professors and of some of the headmasters of leading secondary schools just about come into this range. It also applies to a very large number of other men about whom, if I were to describe them as keymen, I do not think there would be any great controversy. They are the keymen in the essential production drive on which our whole short-term future depends, and the keymen in the research and educational fields, who are equally important for our long-term future. The income range about which I am speaking also covers men who, under the present Government's dispensation, can certainly be regarded as keymen—the higher range of civil servants—the men who are probably more overworked today than any other men in the country.
The effect of this high taxation on that class of man is clearly shown in Command Paper No. 7099, Table No. 10. Unfortunately, the line at which the incomes are divided in that Paper is not very convenient for my purpose, and for giving comparisons. There the line is divided between the £1,000 and the £2,000 level, whereas this Amendment seeks to make an alteration at the £1,500 level. I will not deal with the lowest range of all. But if hon. Members care to look at the Table set out in the Command Paper, they will see that in the range of incomes from £250 to £500, there remained at the disposal of the taxpayer before the war, after paying his taxes, 96 per cent. Just prior to this Budget that 96 per cent. had been reduced to 85 per cent., a reduction of ix per cent. But if they look at the range of incomes from £1,000 to £2,000—it is the upper portion of this range which would be effected by my Amendment—and at the range from £2,000 to £10,000—it is the lower portion of this range which would equally be effected by my Amendment—they will see a very different picture.
On the £1,000 to £2,000 range, the proportion of income which remained after paying taxation before the war, was 82 per cent. At the present rate of taxation, that figure has been reduced to 63 per cent. Taking the £2,000 to £10,000 range, whereas before the war 72 per cent. remained, it is now only 47 per cent. It will, therefore, be seen that
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in these particular ranges which I am seeking to amend, whereas in the £1,000 £2,000 range, before the war people retained four-fifths of their income, that has now been reduced to less than two-thirds, and, in the slightly higher range, where prior to the war they retained three-quarters of their income, today they actually retain less than one-half.
I maintain that in this income range we find a very large number of men and women who are performing exceptional services for the country. I think it is also true that these people have to meet exactly the same additional cost of living as the rest of us. They also suffer from the effects of the lower purchasing power of money. I believe that increases, if any, in remuneration over this field, whether by salary or otherwise, have, as a whole, been at a very much lower proportionate rate than the increases which have been gained, and properly gained, over very wide areas of the lower ranges of earned income workers. Whereas this particular group have been more harshly hit by the effect of higher direct taxation, it has been less benefited by getting a higher gross income.
I am attempting to state a general case as fairly as I can, on the basis on which the Chancellor himself proposed this Resolution. I accept that, in this Budget, he has a difficult decision to make in deciding how any relief which he is able to give shall be most usefully distributed. Having regard to the circumstances under which earned income allowances were reduced in 1940, there is no doubt that there was a moral obligation on any succeeding Chancellor of the Exchequer to restore the allowances at the earliest possible moment. Therefore, on grounds of equity, I do not think that anyone can dispute the wisdom of restoring the allowances set out in this Resolution.
But there are many of us who had hoped that it would also have been possible to reduce the standard rate of Income Tax. The Chancellor has told us that that is impossible. But the mere fact that, in his view, it is impossible to reduce the standard rate, makes it, to my mind, additionally important that we should seek to extend the range over which relief is given to the widest possible extent. The Chancellor has claimed a certain amount of credit for restoring the relief in respect of children. I do not

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know to what extent he will claim that that is a non-inflationary relief, or to what extent he will claim that it is an incentive. I frankly admit my personal interest in this matter. As the father of four children, I am bound to feel flattered that the Chancellor should regard the married man with children as being likely to use any slight additional income which he may receive rather more wisely than would a wild bachelor.
6.30 p.m.
I hope he is right. I also hope he is right in believing that this slight change in the children's allowance will lead to a greater productive effort in the country. Whether the particular productive effort to which it leads will automatically be followed by an improvement in our balance of payments, I rather doubt, but the Chancellor will perhaps wish to consult the President of the Board of Trade before dealing with that point. I do not wish to delay the House, because in the discussions on the previous Resolution we covered to a large extent the principle which this Amendment seeks to establish. The Chancellor told the Committee in his Budget statement that we must be modest this year. Nothing could be more modest than to seek to alter the figure "two" to "three", which is all that my Amendment seeks to do. But I would like the Chancellor to tell the House that he is prepared to accept this Amendment because he is wise enough to see that in the alteration of one little figure would lie an immense amount of benefit to the whole of the national effort.
Mr. I. J. Pitman: I beg to second the Amendment.
I would first like to take this opportunity, which I may not get again, of congratulating the Chancellor on giving the earned income relief which he has given. He will remember that, with a considerable number of graphs, I pointed out to him that the married working man who was earning only £3 18s. a week was paying more tax under the right hon. Gentleman's Budget than under the late Sir Kingsley Wood's Budget. That he has put right. Those graphs also pointed out that the more children that man had, the worse off he was. I congratulate the right hon. Gentleman on having now seen the wisdom of those graphical figures
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which I presented to him, and I know the country is delighted with what he has done.
The purpose of this Amendment is to ask him to go a little further. I have not on this occasion drawn a graph, but this is a principle which is applicable and is clearly demonstrable by graphic methods. Let the right hon. Gentleman think in terms not of himself but of one of his colleagues on the Front Bench earning £5,000 a year, or one of His Majesty's judges earning the same amount. Let him compare the situation in 1913, when the salaries were the same, With the situation now. Roughly speaking, such a man in those days would have paid about £500 tax, and would have been getting £4,500 bearing their 1913 value, which we will assume, for the purposes of comparison, to be 20s. to the £. Now that man is getting two reductions in his net income; first of all, there is the enormous taxation to which he is subject, and, secondly, there is the valuation of the pound at about 8s. 4d. Taking these two together, the net effect is that those who were drawing £4,500 net—including those of his own colleagues, and His Majesty's judges—are now drawing about £1,200. We are having a lot of trouble about expenses. That subject has been mentioned in connection with the Coal Board and other fields. I am in favour of the Prime Minister living in dignity, and that applies also to his other colleagues on the Front Bench and to the members of the Coal Board. I think they should live in a dignified and proper way befitting the office they hold. This Amendment proposes a simple device for making good what is a basic problem; because, whereas in 1913 we paid our Ministers sufficient to enable them to live in reasonable dignity, now, owing to the high taxation, we are making it impossible for them to do so.
The remedy is a very simple one, to put right what is wrong and to make the taxation less onerous. This proposal would not cost much because, as I read the Chancellor's tables, the big share of income lies in the amount up to £1,500 a year. The over £1,500 income, roughly speaking, is the assistant secretary level in the Civil Service; it is also the large factory manager level—the man who is doing the really highly skilled work of this country. As the right hon. Gentleman is aware, this proposal refers only to earned income. How much would this

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proposal cost? I suggest it would help enormously to solve the difficulties in connection with the expenses field, and it is in the expenses field that the right hon. Gentleman is trying to right what is a fundamental error of taxation. The right hon. Gentleman will not solve the problem by round-sum expense allowances because the principle will have to be applied right down the line. The judges will require it, the heads of the Civil Service will require it and so will everybody else. I think everybody would agree that that would be an unsatisfactory way of solving what is a human and important problem
Mr. Dalton: Many suggestions have been made in this borderland which fringes on the allowances, which in themselves are not unsustainable—far from it—and for all of which a good case can be made relative to the times and the circumstances. It has already been observed by some hon. Members that some of the proposals which I am making this year, and which I hope will be accepted in a later part of this Resolution, were proposed last year, but then I was not able to accept them because the financial conditions did not permit. I feel we have now advanced to a point where a number of those suggestions can be accepted. So it may be in future with the proposal to lift the ceiling of the earned income relief. But I do not think I can accept this Amendment now. I have no objection to it in principle. I merely say that, in the priorities as we must make them out, I do not think the case for this Amendment has been made now, and I will cite a few figures in reply to the questions which have been raised.
Mr. Oliver Stanley: I hope the Chancellor will tell us how much the proposal would cost.
Mr. Dalton: I will. What are we doing with the earned income reliefs this year by way of modification? We are lifting the proportion. There are two factors in the earned income relief. There is the proportion of the relief, and there is the ceiling—the total amount which can be deducted from the assessable income in order to arrive at the taxable income. In this year I am proposing to change these elements, and to improve both from the point of view of the receiver of earned income. In the first place, I am proposing to increase the proportion that
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may be claimed from one-eighth to one-sixth; and I am also proposing to lift the ceiling from £150 to £250. This proposal is to leave the first element as I have proposed, namely, one-sixth, and to lift the ceiling still further from £250 to £350. I have been asked for the cost of this proposal. It would cost £4 million. Of course, of every scheme it may be said—as was said in another context—"It is but a little one." None the less I do not think that at this stage it would be reasonable to accept this Amendment.
There may be a few million pounds to give away by the time we reach the Committee stage of the Finance Bill, and, if I feel it reasonable, I may be able to bring forward a suggestion. But I do not think this can claim a very high priority here, because relatively to the old position before the war we are already back a little. I will give the figures. I think the hon. Member for the St. George's Division (Mr. Howard) and the hon. Member for Bath (Mr. Pitman) know them very well. Before the war the position was that the earned income relief was one-fifth. That is a higher fraction than I have yet been able to get back to. But even then the ceiling was only £300. That was the prewar arrangement. A ceiling as high as £350 has never been the law in this country. There is no reason why it should not be some day, but we cannot do it at the moment. We are not yet back to the prewar fraction of one-fifth. The point which we are now reaching, if my proposals are accepted, is to put the position back as it was, not prewar but in 1940, before postwar credits were introduced. At that time, the fraction was as I am now proposing it should be, namely, one-sixth, and the ceiling was as I am now proposing it should be, £250. If we merely retrace our steps—which in this sort of field is not a bad thing to do; there is a prima facie case here for retracing our steps—we should get not to one-sixth and £350, as is proposed here, but to one-fifth and £300. I think, myself, that would be the better mode of progress on another occasion, but on this occasion I would not go beyond what I have already proposed.
Mr. Assheton: What is the cost of that?
Mr. Dalton: I forget it. I have not got that particular cost. I have taken care to obtain the cost involved in the Amendment on the Order Paper, but the cost

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for which the right hon. Member asks I have not got. It would cost more, undoubtedly. I would emphasise that the gain in the change of the earned income relief is felt by all, for what it is worth. This lift from £150 to £250 applies to all persons with earned income, whatever the size of the earned income above the taxable lower limit may be. As the hon. Member for the St. George's Division truly said, incomes running from £1,500 to £2,100 would be particularly advantaged, in so far as this is a range of income where, although they get a lift of £100 under my proposal, they would get further lifts amounting up to another £100 under his. That is quite true. On the other hand, it ought not to be omitted to be observed that this group of people does gain to the extent of £100 under the proposal I have put forward, and so do those in the higher groups.
Of course, the figures have had to be got together quickly, but I understand that putting it up to one-fifth with a £300 limit would cost an additional £40 million. It would cost ten times as much. None the less it is probably in that direction that we ought to move. Balancing one thing against another—although I do not in any way repel this proposition; it is one of the things which should be noted and considered before the next Finance Bill, to see, along with all the other proposals, which should come first—I do not think that at this stage this is an Amendment which can be accepted. I hope the hon. Member will not think it necessary to press the Amendment to a Division, in view of what I have said. Of course, if he does, I must ask the House to reject it.
Mr. Pitman: Will the right hon. Gentleman bear this point in mind? His advice comes to him from people of very great integrity, who are the people who will benefit under this rule. I should like him to consider the possibility of overruling their integrity in this matter, since he himself has said it is such a small payment.
6.45 p.m.
Mr. Quintin Hogg: I do not want to detain the House for long, but this is a matter on which I have long felt deeply, and I hope the House will forgive me if I add a few words. I should like to thank the Chancellor for the reasonable tone of his reply. If I venture to put be-
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fore him certain considerations, it is not because I do not appreciate that tone. When he comes to consider this matter again, I hope he will not think he is giving money away when he allows people to retain a larger proportion of the income which they have earned. I hope his further researches into the matter will convince him that the conception of a donation, which seems to have entered his calculations, ought to be removed. He is really allowing people to keep what they have earned; he is not giving to them money which does not belong to them.
Secondly, I hope he will consider a little more generously the question of priority. It is all very well to talk, as he did, about the many claims upon the Treasury. What we ought to consider, among other things, and perhaps first of all, in relation to these tax reliefs at the present time, is, what effect the tax relief is likely to have upon the all-important question of production. I do not think it can be denied that the earned income relief is one of the matters to which a Chancellor of the Exchequer ought properly to look in order to gear up production at all levels of society. Therefore, I should submit to him that when he is considering this matter of priority, and when he has finally cleared his mind of this false conception that he is giving money away, he will ultimately come to see that the benefit to society which would result from giving a priority of this kind is quite sufficient to entitle him to do it.
Lastly, I trust that he will try to rid his mind of too pedantic an adherence to what he called "the prewar ceiling," for this reason. I think it is not sufficiently emphasised in our Debates how very hardly the high rate of taxation has fallen in recent years upon a particular, and not the least deserving, class of the community. I mean the professional and salary-earning middle class, which looks to its savings during its earning life to provide the wherewithal to educate children, and to provide something upon which to retire. Those are things which are, I think, generally recognised as legitimate aspirations for ordinary people to entertain. It does strike me, and has struck me for some time since I have been in this House, that some of us are rather anxious to decry the rich, and to include within that term all the professional and salary earning people; and others are rather anxious perhaps to complain when

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additions are put on to Surtax, without making corresponding complaints when the burden, which is very much more hard to be borne, is placed upon the salary earning professional middle class.
Let me just say this by way of illustration. It is quite obvious that when the people of our generation were young, ordinary salary-earning people, earning perhaps £500 a year, up to £2,000 or £2,500, were able to retain quite a large proportion of that income for the purpose of saving—a thing which we are all encouraged to do, even now. They considered they were entitled to do this for the benefit of both themselves and their families. Now the effect of the very much higher rate of taxation, with the relatively small earned income relief, is to deprive a man whose working years happen to be in what is a particularly difficult period, of any opportunity to save on the same scale. It may be that his successors, who live in calmer times, may be able to save; his predecessors certainly were able to do so. Therefore, there is a case, whatever may be the merits of earned as compared with unearned income, for allowing more highly differentiated earned income reliefs at this period than at any other. So we should not be bound to the prewar ceiling.
I suggest that the Chancellor of the Exchequer, who is fond of researches, might do what I did the other day, and read the entire Budget speech of Mr. Gladstone in 1853. It is a very interesting and valuable document. One of the curious things that emerges from that study is this. Mr. Gladstone, who was, after all, only re-enacting, substantially, the legislation of Pitt, quite clearly saw and predicted the evils which would necessarily come from Income Tax, and which are now universally admitted to be the evils which do attach to this particular form of taxation. He came to the rather remarkable conclusion—or the conclusion which, to us, seems rather remarkable—that Income Tax ought to be treated as "a sleeping giant"—which were his own words—to be aroused out of his slumbers only when a war takes place. The reason he did so was that the evils were so serious. What he overlooked was not that the evils existed: he was not wrong about that belief. Where he was wrong was in his overlooking the fact that the relatively low rate of taxation at that stage
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did not, in fact, cause the evils which he rightly saw were inherent in the tax.
One of the most serious evils he saw was that a man who depended for his savings on a relatively high earned income as distinct from a man who has been able to develop a business with a capital goodwill or who inherited a fortune from which he obtained an investment income, would have a burden placed upon him which would unduly depress his position in the community. I submit that that has happened now, owing to the high rate of tax on earned income; and I would, therefore, suggest for the Chancellor's consideration that it is an important piece of social justice to remedy that situation by increasing the earned income reliefs, that it would be an entirely wrong view of the whole case to try to tie oneself to the pre-war ceiling, and that, quite apart from the question of priorities, this relief would be justifiable in future years.
Mr. James Callaghan: I desire the House to bear with me for a few minutes only. I want to enter a slight variation to the agreement which is emerging about the degree of priority which should be afforded to the earned income relief, and to make it clear that I was one of those who urged last year that the present reliefs should be given.
An Hon. Member: Not in the Lobby.
Mr. Callaghan: No, not in the Lobby, because I had a full sense of responsibility. I am glad that the Chancellor has given way this year. But what I want to put to him is that whilst this is very desirable—and I do not disagree with what the hon. Member for Oxford (Mr. Hogg) said—there may be a case for giving a higher degree of priority next year to other reliefs, notably the personal allowance. I wonder if the House would follow me in a little mental arithmetic. Take the case of a man getting £1,500 a year and the case of a man getting £3,300 a year. Under the present proposal of one-sixth the man with £1,500 a year gets an allowance of £250. On one-fifth he would get £300 allowance. So that if the proposition for one-fifth were to be brought into force next year, the net gain to him would be £50. The man on the level of £3,300 a year would be in a different position. The difference between one-fifth and one-sixth to him would be the difference between

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£50 and £60—£10 more. So the man at £1,500 a year would be getting £50 relief, and the man with £3,300 would be getting £60 relief. Why should be not? That is a perfectly fair observation. But we are dealing with the question of priorities, and all I want to put to the Chancellor is this. If he has next year an amount of money to spend, will he consider, as an alternative, whether it would not be better to increase the personal allowance all round as the first priority? Then, if he had some amount to distribute he could give £20 a year higher personal allowance to the man with £3,300 a year, and £20 higher personal allowance, say, to the man getting £1,500 a year.
Mr. Hogg: The hon. Member will agree, will he not, that if the right hon. Gentleman did that, he would be giving relief to a person whether the income was earned or not?
Mr. Callaghan: The hon. Member has anticipated me. That is, of course, the difficulty. That is why I say the Chancellor has to balance the advantages in a matter of this sort. There are so many millions of taxpayers. I think, however, the benefits to the community might be greater by doing it that way. I enter that reservation now, only so that when the Chancellor comes to read, the Debates next year—as, presumably, he will, before making up his Budget statement—he will not think he is going too far now in what he said about giving earned income relief. There is a good case for a Chancellor of the Exchequer, particularly a Socialist Chancellor of the Exchequer, distributing what he may have to distribute, a little more evenly between the men at the top and those at the bottom of the scale.
Mr. Orr-Ewing: Comparing the position today with that which existed before the war, I cannot help feeling that, in painting that picture, the Chancellor of the Exchequer rather overlooked the difference between the size of the weapon he is now wielding and the size of the weapon wielded by prewar Chancellors. It seems to me it would be wise to reconsider allowances for personal reliefs the higher the standard of taxation, and now is the moment, when it reaches the present serious level. It is at that moment that one is likely, inadvertently, to do the greatest harm to
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the most valuable elements in the community. Therefore, as a general proposition, I do not think in comparing pre-and postwar you can make a fair analogy, in regard to personal relief or allowance, by comparing the position now with the prewar position unless it is made perfectly clear that additional allowances must be made in view of the incidence of the higher standard tax.
The hon. Member for Oxford (Mr. Hogg) has mentioned the professional classes. There may at one time have been too many doctors—I mean the health sort—and possibly too many lawyers. In fact, I think today a good many lawyers are beginning to think there are too many of themselves now. But there is one group of which we have always been short or of which we certainly were short up to the war. We have always been short of those in the higher and most responsible grades of management in industry, the progressive forms of management in industry, and I think we have suffered from that for a very long time. We are now beginning to realise where the gap has occurred, and there is a good deal of work being done, possibly for the first time for 150 years, to build up a really progressive and modern approach to the problem. It is that group to which I would specially refer and I would ask the Chancellor not to go on hitting them longer than he need. If he does, he will be discouraging at the very point where we should be encouraging, namely, in the efficient management of the industries of this country.
7.0 p.m.
Mr. John McKay: This Amendment raises a matter about which I have felt strongly for a long time. As I understand it, the argument on behalf of this Amendment is that we ought to do something for the men of ability, and particularly those who have £30 or £40 per week. It is suggested that we should go out of our way to help these individuals. I have been in the unfortunate position of having a much lower income than that, but of course I have not the ability, and therefore, I suppose, I was not justified in receiving that amount. During my lifetime, my position has been similar to that of the vast majority of the people of this country. When I hear this talk about ability, how these people have applied their potential powers with such

1097
great benefit to society, and that therefore they should be recognised, I have tried to weigh up the position. I have tried to analyse humanity, and to find out whether it is correct that these people really have all this ability. I have asked myself whether these people are receiving incomes relative to their ability. Unfortunately, I have come to the conclusion that the so-called ability of these people is not relative to the amount they receive or in relation to their qualities as between one man and another.
It is questionable whether the incomes which these people receive are justifiable from the social point of view. If that is questionable, it is also questionable whether it is advisable to give a special relief to this class. I object to the general proposition that these people have any extra ability. They receive these incomes largely as a result of their social opportunities, which have raised them far above other sections of the community. In their present positions, they may have certain abilities as compared with others, but these abilities arise largely out of the opportunities they have been given. Any number of our people, who have not had similar opportunities, are being taxed pretty heavily. The House will understand, therefore, why I oppose the suggestion of giving relief to this class of the community.
Captain Crookshank: The speech of the hon. Member for Wallsend (Mr. McKay) is very interesting, but up to now we have not been discussing ability at all. I do not know where his argument would lead us. If the argument is that you are not necessarily an able person because you happen to have an income of £2,000 a year or more, I would go no farther than the Government Front Bench. I know from my experience of the Government Front Bench that there is quite a lot in what he says, but perhaps we had better leave aside our views, and his views, and other people's views, about ability in discussing this Amendment.
Dr. Morgan: Has not the right hon. and and gallant Gentleman got a few City directors on his Front Bench?
Captain Crookshank: I beg the hon. Member's pardon. I ought to have made an exception in his case, after the speech we heard earlier, which showed his ability and agility in a way I have not seen exhibited before. We do not complain of
1098
the tone of the right hon. Gentleman's reply on this question. He certainly did not turn the proposal down flat; he did not even turn it down for this year. He made the astonishing admission, which we did not have before, that there may be some money to come. We have discovered that this Amendment will only cost about £4 million, and we are, therefore, very glad that this matter has been raised so early in the proceedings, because at any rate it has chronological priority, if nothing else. We are pleased with the way in which the Chancellor met the argument. I am not at all surprised that he did not accept this proposal offhand, in view of the fact that the concessions already contained in this Resolution, will cost some £55 million this year. I think a case has been made out, and I hope that if he is not going to do it this year he will carefully consider the matter when he reviews the problem next year.
I hope that the Chancellor will review the speech of my hon. Friend the Member for Oxford (Mr. Hogg). The right hon. Gentleman thought that the real objective, before we started changes, was to get back to what happened before the war. In a great number of fields of activity, we should all be very happy if only that could be done. But let him not make it absolutely vital that that position should be reached in this case. If he finds that there is something in the considerations put forward by my hon. Friend the Member for Oxford, that there should be something other than the one fifth and the £300 maximum, which he said, would cost £40 million, let him not be so bemused by the idea of getting back to prewar as not even to consider the alternative. The right hon. Gentleman has promised to keep this subject prominently in mind, and has gone so far as to bring us back to the situation of what might be called the pre-postwar credit standard. In doing that, he has done a good deal. If there is any money still available, I hope the right hon. Gentleman will consider that this is a proper point to consider, because we are satisfied that something of this kind would be an incentive to a certain section of taxpayers, to whom the money would be useful.
Mr. Howard: In view of what the Chancellor has said, I can do nothing but

1099
ask leave to withdraw the Amendment, and hope for the best.
Amendment, by leave, withdrawn.
Question again proposed, "That this House doth agree with the Committee in the said Resolution."
Lieut.-Commander Braithwaite: In rising to make a few observations on this Resolution, I find it almost impossible to recapture the "first fine careless rapture" in which I found myself some time ago. There will be no controversy over the acceptance of this Resolution as a whole, because we have to be thankful for this small mercy which the Chancellor was able to announce when he introduced his Budget.
I want to impress upon the right hon. Gentleman a point connected with relief on earned income. In Mr. Gladstone's time—and I would like to congratulate my hon. Friend the Member for Oxford (Mr. Hogg) on reading the speech made by Mr. Gladstone, which lasted four and three-quarter hours—his Budget of 1853 was well received by the House, because there was a proposal to abolish Income Tax entirely for seven years. Naturally, if the right hon. Gentleman himself proposed that, we would gladly listen to him for four and three-quarter hours. I want to refer to the manner in which earned income is defined, This is not a matter which will affect the great business executives, whom the right hon. Gentleman described as "Tom and Dick"—a description which, I believe will cover the identity of the hon. Member for Romford (Mr. T. Macpherson) and the hon. Member for Ipswich (Mr. Stokes). It is with reference to those who are lower down the managerial scale that we want this matter considered.
The Chancellor stressed, as he always does, when he addresses us, the tremendous importance of savings. He looks with approval on the thrifty man. He does not believe, as I once suggested, during one of our wartime Debates, that one of the good friends of the Treasury in these days is the beer-drinker and the smoker, the man who, every time he indulges in drinking or smoking, makes a present of something to the Government, as against the man which creates the necessity for interest and sinking funds, and so on. I would stress that there should be a sharp distinction in that
1100
sphere. Many Members opposite, and the whole of our machinery hitherto, have regarded all investment as unearned income. I suggest that in many cases such income has been very hard earned indeed. It has been earned by those who have done the very thing which the Chancellor encourages, by those who have not spent the whole of their weekly wage on the cinema, the dog track, in a public house, or in smoking cigarettes. They have accumulated a nest egg for their old age, and they have invested it, perhaps in some tax-free security, or other form of investment in a great industry. I believe that the time has come to draw a sharp definition between inherited wealth, which falls from one generation to another, and the savings of a lifetime, carefully and wisely accumulated, and invested against old age.
7.15 p.m.
Dr. Morgan: Hear, hear.
Lieut.-Commander Braithwaite: I am glad that I have carried the hon. Member for Rochdale (Dr. Morgan) with me. Anyone who can do that, has achieved something. I also thought I detected on the countenances of one or two of his comrades slight signs of approval. In these times, the man who, as a result of a life of toil, has been thrifty and wise should not be treated as if his income was derived from investment, as if it were something which should carry a penal form of taxation. I would like to see the sharp distinction between earned and unearned income applied to the whole scale of taxation, including Surtax, and I hope that as we move to smoother financial waters, that may be possible. I agree that the right hon. Gentleman is not in a position to make a concession of that sort this year, but we are always looking forward. One Budget leads to another. This is a matter for his skilled officials; I admit that it bristles with administrative difficulties, but when we come to define earned income we should bring within its scope the savings of those who have worked hard during their lives, and leave unearned income to cover inherited wealth which descends from one generation to another.
Lieut.-Colonel Lipton: I would like the Chancellor to give his favourable and, I hope, sympathetic consideration, during the next week or

1101
two, to a point I wish to put to him. I am the more emboldened to put forward the suggestion in view of the fact that my right hon. Friend the Minister of Defence is on the Government Front Bench. I hope I shall get his backing for the proposal I want to make, which is that the annual bounty of £8, the maximum efficency grant for other ranks serving in the Territorial Army, should be exempt from the tax on earned income. This matter has been raised on previous occasions, and the Chancellor, on 25th February, showed that he was not completely unsympathetic to the idea of considering some kind of concession. Such a concession would serve two useful purposes. It would encourage the recruiting campaign for the Territorial Army, which is now about to commence, and it would have the additional merit, if, indeed, it be a merit; that it could only be extended to other ranks in the Territorial Army because, rightly or wrongly, T.A. officers are not entitled to this bounty for maximum efficiency. There is one other aspect of the matter to which I invite his favourable consideration, and that is the training allowance of 1s. 6d. for a two hour drill. I hoped that it may be possible to consider that as income so earned as to be exempt from tax.
Mr. Pitman: On the point raised by the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite), in regard to paragraph (a) of the Resolution—
Mr. Speaker: The hon. Member seconded the Amendment. He was then talking to the original Question and, therefore, he cannot speak again. By seconding, he exhausted his right to speak on this Resolution.

FARM ANIMALS
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Mr. C. Williams: I think that in all probability the learned Solicitor-General can explain this matter. It is' connected with the farming industry, and is very important from the farmer's point of view. It relates to Income Tax in connection with livestock. I think that we should have a further explanation of what its
1102
effect will be, and whether it is intended for the punitive purpose of extracting more money from the members of the industry, or whether it is to encourage production of really valuable livestock. I should also like to know whether the Government have had any contact with the National Farmers Union on this matter. Have they consulted with them and with others closely interested, as some of us are, in the question of raising pedigree livestock? I should like a general explanation of the purpose of this Resolution, and to know the amount of money which the Government expect to get out of it.
The Financial Secretary to the Treasury (Mr. Glenvil Hall): The object of this Resolution is to enable legislation to be included in the Finance Bill, to permit farmers and breeders who produce trading stock animals for breeding purposes, or for milk and egg production, to treat their animals either as stock-in-trade or capital assets, whichever they prefer, under certain limitations. They have been permitted to do this since 1942 by arrangement with the Inland Revenue. There was a case in the courts recently, and counsels opinion has been sought. It has been decided that legislative sanction should be given to what has become, over the last few years, an established practice. There is no new money in it. It will be giving legal sanction to what has been a practice for several years. The Farmers' Union has been consulted on this, and approve of the legislation which will be inserted in the Finance Bill.
Mr. C. Williams: Has the right hon. Gentleman consulted with the landowners' association, because they are interested in the raising of livestock? I very much appreciate what he has said.
Captain Crookshank: I think that the right hon. Gentleman said that he had received certain representations from some sections of the agricultural industry. I understood that this was something which was considered desirable in general by the agricultural industry. It was for that reason that I did not make any comment on the right hon. Gentleman's speech, because I propose to wait to see the exact extent of the Clause, when it is in the Finance Bill. I presume we can take it that this is generally agreeable to the industry.

DOUBLE TAXATION RELIEF
Motion made, and Question proposed, "That this House doth agree with the Committee on the said Resolution."
Mr. David Eccles: This Resolution foreshadows some more agreements with different countries—arrangements, which are very beneficial to British industry. I ask the Financial Secretary to tell us with which countries we are now negotiating. I understand that it is with Nigeria, the Gold Coast and Northern Rhodesia. Are we negotiating with France, Holland and Denmark, and, if so, what progress is being made? Can we expect this Resolution to be put into practice in connection with those countries? I ask especially about France, because it will be a great benefit to our two countries if this convention is likely to be signed in the near future.
My next question is about the extension of our convention with the United States. Article 22 of that Convention gives His Majesty's Government the power to extend the United States Convention to cover the Colonies. It is of great importance that some action should be taken under Article 22. For example, it is very important that the raw material resources of the Empire should be developed as quickly as possible. The world is short of raw materials, and we are in great difficulty in this country because of the high prices. If American capital is to be sought in aid of developing these raw materials—it is often necessary to have that capital because we cannot supply the machinery quickly from here—the Americans are willing to put in a minority interest but not unless the double taxation agreement is extended to cover these countries. If there is an Income Tax of 7s. 6d. in Northern Rhodesia and American capital joins with British capital to develop some raw material in that colony, as things stand now, the Americans can only claim taxation relief in respect of the difference between the United Kingdom standard rate of 9s. and the Northern Rhodesia rate of 7s. 6d., which is 1s. 6d. What we want, if we are to develop our resources with American co-operation, is for the convention to be extended so that they can get the full relief of the United Kingdom tax or the Colonial tax, whichever is greater. The Chancellor of the
1104
Exchequer, I think, told us some short time ago that the South African convention was not entirely satisfactory, and that it was intended to press for some improvement in the convention with the Union of South Africa. If that is done it will have to be brought in under this Resolution. I should like to ask the Financial Secretary to tell us how we are getting on with securing these improvements with the South African conventions because they would be very useful to British business.
7.30 p.m.
Mr. Glenvil Hall: I do not know to what extent I would be permitted to answer some of the questions put to me by the hon. Member for Chippenham (Mr. Eccles). This Resolution, as the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) knows only too well, is an enabling Resolution to permit Clauses to go into the Finance Bill when we arrive at that stage. At the present time the rule is that in these double taxation agreements we may give tax credits between one country and the other. Where a convention exists we can only set off the Excess Profits Tax of one country against the similar tax here. What we propose to do in the Finance Bill is to take powers to set off any tax of that kind against any tax here where a convention or agreement exists.
That, of course, is entirely different from the question as to whether tax agreements or conventions have been made with various countries, but with your permission, Mr. Speaker, I would briefly answer the hon. Member for Chippenham by saying that negotiations are in hand, in which we hope soon to reach an agreement, with France. The hon. Member has mentioned the agreements already, made with Australia, Canada, Southern Rhodesia and South Africa. I am sorry I cannot tell how soon negotiations will be taken up again with South Africa, but in my view it will not be yet, because we only recently completed an agreement with that country and the suggestion was that we should wait a little while and see how things went before we continued negotiations and discussions with them. As far as the New Zealand agreement is concerned, we are awaiting settlement; and generally we are hopeful that the Colonies, one or two of whom have been mentioned

1105
by the hon. Member, will make agreements in due course, but at the moment I have nothing tangible to report.
Mr. Eccles: Would the right hon. Gentleman be good enough to look into the question of the extension of the United States Convention and Article 22, and in due course let me know who should take the initiative to get that extension, because it is not generally known?
Mr. Glenvil Hall Mr. Glenvil Hall indicated assent.

TRANSFER OF ASSETS UNDER COAL INDUSTRY NATIONALISATION ACT
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution"
Sir John Mellor: Could an explanation of the purpose of this Resolution be given and, coupled with that explanation, could we have an assurance that it is not the intention to place the National Coal Board in any privileged position with regard to taxation?
The Solicitor-General (Sir Frank Soskice): The object of this Resolution is to give effect in the Finance Bill to an agreement which has been arrived at between the Mining Association and the Ministry of Fuel and Power, which is designed to cut out a great deal of unnecessary investigation for the purpose of settling compensation in so far as depreciation is concerned. Briefly the position is that the Income Tax Act of 1945 provided, for initial allowances and annual allowances, and also brought into being rather complicated machinery by which balancing payments and balancing charges were made. If that system operated in relation to the collieries transferred to the Coal Board an immense amount of work would be necessary, which it is hoped by the agreement which has been arrived at to avoid. What, therefore, it is proposed to do is this—it is proposed to treat the collieries on the transfer of the assets of the Coal Board as if they were not within the scope of the 1945 Income Tax Act for the purpose of depreciation and allowances, but were still
1106
governed by the legislation which existed before the Income Tax Act of 1945 was passed.
It will probably be remembered that there are a number of enactments which deal with depreciation and allowances. There is Rule 6, cases 1 and 2 of Schedule D, of the Income Tax Act, 1918, and then there is Section 19, the Finance Act, 1941. There are already various statutory provisions which were in force before the Act of 1945 was passed. Both parties, the Mining Association and the collieries, on the one hand, and the Coal Board, on the other, agreed that if it were necessary to apply the provisions of the Income Tax Act, 1945, the consequence would be that there would be a great deal of investigation into past figures in relation to each and every asset in order to assess under the terms of the Act of 1945 what appropriate compensation would be payable in respect of each asset, and what should go to the colliery undertaking and what should go to the Coal Board. It is agreed to revert to the pre-existing legislation in order to determine the collieries' depreciation allowance.
Hon. Gentlemen will want to know the net result. The net result is that the effect on the Revenue will be negligible. It cannot be stated, a priori, exactly how much would come out of it and whether the collieries or the Coal Board will benefit. There will not be much in it, and the object of the Resolution, as I have said, is to cut out a whole lot of unnecessary investigation, the cutting out of which, as far as can be foreseen, will not really affect the pounds, shillings and pence of either the collieries, on the one side, or the Coal Board on the other. The proposed arrangement is one which is agreeable both to the industry and to the Coal Board and, therefore, I ask the House to say that it is in the general interests that it should be adopted.
Sir Arnold Gridley: The Solicitor-General's remarks have brought back to my mind the fact that I took part in discussions on this particular topic on a previous occasion. The right hone Gentleman the Member for the Scottish Universities (Sir J. Anderson) was then Chancellor of the Exchequer, and while we got some distance with him, we did not get quite the length along the road which we had hoped we would travel. This in-

1107
tention of the Government, with which I am in agreement, is confined to the Coal Industry Nationalisation Act. Could the Government see their way, or have they any objection, to changing the words of this Resolution to this effect:
"or any enactment passed in the present Session for the nationalisation of any industry."
I feel that if the arguments used by the Solicitor-General are applicable in the case of the coal industry, they apply also to any other industry which may be nationalised.
Mr. Speaker: A very interesting point, no doubt, but the Resolution deals with coal and coal only, and I do not think we can here discuss transport, electricity or any of the other industries which may be nationalised.
Sir A. Gridley: I may be quite out of Order, but might I just ask the hon. and learned Gentleman this question? We are here dealing with a principle affecting industries which have been or are to be nationalised. The House is at present considering two Bills for the nationalisation of transport and electricity and I am anxious to know whether, in dealing with these matters, the Government would consider favourably applying the same principle?
Mr. Speaker: That is a matter which could be very suitably raised on the Second Reading of the Finance Bill, but it is not relevant to a Resolution which deals only with coal.
Captain Crookshank: This is only leading up to the Committee Clauses to be introduced in the Finance Bill, and we shall have to try to understand in considerable detail later on just what is involved. I must admit that I was not quite clear when the hon. and learned Gentleman was talking about apportioning valuations between the Coal Board and the industry whether he meant the valuations of assets, computing the relative charge for Income Tax purposes—
Mr. Glenvil Hall: My hon. and learned Friend was referring to balancing charges.
Captain Crookshank: —or whether he meant the balancing charges. Those were different possibilities in a very practical field. We have nothing further to
1108
add now, however, but we will read what the hon. and learned Gentleman has said and will look forward to the Clauses.

EXCEPTIONAL DEPRECIATION ALLOWANCES
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Captain Crookshank: What is this Resolution about?
The Solicitor-General: I take it that that interjection was really an invitation for me to give a brief explanation, and I will make my explanation as brief as I can, bearing in mind the great economy of words used in the invitation. The position is this. Section 4 of the Income Tax Act of 1945, which was referred to during the discussion of the last Resolution, has a slight defect as it is at present drafted, having regard to the actual dates which have been fixed upon as the appointed day for the Income Tax Act of 1945 and the appointed day for the Finance Act of 1941, Section 19. The result is that if some alteration is not made in the law a depreciation allowance will be given twice over in respect of the same asset. What is desired in the Finance Act is to bring in a Clause which will remedy that slight defect in Section 4 of the Income Tax Act of 1945 and prevent the double allowance, which is purely accidental.

BENEFITS PROCURED FOR DIRECTORS AND EMPLOYEES
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
7.45 p.m.
Sir John Anderson: This Resolution is cast in wide terms and it is not at all easy to judge at a glance just what it is proposed to effect under it, but as I think it is clear that it has something to do with the prevention of abuse in connection with tax-free allowances, I trust I shall be in Order if I occupy the time of the House for a few moments in developing a point I made in

1109
the earlier Debate. I dealt on that occasion with what I considered to be a difference of principle between Rules 9 and 10 under Schedule E of the Income Tax Act. I gathered from the subsequent proceedings—when, unfortunately, I was not able to be in my place—that the hon. Member for South Cardiff (Mr. Callaghan) and, I think, the Financial Secretary to the Treasury himself, sought to argue that there was really no difference at all because, as they pointed out, the same words which I had quoted appear in both Rules.
It is perfectly true that the same words do appear in both Rules, but they are contained in a different context, and I feel bound to draw attention to the material difference which I think appears in the application to the different sections of the tax paying community of these two Rules. Let me, however, first make it perfectly clear that in this matter I am not making an attack on His Majesty's Government, and not even criticising them. As was rightly pointed out in the last Debate, Rule 10, which is the rule under which the allowance in the case of the Prime Minister was settled, goes back a great many years and, as a matter of fact, I am myself implicated in its operation—not, I hasten to say, as a beneficiary but as a public functionary. The difference between the two Rules is this. Rule 9 makes the grant of any allowance depend on ascertained facts—facts ascertained under the ordinary machinery of the administration of Income Tax, subject to appeal to the courts and so on. The Rule begins by setting out two examples, one of which is the use of a horse and trap in connection with the performance of certain duties.
The Solicitor-General: On a point of Order, Mr. Deputy-Speaker. I waited for a while to see how the right hon. Gentleman would develop the point he was making, but it has now become clear, in my submission, that his argument has nothing whatsoever to do with this Resolution. The right hon. Gentleman Was talking about expenses within the meaning of Rules 9 and 10 of the Rules applicable to Schedule E. This Resolution makes no mention of expenses and has nothing at all to do with expenses. It is a Resolution which is designed to make it possible to impose a liability in respect of benefits. When I can, if I may, at a later stage develop the reasons
1110
for which the Resolution is put down, it will be perfectly apparent that it has nothing to do with expenses or with Rules 9 and 10 or with any argument which, so far as I can see, can be or has been based upon them. For this reason I respectfully submit that the right hon. Gentleman's argument is irrelevant.
Sir J. Anderson: May I make a submission on that point of Order? The relief from Income Tax can be given by an allowance for expenses or by ignoring for the purposes of assessment of tax benefits which the employed person receives. I gather that this particular Resolution which, as I said, is cast in wide terms—and we are at some disadvantage in discussing it because we have had no explanation—is concerned with bringing within the scope of tax certain benefits which now escape.
Mr. Glenvil Hall: Perhaps the fault is mine. When we were dealing with this matter on the Committee stage the question was put to me by the right hon. Gentleman as to what the Resolution meant and I indicated briefly then that, as my hon. and learned Friend has said, the Resolution was one to enable us to make provision in the Finance Bill to prevent avoidance of Income Tax. I feel that the right hon. Gentleman, basing his speech on that, imagined that the Resolution was going further than it does. I went on to say that it will still be legitimate under Rule 9 to claim the ordinary expenses which individuals can claim and that in order to allay suspicion, doubts and fears I should say at once that this Resolution has nothing to do with expenses. The right hon. Gentleman has assumed that it has something to do with expenses and is basing his speech on that. In fact, it has not.
Mr. Callaghan: Further to that point of Order. May I submit that the introduction of the dispute which has arisen about Rule 9 was in fact made by the right hon. Member for the Scottish Universities (Sir J. Anderson)? It was he who, in his speech, referred to the fact that the Chancellor had not himself spoken of Resolution 15, and went on to say:
"I concentrate on the words, 'We stand for justice.' I hope we all do. I hope that justice means one law for all. I am sure the Chancellor must realise that it is not so at present.''—[OFFICIAL REPORT, 16th April, 1947; Vol. 436, C. 207.]

1111
He then gave an illustration, and the illustration was the amount of the Prime Minister's expenses which are payable under Rule 10. As I understood the learned Solicitor-General in what he said tonight, Resolution 15, which we have not yet heard expounded, does not in point of fact deal with expenses at all. It deals with avoidance, and avoidance may be avoidance of Surtax. It may be avoidance under any particular heading, as in the Resolutions we had last year dealing with that subject. I do not know what would be for the convenience of the House, but I think it would be interesting to have a discussion on the right hon. Gentleman's point; it might be convenient if we heard what the object of the Solicitor-General is in trying to get Resolution 15, then we could see how wide we could go on it.
Sir J. Anderson: I would be quite agreeable.
Mr. Deputy-Speaker (Mr. Hubert Beaumont): I am in some difficulty as I have only just entered the Chamber, and I have not heard the previous speeches. I think perhaps it would be for the convenience of the House, although it nay be somewhat irregular, if the learned Solicitor-General would speak and the right hon. Member for the Scottish Universities (Sir J. Anderson) would then follow him.
Captain Crookshank: Perhaps we could consider the learned Solicitor-General's speech as a rather long interruption.
Mr. Deputy-Speaker: I am quite willing to do that, if the House will allow me to interpret when I think the interruption should cease.
The Solicitor-General: I am sorry this misunderstanding has arisen, but I hope when the right hon. Gentleman realises the object of the Resolution he will agree that this particular matter does not arise upon it.
Sir J. Anderson: I hope the learned Solicitor-General will apply himself to the scope of the Resolution as it stands on the Paper, and not to the narrower question of what it may be in the mind of His Majesty's Government to do under it.
The Solicitor-General: I will certainly do that. I will first say what we want
1112
to do under it and then, so far as it is relevant, dilate upon its scope. What we want to do under this Resolution is to introduce into the Finance Bill an anti-evasion Clause to deal with the class of case in which a director, or any other member of a company, is given what is really a revenue payment in the form of what, apparently, is a capital payment, with the result that he will contend that Income Tax is not payable upon it. May I give a concrete case of the sort of payment with which we are trying to deal? Let us suppose there is a director of a company who is paid a certain salary as managing director, and he has a right to an annuity for a certain number of years on termination of office. That, of course, is a frequent service contract. When his office comes to an end, however, instead of being paid the annuity, he is paid a lump sum by way of commuting the annuity. That is the sort of thing that has been done. If the director were paid so much by way of salary during the time he held his office, he would obviously pay Income Tax on it, and if when he left his office, he were paid an annuity, he would pay Income Tax on that. What is done, and what we want to prevent being done, when he leaves his office or relinquishes his employment, is the making of a fresh arrangement whereby, instead of being paid so much year by year by way of an annuity subject to Income Tax, he is paid a lump sum in commutation of that annuity.
For example, and this is a case which is not very far away from what really happens, a director receives £2,000 a year for three years' service, acquiring also a right to an annuity after having done three years' service. The annuity is commuted for a payment of £20,000, and it is claimed that the £20,000, being a capital payment, is not subject to Income Tax. The common sense of it and I would respectfully submit the intention of it, clearly was that he should not be receiving £2,000 but a much larger sum by way of' salary, namely, £2,000, plus a proportionate amount of the £20,000 which he is afterwards paid as a lump sum, and which it is claimed is a capital payment. That, if it is allowable, is a clear way of evading the provisions of the Income Tax Acts and, as the right hon. Gentleman knows, one of the most difficult problems of Income Tax law is to determine what is an income payment and what is a

1113
capital payment. This is a method which is attempted and which must be stopped, because if it succeeds the Treasury will lose an enormous amount of money. There are similar cases connected with endowment policies. The endowment life assurance policy is being advertised; it provides that upon termination of employment a lump sum shall be paid—again, not an annuity, which would be subject to tax, but a lump sum. That again is a method by which, if it succeeds, very substantial sums of money which ought to go to the Revenue by way of Income Tax will not go to it. The attempt is made to disguise what really is an annuity payment or an addition to salary as a capital payment, and, therefore, to maintain that it is not subject to tax.
What it is sought to do is to stop that sort of thing. It is a purely anti-evasion Clause. The right hon. Gentleman says that, the Clause is widely drawn, so widely drawn that he can advance the argument that he was seeking to advance. I submit that it is not. After all, what are the governing words?
"That it is expedient to impose liability to Income Tax where benefits"—
Nothing to do with expenses—
"(including benefits which are to be enjoyed only on the happening of particular contingencies)"—
It refers, in general, to the termination of employment—
"are or are to be procured or provided by bodies for persons who,. as directors or otherwise, are taking part or are to take part or have taken part in the management of their affairs …"
That is a fairly accurate way, and on the whole a fairly concise way, of describing the sort of transaction I have just indicated. I have indicated two transactions. It is desired to introduce into the Finance Bill an anti-evasion Clause which will prevent those two types of transactions, and other transactions which are analogous to them, from being successfully undertaken with the result that a great deal of Income Tax is lost. That is what we want to do; it is purely an anti-evasion Clause, and has nothing to do with expenses, with Rule 9, or with Rule 10.
Sir J. Anderson: I am sure the House is obliged to the hon. and learned Gentleman for his explanation of what is obviously a very complicated matter. I would still like to submit, Mr. Deputy-Speaker, that this Resolution is obviously
1114
drawn in terms wide enough to make it possible for legislation to be included in the Finance Bill to provide that the benefits accruing to employed persons in respect of their employment which at present escape taxation shall in future be held liable to taxation. And that being so, we on this side, in criticising the Resolution, are entitled to argue that before authority is given to the Government to bring within taxation benefits by way of remuneration accruing to employed persons which now escape, we should be assured that proper allowances, fairly calculated on uniform principles, will be made to employed persons under the Income Tax law.
The Solicitor-General: What sort of allowances?
Sir J. Anderson: Allowances for expenses, allowances of all kinds which may have nothing to do with this except that the Government are asking authority to extend the scope of Income Tax to cover elements in remuneration which at present escape. I submit that we are entitled to argue that the Government should only be given such authority if we are satisfied that in other respects the law with regard to the exemption from Income Tax of other elements in remuneration is in a satisfactory state. That is my submission.
8.0 p.m.
Mr. Deputy-Speaker: Having heard the hon. and learned Gentleman the Solicitor-General and the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson), I must rule that this Resolution has nothing to do with the question of expenses.
Mr. Eccles: I am grateful to the Solicitor-General for his explanation, but as one reads the Resolution, one puts the question, "To what kind of benefit does it refer?" If the Solicitor-General wants to have a simple example, I will give that of the benefit which a cricketer gets if there is a benefit match for him; at present that benefit is excluded, but on reading the Resolution, it seems to me that that sort of benefit might be included. I now understand it is not.
The Solicitor-General: If I may have the permission of the House to speak again, I would like in one sentence to reassure the hon. Member for Chippenham (Mr. Eccles) that the legislation will

1115
not in any way alter the existing law in regard to the payment of benefits in kind, such as board and lodgings, or payments of necessary business expenses.
Sir A. Gridley: I am afraid that in my ignorance of the law I am a little anxious after what I have heard from the Solicitor-General. He gave as an illustration the case of a director or an employee who received a certain amount as a capital payment instead of a pension or an annuity, and said that sum would be liable to Income Tax under this Resolution. Am I right in that?
The Solicitor-General: For the second time, I ask permission to address the House. The hon. Member for Stockport (Sir A. Gridley) begs the question, because he refers to a case in which a capital payment is made. The whole question is whether these lump sum payments in their true light are capital or revenue payments. We say they are not in their true light capital payments, and that is why we want this Resolution to prevent a revenue payment being described as a capital payment.
Sir A. Gridley: May I develop the point? It is not an uncommon arrangement, and I think it is an arrangement which is beyond question, for an employer to provide for an employee a fixed salary up to a retiring age and then to provide a pension for The pension conditions may include an option that when the retiring age is reached, instead of the person taking £500 or £700 a year, or whatever the figure may be, he may exercise his option to take a capital sum instead of a continuing pension. A person may be suffering from an incurable illness and may wish the sum to be invested by trustees on behalf of his surviving widow. Is that capital sum to be caught under this Resolution and treated as a sum liable to Income Tax? If so, a very great injustice will be done.
Mr. Callaghan: I think the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) put a most powerful case. There is a great deal to be said for his point of view, that as the Resolution is at present drawn we are in some difficulty. The only point I want to make is that when we come to the Finance Bill, it will be very interesting to See how this provision is drafted in
1116
order to avoid the difficulties which the right hon. Gentleman the Member for the Scottish Universities foresees. On that occasion, if the provision is still drawn as widely, the right hon. Gentleman will want to put the point again, and we shall continue the discussion which has been started and broken off. The draftsmen will be in some difficulties on this matter in the Finance Bill if they are to make the provision so narrow that it catches only the sort of cases which the Solicitor-General has enumerated. It will be a matter of very considerable difficulty, and we shall scrutinise the provision in the Finance Bill.
Mr. Jennings: The hon. Member for South Cardiff (Mr. Callaghan) has said a good deal of what I had in mind. We have to remember that the inspectors of taxes who will have to administer this provision may have different views as to what it means, and I think it is only fair to those officials that the provision should be clear. The Solicitor-General was clear as to what he had in mind, but I think there is some doubt, and for the sake of those who have to administer the provision, it should be clarified.
Mr. Assheton: I do not always agree with what the hon. Member for South Cardiff (Mr. Callaghan) has to say on matters of finance, but on this occasion I find myself largely in agreement with him. After listening to the discussion, I think it is clear that the terms of this Resolution have been much too widely drawn. The Solicitor-General has been good enough to give the House several assurances. We shall watch with very great care the drafting of the Clauses of the Finance Bill which will put into law the proposals of the Government on this matter. I wish to make it clear that in not dividing the House on this Resolution, we are relying very largely on the assurances which the Solicitor-General has given, and we shall look forward to seeing a Clause in the Finance Bill which will explain very clearly the limited matters which are to be put before us.

PROFITS TAX
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Mr. Assheton: It was somewhat of a surprise to many of us that the Chancellor should have used this particular form of taxation in his Budget, because the writer of an article in the "Economist" was good enough to remind us last weekend of what the Chancellor had said in an earlier period with regard to a tax of this nature. The quotation which I am about to read to the House is from "The Principles of Public Finance," by H. Dalton, M.A., D.Sc. (Econ.). If the Chancellor were here, he might tell us that he has learned a lot since he wrote that book, and I hope he has, but on this matter I would have been rather happy if he had been here to explain exactly what has brought about this metamorphosis. Talking of the Corporation Profits Tax, which was a tax of this kind, the learned doctor said in this book:
"This tax was a bad tax … For it discriminated against a particular class of property-owners, namely, the ordinary shareholders in joint stock companies, as compared with all other classes, including debenture holders and the holders of gilt-edged securities. It was, therefore, in effect, a tax on risk-bearing, and tended to divert the flow of capital from risky to comparatively safe investments. But, in view of the need that risks should be taken and the reluctance of many investors to take them, this was a harmful diversion."
What has brought about this metamorphosis? The Chancellor is more interested in the less risky investments than he was in those days, but perhaps the duties of Chancellor weigh heavily upon him, If so, we can understand the change.
I want to put before the House, if I may, some criticism, not of the tax, but of the grounds on which the Chancellor sought to justify it in his Budget. This is a tax on distributed profits. But, one should remember, it is not on profits distributed above the present level. The Chancellor justified it in his Budget speech by telling us that too much has been distributed in the past twelve months, and that increased dividends are the clearest indication in our national economy of an inflationary element. It is to that point that I draw the attention of the House. I draw attention, first, to the seventh Table of National Income and Expenditure, which gives some figures showing the distribution of the net product of enterprise, and also to another Table which is to be found in the same number of the "Economist" as that to which I have referred. This takes a sample of 2,040
1118
companies, and shows this interesting result. It shows that, whereas, in 1945, the amount of industrial companies' profits paid up in quoted dividends was 53·5 per cent., in 1946, which was the year to which the Chancellor refers, it was 53·2 per cent. That, I submit, does not really confirm the suggestion which the Chancellor makes that there has been an increase of distribution of the sort of thing which he is trying to check. There was also an interesting table in "The Times," leading one to the same conclusion that, whereas in 1945, 24·7 per cent profits were put to free reserve, in 1946 it was 25·6 per cent. I do not think the argument which has been put before us, justifies the conclusion to which the Chancellor has come.
Major Bruce: Before the right hon. Gentleman leaves that point, may I ask a question about the number of companies selected by the "Economist"? He said, I think, it was about 2,000. Is that the total of limited companies who had in fact published their accounts?
Mr. Assheton: I am afraid I do not quite get the hon. and gallant Gentleman's point. If he thinks that this is an unfair sample, I would say that it was a sample not produced for the purpose of producing this table.
Major Bruce: I asked because I have been doing some sampling in this matter.
8.15 p.m.
Mr. Assheton: I shall be glad to hear the results of the hon. and gallant Gentleman's sampling. I hope it will be as extensive as those I have produced, because unless it is extensive, there will be no particular point in the information. If he is going to show to the House that great increases have been made, I am sure we shall all be interested to hear the samples he quotes. But the Chancellor has to be guided by the general run of what has been done—and I am making a case, which I do not think will be seriously disputed, that the tendency has been to increase the amount put to reserve in the last year, rather than the contrary.
May I now touch on the general merits of this tax? The first observation which I, or I suggest anyone studying the tax, would make is this. Here without doubt is an additional tax on enterprise. Not

1119
only is it that, but it is an extremely unfair measure in its incidence, as all Members of the House will recognise if they will be good enough to follow me in what I am about to say. The way in which a company's capital is arranged varies from one company to another. One may have a large preference capital with a small ordinary capital. On the other hand, a company may have a very small preference capital and a very large ordinary capital. As this tax works out, the company with a small equity capital will give its shareholders a very heavy burden, compared with that company which has an exactly opposite capital setup. I do not know if I have made my case clear. Let us go a little farther. Take a company with, let us say, £1,000,000 of capital of which £800,000 is in 5 per cent. preference stock, with the balance of £200,000 as ordinary stock. Let us imagine that that company earns £50,000 in a year and let us assume, as we must, that the 5 per cent. interest on the £800,000 would take £40,000 out of the £50,000. That would leave £10,000 for the ordinary shareholders. A substantial increase in taxation has the effect of increasing the burden on the ordinary shareholders far more steeply, than in the case of the company which has £200,000 preference shares and £800,000 ordinary shares. I want the House to understand what this means. It means that the tax bears much more heavily on one particular kind of capital set-up than on another. There is no justice or fairness in that. It cannot be right that such a tax should bear with much greater severity on one type of capital organisation than on another.
I would make one other observation. The Chancellor of the Exchequer no doubt wants to persuade the directors of companies to plough as much back into their businesses as possible. That is a laudable intention. I very much doubt whether this tax will have that effect. True, the additional 7½ per cent. on top of the 5 per cent., is put on distributed profits, but, on the other hand, if the management of companies are seeking, as they may well do, to maintain their dividends at the levels to which the shareholders have become accustomed, there will be a tendency to draw from that part of their profits which would otherwise be placed to reserves, instead of add-
1120
ing to the reserves. I think that is a very serious objection. There are a good many points which I know other members on this side of the House want to put. I will not trespass longer on the time of the House except to say that this is a thoroughly bad tax. We do not think it is to the advantage to the production of the country that it should be subjected, at this time, to the additional impost upon enterprise, and we on this side intend to divide the House against it.
Major Bruce: The argument of the Opposition in regard to the Profits Tax which has been addressed to us so far, has been concerned with the fact that the new Profits Tax is going to have a killing effect upon initiative within the realms of private enterprise. It was said during the earlier Debate, and I was wondering why it was not treated with greater emphasis this afternoon by the right hon. Gentleman the Member for the City of London (Mr. Assheton), although, of course, it may well be that more speeches may come from the other side of the House to reiterate that point. I would like to draw attention to one or two rather more authoritative remarks which have come from those quarters of the City Press which appear to have a very large influence in this particular. The "Stock Exchange Gazette" of 19th April last, in an editorial, stated:
"although Mr. Dalton's proposals are definitely anti-investor, the market received them philosophically, and responded with buoyancy in equities, with the exception, of course, of tobacco shares."
The "Investor's Chronicle," which represents that broad class of rentier in this country, also on the 19th of April, in the "Stockbroker's Notebook," by Austin Friars, wrote—
Mr. Stanley: Is that his real name?
Major Bruce: I do not suppose so. It said this:
"The effect of the measure will be that it will require larger gross earnings to pay a given sum in dividends than it would to put the same sum to reserve. It remains to be seen whether this will have very much effect upon companies' dividend policy, but, except in marginal cases, I should doubt that it would."
It seems that responsible financial opinion in the City of London has already answered the right hon. Gentleman and Members of the Opposition on the point of buoyancy and confidence.

1121
I would also like to point out that the tendency has been in the case of certain companies, whose records I have been able to examine in the limited period at my disposal, to increase dividends. I was much struck on reading the figures produced by the right hon. Gentleman opposite from the "Economist," and I therefore decided to have a sample check from the files of "The Times." In the time at my disposal, I could only go back to 14th April, and I have the figures for several companies here, but I very much doubt whether I can give the exact number of companies whose figures I have examined. The first thing I noted was that, of the companies whose results were recorded in the financial columns of "The Times" since 14th April last, I could not find one whose dividend was less than it was last year. That is the first point.
Mr. W. Fletcher: The report of a company of which I am chairman appeared in that period. The company has paid no dividend for the past three years, nor is there one in prospect, but that was probably overlooked by the hon. and gallant Member.
Major Bruce: I refrain from using the point that the hon. Gentleman has just made against himself. All I can say is that, of the large number of companies whose results I was examining in the files of "The Times," I could not find one case where there had been a diminution in the dividend last year as compared with the previous year. On the other hand, I did find a number of companies which had increased their dividends, and I decided to give the House my broad view as to the tendencies being adopted. The figures I shall disclose will not show anything very sensational, such as those produced by the hon. Member for Eton and Slough (Mr. Benn Levy), but they are an indication of the way in which dividend policy is moving.
For example, the Churchill Machine Tool Company maintains a steady dividend of 30 per cent., which is the same as last year, and I doubt whether the Chancellor has any cause for complaint there. On the other hand, Frederick Lawrence, Limited, the furniture people, increased their dividend from 15 per cent. in 1946 to 30 per cent. in 1947—a 20 per cent. increase. Harrods paid 14 per cent. in 1946 and 20 per cent. in 1947, an increase of six per cent. British Lead Mills
1122
paid 30 per cent. in 1946, and maintained their ordinary dividend steadily at a nice and reasonable 30 per cent. this year. The Blythe Colour Works, whose results I could not find for 1946, declared a dividend this year of 80 per cent., and I take it that that is considered to be perfectly reasonable. The William Blythe Company, chemical manufacturers, paid 20 per cent. in 1946 and 30 per cent. in 1947, an increase of 10 per cent. Of course, there are many others which, I could quote. There is Messrs. Hoovers, who paid 30 per cent. in 1946 and 40 per cent. this year, an increase of 10 per cent., which will no doubt impress the housewife, and the Lewis Investment Trust, the chairman of which, as is well known, is Lord Woolton, on whose political position I make. no comment, and which increased its dividends from 15 per cent. in 1946 to 20 per cent. in 1947—a mere modest increase of five per cent.
I think that, from the figures I have quoted, it is quite obvious that the trend in dividend distribution is upwards. It is equally clear from the quotations I have already given to the House that the responsible Stock Exchange and investment opinion in the City of London does not think that the dividend policy of these companies, except in marginal instances, is going to be affected. The query which I have in mind, therefore, is whether this tax of 12½ per cent. is, in fact, large enough, I am bound to say that, in a good number of the reports of company meetings which I have read, chairman after chairman pronounced very solemnly, as chairmen always do, upon the Government's nationalisation policy, from which would follow a grave homily of the dangers of inflation. After having pronounced this grave homily on the danger to the nation, they would proceed to add to the inflationary position by declaring an increased dividend for distribution among their shareholders.
Mr. Stanley: Did the hon. and gallant Gentleman inquire any further; and can he say what were the comparative amounts placed to reserve by each of the companies whose dividends he read out?
Major Bruce: No, I am not able to say that. I am not able to go into any further detail. But I will tell the right hon. and gallant Gentleman that, during the interim period which elapses between now and the Finance Bill, if he will approach

1123
me at a later stage, I will have the particulars for him. It seems to me quite clear that this tax may have to be reconsidered, with a view, possibly, to increasing it slightly, and I do not see any particular reason why it should not be done. Hon. Members opposite have been clamouring for a wages policy, but have always neglected for commit themselves too far on the question of a profits policy. It may well be—
Mr. Stanley: I do not want to interrupt the hon. and gallant Gentleman, but would he say which Members on this side of the House have been clamouring for a wages policy? If he reads the speeches made during the economic situation Debate, he will see that it was disclaimed by everybody on this side.
Major Bruce: I am very pleased to hear that from the right hon. Gentleman. I withdraw the remark and fully accept what the right hon. Gentleman has just said on behalf of his party. I was under the impression—I readily admit my error—that the party opposite were so doing. If they were not, I withdraw it, and I accept their denial. I would ask the Chancellor to reconsider this whole tax question, and, after taking note of the responsible financial opinions I have quoted, to make further inquiries between now and the introduction of the Finance Bill, with a view to seeing whether it might not be advisable to increase the Profits Tax beyond 12½ per cent. I am quite satisfied that a case could be made out for it, and that the interests of the community would not suffer thereby. So far as this particular Resolution is concerned, I entirely support it.
8.30 p.m.
Sir Stanley Holmes: In the main, I wish to make some inquiries and to get elucidation from the Chancellor with regard to certain points, which we can possibly discuss more fully on the Finance Bill. The first question I want to ask the right hon. Gentleman is with regard to preference share dividends. After hearing the Chancellor speak on the Budget, I came to the conclusion that the extra 7½ per cent. to be charged on the Profits Tax on dividend distributions would not apply to preference share dividends. He said that these increased dividends were a case of paying more money
1124
for no work at all. One assumed that this would only apply to what one called equity shares ordinary shares or deferred shares. But I have learned that a number of financial writers in last Sunday's Press said that the dividend paid on preference shares would also be liable to the extra 7½ per cent. I do not know whether any official announcement has yet been made with regard to that. If it has not, I can only say that, if the extra 7½ per cent. were imposed on dividends paid on preference shares, it would be a complete imposition, because, in the first place, there have been no increased dividends on preference shares, and the, Chancellor has based his complaint en increased dividends.
The Chancellor has said that the extra 7½ per cent. is going to be a fine or a penalty, whichever one likes to call it, on increased dividends. But, as I have just said, there have been no increased dividends on preference shares, unless, of course, it was a participating preference share, in which case the participating part would reasonably come in for the extra tax. Furthermore, while directors of companies are able to refuse to pay any dividend on an ordinary share, following the Chancellor's expressed desire that profits should be placed to reserve for the purpose of being ploughed back into business, company directors have no right whatever to withhold the fixed dividend on preference shares, whether it be four, five or six per cent. There is an obligation on their part to pay. If, therefore, it is true that companies are going to be penalised by having to pay an extra Profits Tax of 7½ per cent. on preference shares, I say that it is a gross imposition, and most unreasonable.
May I ask two questions which I previously asked in my speech last week, and to which I have had no reply either from the Financial Secretary or from the Chancellor? The first was, Will a dividend paid by a wholly owned subsidiary to its parent company be subject to the extra 7½ per cent.? A wholly-owned subsidiary company, let us say, pays a dividend of £75.000 to its parent company. The parent company, perhaps, has one or two other small subsidiaries which make no profit at all. The parent company pays the £75.000 paid to it by the wholly-owned subsidiary to its shareholders. Is there going to be double taxation? Has the

1125
extra 7½ per cent. to be paid on the dividends paid by the wholly-owned subsidiary to the parent company, and then, when the parent company distributes that £75,000 to the individual shareholders, has the 7½ per cent. tax to be paid once more?
Excess Profits Tax ended on 31st December. According to the White Paper, the extra Profits Tax commences on 1st January. If a company's year ended on 31st March, 1947, it is liable to pay 60 per cent. E.P.T. up to the 31st December, namely, three-quarters of the year. If that Excess Profits Tax exceeds its Profits Tax, it pays no Profits Tax to that date. On 1st January, it commences to pay Profits Tax only. But a difficulty appears to arise with regard to this extra 7½ per cent. on dividends. Will the extra 7½ per cent. be paid on one-quarter of the total dividends paid on equity shares for that year ended 31st March, 1947?
The next thing I want to point out is that the Chancellor has been endeavouring for nearly two years to persuade industry to plough back as much as possible of its profits into its business, and to distribute as little as possible. The extraordinary effect of this Budget, with its new provisions with regard to Profits Tax and to bonus shares, is that if a company pays out every penny of its profits in dividends, it is going to pay less to the Chancellor than if it permanently puts back the whole of its profits into capital. I will give the House an illustration. A company makes £50,000 in one year. The directors decide that they will not pay anything in dividends, but that they will merely leave that £50,000 in "carry forward." They pay to the Treasury 5 per cent. Profits Tax. A second company decides to distribute the whole of the £50,000; that company pays to the Treasury 12½ per cent. But another company says, "We have made £50,000; we want that as permanent capital in our business, we shall not put it into 'carry forward' because it could be used either by ourselves or by future directors by way of dividends and paid out again. We are going to put it back into the company permanently. We are going to give it to the shareholders in the form of shares, and no one can ever touch it again." That company has to pay 5 per cent. Profits Tax and 10 per cent. on the bonus element, or, in other words, 15 per cent.
So we have this result of this Budget: If a company has £50,000 in profits and
1126
decides not to pay a dividend, it pays only five per cent. If it decides to pay the whole of the £50,000 in dividends, it pays 12½ per cent.; but if it decides, in accordance with that which the Chancellor has been advocating for nearly two years, to plough back that £50,000 into the business, it has to pay 15 per cent.
Mr. S. N. Evans: For one year:
Sir S. Holmes: I do not want an answer from the back benches opposite. I want it from the Chancellor himself. I have stated the effect of the present Budget in this respect and I ask him to explain why the company which is endeavouring most to follow his wishes, is to be the most penalised—
Mr. Beswick: I feel that, in one or two respects, the proposed Profits Tax could be improved. I can see something in the argument that one company which has carried on a reasonable profits policy and is paying out three per cent. or five per cent. per annum, ought not to be taxed equally with the company which is paying out 20 per cent., 30 per cent., or 200 per cent. or 300 per cent. as some have been doing. I also think it might have been possible to make this into a fairer instrument, and to have made some differentiation between the company which is performing a useful function in our social economy, and certain companies which, possibly, are not so usefully occupied as far as the production programme is concerned. Thirdly, I think the tax could have been improved in regard to the figure of 12½ per cent. I am not one of those who, having left 80 per cent. of our economy to private enterprise, immediately try to discourage that enterprise. Obviously, we should give them a fair chance. Those companies which are producing a good article at a fair price, and are paying the workers a fair wage, should obviously be encouraged. But at this moment we are asking the workers to work harder, and to forgo wage increases.
Mr. Birch: Who are doing so? Are you?
8.45 p.m.
Mr. Beswick: Yes. It would seem to me in line with that policy if we also take effective steps to see that there is a limitation of profits. I do not think this tax

1127
of 12½ per cent. goes far enough to limit these profits. I have been surprised by the lack of energy with which the Opposition have attacked this Profits Tax. The reason why they have displayed such lack of energy is because, in my view, they were expecting a heavier Profits Tax. I think there was some reason for reducing the 60 per cent. E.P.T., but I do not think there was any reason for reducing it down to 12½ per cent.
Mr. Birch: It is not E.P.T. at all.
Mr. Beswick: It is not E.P.T., but the effect as far as distribution of profits is concerned is roughly the same.
Mr. Birch: No.
Mr. Beswick: The effect as tar as the distribution of money in the way of profits is concerned is the same.
Mr. Birch: No.
Mr. Beswick: I suggest that there should be an additional tax, of something in the neighbourhood of 20 or 30 per cent., on all profits above five per cent.
Mr. Birch: On what?
Mr. Beswick: On the capital. Mr. Birch: On the real capital?
Mr. Beswick: That would be assessed. If there is a proposed distribution of profits in the shape of dividends above 5 per cent., then there should be an increase of tax on that distribution.
Mr. Boothby: Does the hon. Member make no distinction whatsoever between a developing company—a mining company for example—and an established company like Courtaulds? Will he make them limit their profits to 5 per cent.?
Mr. Beswick: I would not make any differentiation, except in so far as certain companies would, as I said, be treated favourably. There would be a number of companies treated favourably, in so far as it is designed to encourage the capitalisation of those industries. It may well be rough justice on some of the other companies, but at the same time—and this is my point—there is rough justice at the present time as far as wages are concerned. We are asking workers to forgo wages—
Mr. Monslow: On whose authority is the hon. Member making that statement?
Mr. Beswick: I am making it on the authority of a person who can read, and who can speak with other people. I will explain what I mean. I think the House will agree that at the present time we should adopt the principle of equal pay for equal work, for example.
Mr. Birch: That is quite a different thing.
Mr. Beswick: Oh no. Bearing in mind Government policy, we are not at this time going ahead as we should with that particular policy of equal pay for equal work.
Mr. Deputy - Speaker (Mr. Hubert Beaumont): The hon. Member is now going very wide of the Resolution under discussion.
Mr. Beswick: My general point is, that there is rough justice at the present time as far as the wages policy is concerned, that there are certain classes of workers who are entitled to wage increases, but who are not getting them. My proposal is, that there should be an increase in this 12½ per cent. Profits Tax in order that we may go to the workers and demand an equal sacrifice from them with a clearer conscience than it is possible to go to them with at the moment.
Mr. Eccles: In a moment I will turn to this question of rough justice, in which I am very interested. First I want to ask two questions about the Resolution. I am glad to see a reference to amendments in the computation of losses and profits for the purpose of the tax. Does that mean that we are to have only one method of calculation in future, both for the Profits Tax and Income Tax? I hope that is what that means, because up to date, it has been tiresome to make two calculations. I hope we may be told what this change in computation means, and I hope it means there is to be one single computation. Secondly, is it intended that the tax should apply to all dividends paid out of profits as after 1st January, 1946, or to dividends paid after 1st January last?
Now I turn to the hon. and gallant Member for North Portsmouth (Major Bruce) and to the hon. Member for Uxbridge (Mr. Beswick), who discussed the principle of this tax. The hon. and

1129
gallant Member for North Portsmouth said that the Stock Exchange had risen on the Chancellor's Budget, and that that showed that there was nothing much wrong with the tax. I can only tell him that if there had not been a Profits Tax at all, the rise would have been much greater. I much regret to say that this rise is due to the inflation that is about. I consider it a thoroughly unhealthy thing that there should be so much money about, particularly money which is coming out of gilt-edged securities. When it overbalances the bad effect upon business of a tax like this, it is a very bad mark for the Chancellor.
Major Bruce: Would the hon. Member not agree that the inflationary process which, he says, exists, is due to so much profit having been distributed during the year?
Mr. Eccles: The inflation, as was well put by my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), has been inflation of capital. That has never penetrated to the hon. and gallant Member. I would be out of Order if I went into the causes of the present inflationary situation, but hon. Members must realise that, if we have a tax which penalises companies, and it has no effect upon the Stock Exchange, the rise would have bean much steeper without the tax, and that must be proof, even to them, that there is far more money about than there ought to be.
I leave the effect upon the market to come to the tax itself. I have always been in favour of some mans of encouraging, through the Budget, the ploughing back of profits. Therefore, I think, the question we want to ask is whether this particular tax is going to help production and employment. Or is it going to hinder production and employment? That is not a question which hon. Gentlemen opposite ask. They look at this thing from the point of view of cutting up the cake into slices which they think are just.
Mr. Beswick: Not at all.
Mr. Eccles: That is precisely what has been said—that wages have been kept steady, but that profits have risen, and, therefore, as the profits appear to them to be growing, they want to curb them.
Mr. Beswick: What I was asking for was an increase of productive effort on the part of the workers, which is more likely to be forthcoming if the results are not drawn off in the shape of profits.
Mr. Eccles: I am afraid the tax will not have the effect which the hon. Gentleman thinks. I much regret that I do not think that this tax will cause money to be ploughed back. It is not the way to improve the assets behind the worker, which is what we should like to see—tools, machinery, buildings renewed. On the contrary, I am afraid that this is very much like the tobacco tax, and that just as smokers will go on smoking, dividends will go on being paid. The Chancellor will get some revenue, but I am not looking at the revenue point of view, but at efficiency of production; and from that point of view this is not a good tax. As my right hon. Friend the Member for the City of London (Mr. Assheton) said, the Chancellor of the Exchequer knows that it is a bad tax, unless he has changed his mind. The right hon. Gentleman, in his book which we have all read, has said that a tax which falls upon the ordinary shareholder is a bad tax, because it really falls on those who take the risks.
Mr. Dalton: I had not forgotten, when making my Budget speech, or in preparing my Budget, what I had written, and I was not recanting it, although, as circumstances change, the emphasis in one's opinions alters. I said with regard to an increased Profits Tax, that:
"Whatever may be said about it generally"—
and I had in mind what I had said about it "generally" in a book written some time ago, which is why I use these words—
"it has a special justification, in these days of cheap money, in order to do justice as between one section and another of those who receive income from investments."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, C. 85.]
It was in the days of dear money when I wrote that little book, but these are days of cheap money, and the situation has quite altered.
Mr. Eccles: I accept what the Chancellor says, but it does not dispose of the essence of his original argument, namely, that it is a bad thing to favour the prior charge holder against the man who takes

1131
the risks. The effect of this tax is to discriminate in favour of the prior charge holder. Debenture and preference interests were always considered to be the first charge on a business, but I have no doubt that the first charge now is continuity of employment. That view is held by many modern businessmen. By far the best way of arranging the capital structure, so that continuity of employment can be achieved, is to have the capital in ordinary shares, because the ordinary shareholder can then take the knock in bad times, and it is easier to continue employing people and keep up the rates of wages. If you push capital into priority holders, you make it more difficult to carry out a stable wage policy in a business in good and bad times. Although this may be a sop to Socialist politics, it is actually an old-fashioned blow to the stability of earnings and employment in the country.
There is another bad effect. It increases the propensity to register companies outside this country. It is of great importance to the United Kingdom, when we are trying to get on our feet again, and when we have lowered our chances of doing business in places like India, and must therefore start again in Africa, if we are not to go down the drain, that as many of the companies as possible should register in this country and be managed from this country. That will not happen if there is a discriminatory tax on the ordinary shareholders in this country.
9.0 p.m.
I do not know what the plans are, but hon. Members are well aware that we have to disperse our munitions production throughout the Empire. It is necessary to do so from the strategic angle. Would it not be much better if these companies were registered here? But who will do that when he knows that the profits which he earns in this country, if he distributes any of them, are to be subject to a discriminatory tax of this kind on the ordinary shareholders, which they would not suffer if the company were registered in South Africa, Canada, or some other part of the Empire? That is one effect of this sort of taxation.
One can make as many speeches as one likes in favour of the justice of saying that the shareholder is a man who does not deserve to get any more now, but
1132
let us not forget the economic results of taking that view. I fear they are much worse than, and very different from, what hon. Members opposite have thought. The incidence of the tax as between one kind of company and another will be unjust, but that is a minor point, in my view, compared with the general point that we are hitting the kind of capitalist whom we ought still to want, given the social background of the present day. Take, for instance, the small business. In many small businesses there is one man who is a sleeping partner and has £10,000 in preference shares, and there is another man who is the active man, and he takes, not a very high salary, but has the ordinary shares, and he relies upon the dividend on the ordinary shares to give him the incentive and reward.
Major Bruce: The hon. Member knows that in the small companies to which he is referring, it is the policy, where a director does have a large ordinary shareholding, subject to the limitation which the hon. Member has given, for him to draw the bulk of his remuneration by a salary or a fee. This business about a director drawing a dividend is not, in fact, in accordance with modern practice.
Mr. Eccles: The hon. and gallant Member does not know what he is talking about. He has only to consider the small engineering companies, and I suggest that he has a talk with the hon. Member for East Middlesbrough (Mr. A. Edwards), and he will find that what he said about modern practice is not true. I have many times tried to think how companies could be got to plough back money, and I have thought also of a differential rate of Income Tax between what is capital in the company and what is paid out. I have come to the conclusion that far the better way of doing it is to increase greatly the allowances for scrapping plant, renewing it, and rebuilding it—all those allowances that are paid When a company does something with the money.
Mr. Scollan: What sort of safeguard could the Government have that the money kept for that purpose would be used for that purpose?
Mr. Eccles: The point I am making is that if the inducement is given in the form of allowances on capital actually spent in depreciation, wear and tear, and so on,

1133
the Government have a very good control in that it pays out when the company does something. What may happen in this case is that a company will keep the money in Gilt-Edged or in the bank, and not do anything with it. That will not help anybody, except the Chancellor and the Gilt-Edged market. I cannot help thinking that the tax has something to do with helping the Gilt-Edged market. That is the difference between this side of the House and hon. Members opposite. We both want to have the money ploughed back. We both want to see the assets behind the workers improved. The other side of the House wish to do it by penalisation, and we wish to do it by giving an incentive.
Mr. Mitchison: I should have thought that the general case for this tax at the moment was so obvious that hon. Members opposite would have found some difficulty in opposing it. As I understand it, it is not penalising anyone to make him pay his fair share of taxation, and if there is a class in the community, which owing to the general financial position and the economic circumstances of the time, has a rather large share of the national income, I would not call it penalty but justice that that class should pay a proper share of taxation. In my view, this Profits Tax is well calculated to touch a particular class of gains and a particular class of person who are at the moment appropriate for taxation in that sense. I ought to say to the House that I have this amount of personal interest in the matter—that I have been a director of public companies for many years, and I am at the moment chairman of several of them. [An HON. MEMBER: "Come over here."] In answer to that invitation, I think that I may properly say that on this side of the House we are a representative slice of the whole nation and not merely of one part of it.
Some hon. Members opposite have been expressing doubt as to the practical effect of this taxation. I can give them my own personal experience. After the Chancellor's Budget speech, I went back to the affairs of a particular company, and I then and there reduced, in collaboration with my fellow directors, the rate of dividend which we propose to pay, as an act of ordinary prudence. So I may say in answer to the hon. Member for Chippenham (Mr. Eccles) that at any rate the
1134
Chancellor's speech did have some practical effect. The appropriateness of this tax at the moment lies in the fact that the ordinary shareholder has been, by and large, getting the benefits of what I must not call inflation, but may properly call inflationary pressure. On the figures given by the right hon. Member for the City of London (Mr. Assheton), the proportion of profits retained to profits distributed in dividends has not varied much since last year, but both the total profits and the average rates of dividend have gone up considerably. So the figures he gave were perfectly reconcilable with the observations which were made by my hon. and gallant Friend the Member for North Portsmouth (Major Bruce) in this connection. Within the structure of the company it is, of course, the ordinary shareholder who gets the benefit of that increase in profit as against the preference shareholder or the debenture holder and it is to the accretion of that benefit, not in the main due to any personal effort of the ordinary shareholder but to his investment position, that this tax is in my opinion very properly applied.
It is all very well to talk about encouraging enterprise but one has to bear in mind that this tax is going to be borne in the first place by the companies, and in the second place by the ordinary shareholder. As far as the company is concerned it clearly will not have that effect and as far as the ordinary shareholder is concerned it is surely a hopeless idealisation, or should I say it is a hopelessly out of date view of his position, to suppose that he is really contributing anything in the way of enterprise in the conduct of the business, or indeed that he has very much to do with it. The people who have to pay these taxes are those who, because of their investments and because of the economic circumstances of the time, have had the benefit of a general increase in dividends. It is only right and proper that these people should pay their share and to talk of penalising them is wholly fantastic.
I am not going into all the points raised by the hon. Member for Chippenham. If he will excuse me, it would take rather a long time to do so, but I will agree on two things. Matters would be very much simpler, if all companies had one class of shareholder, and theoretically there is a great deal to be said for it. After all, what we are taxing here is a company and how it is borne is a matter of the history

1135
and the structure of the corporate body. To discuss that seems irrelevant, and I think the hon. Member really answered himself when later on in his speech he dissociated himself from his right hon. Friend the Member for the City of London (Mr. Assheton) as to the unfairness of this matter between companies constructed in one way and companies constructed in another. As to the question as to what is the right tax to be borne by companies, having regard to the increased distribution of company dividends due to the general economic circumstances of the times, it seems to me right and proper that a tax of this sort should be put on, and further, having regard to what I might term the unconvenanted benefit which the ordinary shareholder has had because of the average structure of the company, I say this is a correct tax on him.
I should like to associate myself with what has been said from this side of the House on the question of wages and dividends. We are, in fact, calling on the people of this country to do more work by way of an additional contribution to the national income. It seems only right and obvious that the call should be accompanied at the same time with every possible step that we can take to put reasonable limits on the distribution of dividends, and to ensure that the wealth created by the efforts of the workers is put back into the business as capital and not spread about among the community at this moment by way of increased dividend. It is because excessive distribution of dividends at the moment increases the gap between the quantity of goods available and the amount of money normally in circulation that I think it ought to be restrained by taxation, and I regard this tax as appropriate for that salutary public purpose.
9.15 p.m.
Mr. W. Fletcher: The hon. and learned Member for Kettering (Mr. Mitchison), as an example of the hereditary principle of directorships, sits rightly on the other side of the House.
Mr. Mitchison: If the hon. Gentleman will allow me for one moment I would say by way of personal observation that I am an example both of that principle and of the opposite non-hereditary principle, although I am not quite certain of the relevance of that to this Debate.
Hon. Members: Withdraw.
Mr. Fletcher: I can see no reason to withdraw the considerable compliment I paid the hon. Gentleman. After all, there is no disgrace in following in one's father's footsteps.
I should like to consider the incidence of this tax, first of all, on enterprise itself, and then, afterwards, on the shareholder. I shall take it in that order purposely because I believe that the major ill-effect of this tax is certainly on the spirit of enterprise without which the Chancellor would not have very much revenue to draw on from any source. There is a tendency on the other side of the House to think in terms of industry rather than of trade—to think inside this island rather than over a much greater area. I should like to point out that at the present moment, when we are all engaged in what I think is a very real endeavour in an export drive, that does mean in effect the selling of our goods throughout the world.
To carry that out properly it is essential, if they are to be sold in areas not under our control, that subsidiary companies should be formed in foreign countries. The incidence of taxation and the discrimination made against companies not registered in the country is very great, and it is absolutely essential that companies should be registered in those countries. That renders them liable to taxation. In turn that means that in areas where the Chancellor's efforts—which we all applaud—to bring about reciprocal arrangements to get rid of dual taxation have not been successful, the company and, eventually, the shareholder in this country in these great distributive and also creative organisations—because they are the organisations which have created throughout the world many of the great industries such as rubber growing, tin getting and the production of other raw materials—have to bear perfectly enormous burdens by the time the dividends become liable to taxation in this country.
I have made a small calculation, and I hope its accuracy is equal to that of the hon. and gallant Gentleman the Member for North Portsmouth (Major Bruce) who spoke recently. I am not very ambitious, but I hope my accuracy is as high as that. My calculation concerns what happens to anybody who has a company registered in Indo-China. By

1137
the time the taxation 'there and in France—which comes into the matter too—has been taken into account, plus the taxation here, the amount that comes into this country is about 22 per cent. It is a very serious thing for directors of companies to have to take a five to one risk on behalf of their shareholders. If on top of that the Government are going to increase the distributive tax as they are under this Clause, then the moment must come when the director has two courses open to him. The first is not to do business in those countries, which is a very grave thing for him to contemplate, since that is the best means of distributing in foreign countries goods we produce here. If he shuts down, it will mean that goods produced in this country under the production drive will not be sold in those areas. Either he has to do that, or he has to find other means, such as registering his companies outside these islands. That is the general pattern of distributive trade and the getting of commodities throughout the world. If the camel's back is to be loaded with whole bundles more straw, as under this Resolution, the time will soon come when the Chancellor will find he will get less revenue from this source than he was getting before, and obviously he wants to avoid that situation. Those who are engaged in the selling of these goods and the getting of these commodities, as I think the Chancellor and his henchmen will admit, are among the greatest getters of dollars at the present time, and if they are not to have some consideration shown to them, the Chancellor will find that the getting of dollars will fall off. The easy assumption that dividends have all gone up is not borne out by the facts.
I would put forward a plea for those who have worked, and are still continuing to work, in territories that have been overrun by the enemy, in the Far East particularly, in Malaya, Hong Kong, and other places. They have still in those places very large financial claims against the Government which the Government have not yet seen fit to discuss or examine. Most of them are in a very poor state financially. The large majority of them have not paid a dividend for a very long time. They have adopted as their patron saint, in their efforts, the Chancellor's own patron saint, Baron Munchausen, famous not only for his taste for fancy rather than fact—that is possibly the Chancellor's reason for selecting him
1138
—but also for pulling himself out of his difficulties by his own bootstraps. These particular industries have rehabilitated themselves by their own efforts, without much assistance, financial or otherwise, from the Government. They find themselves in the position that they have, with the greatest difficulty, got going again, in a large number of territories throughout the world, businesses which were completely crippled. Nobody knows this better than the Chancellor, who, during the war, as Minister of Economic Warfare, had to follow these matters very closely. They are making a major contribution at the present time to the vital business of getting dollars. Malaya produced 1,500,000 tons of rubber last year, which was largely sold for dollars, and produced a very handsome crop for the Chancellor. Yet the majority of these companies have not been in a position to pay their preference or ordinary dividend for a very long time.
In due course they will start from zero again, and the finger of scorn will he pointed to them, as it is to anybody who increases a dividend, for doing something rather disgraceful in increasing their dividends. It is not really a very great increase from zero up to 10, 15 or 20 per cent. after five years of enemy occupation. This tax will be particularly unfair and hard on those companies. What will they do? They will take the course, which they have to take in many cases, in considering the interests of their shareholders, and that is, first of all, the prudent course of ploughing back and making reserves. In trades and industries' which have not got great machinery, reserves to meet the many rainy days to which we are subject are nevertheless of very great value, but they will be penalised by the Chancellor. The next thing they will do will be to conform to the new pattern of trade and industry throughout the world, which is to establish themselves as entities and as companies in those parts of the British Empire in which the incidence of taxation is less unfairly loaded against them.
Mr. Scollan: They have always done that. Why the blather?
Mr. Fletcher: Perhaps the hon. Member thinks that that is clever. We must consider all the facts and not just the fancies. I appeal to the Chancellor to give very careful consideration to those companies which have been very heavily hit in occu-

1139
pied areas, and which have come up to a higher rate of dividend from a lower one. If he does not listen to some plea of that sort, I think it will be found that real enterprise—and I do not mean the mock enterprise suggested by hon. Members opposite—will be seriously injured. I have said before, and I will repeat it again, that one will not kill the real spirit of enterprise, but one will export it. We shall find that the chief export of this country will be of those people who have a dynamo of energy, people who do things, and want to progress. We shall find that they will go to countries where their efforts are more appreciated, and where they build up, throughout the world, by persistence and energy. We have done that in years gone by because there has been encouragement from the Government of the time, and there are other parts of the Empire where these people are wanted. There we shall find ourselves assisting in the building up of these countries. I warn the Chancellor that if he goes too far in punishing the real enterprise—not the mock enterprise—he is going to suffer most. As he represents the finance of this country, I ask him seriously to consider this plea on behalf of those who are recovering from the great injuries of the war in order that their lot may be made less difficult and onerous.
The Solicitor-General: A number of speeches have been made for and against this tax, and I will try to give such answers as I am able. First of all, what is the case for this tax, putting it very generally? The first argument is simply that the revenue has to come from somewhere and I would ask hon. Members opposite if it is more desirable to place the incidence of the tax which we have placed on dividends, on earned profits. Hon. Members opposite have spoken in favour of an increase in earned income allowances. That, I should have thought, would have afforded a powerful incentive to initiative. Hon. Members opposite now appear to ask that this tax, instead of being placed on dividends, should be placed on earned income. Surely hon. Members opposite do not seriously say that, and I would ask what is the case of hon. Members opposite against this tax? They say that it will discourage enterprise. This can be put in a slightly different way, as it was by the hon. Member for Chippenham (Mr. Eccles). He said it was a tax on the ordinary shareholder and dis-
1140
criminated unfairly in favour of the fixed charge, that is to say, the preference shareholder. There is very little in that argument. It was adduced to make it understood that this tax acts against enterprise. Can it be said that the ordinary shareholder takes any risk—any real risk—and shows any initiative? That point was put by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) who pointed out that the ordinary shareholder did neither of those things, and it is miles away from the fact to say that, in a large public concern, with a large number of ordinary shareholders, it is they who supply the brains and the drive for that company. Somebody said, "What about the small company?" In some small companies one has ordinary shareholders who are active partners in the concern, but in a great many of such companies one finds that the partner who really does the work is remunerated by way of a salary.
Mr. I. J. Pitman rose—
9.30 p.m.
The Solicitor-General: I have a number of points to cover and I want to deal with them. May I make this point, and then I will give way? It is not a true picture at all to say that because we are imposing a burden upon the ordinary shareholder, we are penalising enterprise. In modern, large-scale industry it is not correct, I put it to the House, to say that if we put a tax upon the ordinary shareholder, we are putting a tax upon those persons who carry the company forward. It just is not the case at all.
Mr. Pitman: The learned Solicitor-General was saying that, in small companies, it was usual for the director, who was the shareholder, to take the profits out in salaries rather than in dividends, hut he ought to know that there are provisions in regard to director-controlled companies which definitely prohibit that.
The Solicitor-General: I said that, generally speaking—I do not want to exaggerate, but it is so in a large number of cases—if we are looking at the small private company, the small company carried on by two persons, we often find that a large part of the remuneration for those who drive the company, goes out in the form of salaries. I do not say that it is the universal practice, but it is often the case, and, in so far as it goes

1141
on, it is the answer to the point about the undesirability of taxing the ordinary shareholder. The main answer, of course, is that the ordinary shareholder of a large-scale public company is a person who buys his shares by going to the Stock Exchange and putting down his £200 or £300, and who never goes anywhere near the company and knows nothing at all about it, except what he reads it the general Press. Let us take the case of the ordinary shareholder in Imperial Chemical Industries. The ordinary shareholder puts down £300 or £500 to buy shares in that company. It is perfectly ludicrous to say to the House that that person, in any real sense of the word, supplies the drive to that gigantic concern. It is not the case at all.
I would also like to put this point. It it is said that by means of this tax on the ordinary shareholder, we should give an unfair preference to the preference share-holder, the question arises how we are to exact the tax from the preference shareholder. It just will not work, and, if it is suggested that we should remove this tax, inasmuch as we have to find this revenue from somewhere, we shall have to say how we are going to find it. We have to look at the only possible alternative, which is earned income, which I am sure hon. Gentlemen opposite will agree would not be the proper subject for a tax of this sort. The tax is valuable also from a revenue-bearing point of view. The net revenue which it will bring in will be £20 million. The total amount it will produce will be £36 million, but, inasmuch as the tax ranks as a deduction for Income Tax purposes, the net revenue from it will be £20 million, and no alternative has been suggested to it.
It is said that it is an undesirable tax because it discriminates between one section of the community and another. In point of fact, one of the principal justifications of the tax, and one of which the Chancellor made use in his Budget Statement, was that it is fair, in that it does balance the position as between the ordinary shareholder, who hitherto has not borne any burden, and the rentier, who lives by a fixed dividend. The cheap money policy has resulted in the rentier who seeks to invest in Government securities, and so on, getting less from his investments. Hitherto, no burden has been placed on the ordinary shareholder. Therefore, if one looks to the justice of
1142
the case, inasmuch as one has to find revenue from somewhere, it is just that one should resort to that class of taxpayer, who, in respect of that investment, has not hitherto been called upon to pay. It is also true, if one looks at the general justice of it, as my hon. and learned Friend the Member for Kettering (Mr. Mitchison) said, that the ordinary shareholder has benefited from what, I think, he described as the inflationary pressure. The ordinary shareholder who has hitherto got off scot free, and who has benefited to a certain extent from the general financial situation, is now the obvious source from which to get the revenue which must be found from somewhere.
This tax has been described as penal, and as a punishment of persons who have done something which is, ex hypothesi, wrong. It is nothing of the sort. It has a very salutary and necessary purpose. It is necessary that, in so far as possible in present day circumstances, one should encourage the ploughing back of money into industry. That is something which has been said over and over again, and I apologise to the House for repeating it. It is necessary for that to be done in order to re-equip industrial undertakings, to extend their capital assets, and to improve and bring them up to date. A thing one must remember is—
Mr. Gallacher: Will the hon. and learned Solicitor-General kindly explain this about the ploughing back of money into industry? If industry does that, the next year they will expect bigger profits. Do they then plough back their bigger profits, and the next year, again, get bigger profits still? Is it not the case that the ploughing back will destroy capitalism, just as will this tax which the Chancellor is proposing?
The Solicitor-General: Ploughing back will produce bigger output, which is what this nation must have. That is its main object. In succeeding years, there will be a ploughing back. That is equally desirable, particularly at the present time.
Then it was said that this tax would drive enterprise, abroad. The Excess Profits Tax did not, and other taxes did not. There are some persons who are not primarily motivated by the amount of money they can make out of an enterprise; there are people who have a love for this country, and will stay here. As past taxes have not driven people out of the country,

1143
there is not the slightest reason to suppose that this tax, which is not a heavy tax, will suddenly start driving enterprise abroad. This tax does not impose any new burden, except in the case where profits are distributed. If a company does not distribute its profits, the tax will still remain at 5 per cent. as it has always been.
Not only is that the case, but, hitherto, the National Defence Contribution has been payable by partnerships and firms at the rate of 4 per cent. What my right hon. Friend the Chancellor has done is to relieve partnerships and firms from paying that 4 per cent. Indeed, there have been criticisms from hon. Friends behind me who have said that the tax is not high enough. We have, in point of fact, taken it off the shoulders of some taxpayers. In so far as companies who pursue a wise policy of increasing their reserves and expanding their capital assets are concerned, no extra burden whatsoever will be placed upon their shoulders. No company need pay a penny more in respect of this tax. They can go on paying their 5 per cent. as before. That is a most important aspect of this tax, which should be remembered.
I want to deal with certain specific points which were made. Reference was made to the position as between ordinary and preference shareholders. If a company thinks that the ordinary shareholders are unfairly dealt with, there is nothing to prevent the company altering its capital structure so as to alter the rights to dividend as between the ordinary shareholders and the preference shareholders, by going through the usual process as applied by law. They can decrease the rights of preference shareholders, and they can increase the rights in relation to the ordinary shareholders.
Mr. Birch: I wish the Solicitor-General would enlarge upon that point. Does he mean that if ordinary shareholders now think that, as a result of the taxation now imposed, they are getting an unfair deal, they can ask for the preference dividend to be reduced from 6 per cent. to 3 per cent.? Is that what the hon. and learned Gentleman is really saying?
The Solicitor-General: If the hon. Gentleman had listened, he would realise that I said nothing of the kind. A company can do it, if it takes the necessary steps.
Mr. Birch: What does the hon. and learned Gentleman mean?
The Solicitor-General: Precisely what I have said, and I do not intend to repeat it. It is so obvious. If the hon. Gentleman wishes to misunderstand me, he may.
Mr. Birch: Could I interrupt the hon. and learned Gentleman once more?
The Solicitor-General: No, I am afraid I cannot give way again. Certain specific questions were asked which I wish to answer. Reference was made to the alteration of the system of computation of profits in the terms of the Resolution relating to it, and I will endeavour to give an explanation. Hitherto, the National Defence Contributions, or Profits Tax, however one describes it, has been an alternative to Excess Profits Tax. As Excess Profits Tax has gone, certain additional allowances can be made against national defence contributions which could not be made before. There are various allowances provided for, for example, under the Income Tax Act, 1945, and under Part IV of the Finance Act, 1944, which relates to expenditure on scientific research, which can now be made available. There are various other allowances under other Acts. For example, under Section 29 of the Finance Act, 1946, certain allowances are available for purposes of money expended on technical education. They can be made available as allowances for the purpose of Profits Tax. That is what is referred to by the words in the Financial Resolution which deal with the computation of profits. The tax will apply to all shareholders; that is to say, it will include not merely preference shareholders but deferred shareholders and ordinary shareholders, but it will not include debenture holders. It will not be applicable in relation to the amount of profits paid out by way of interest due on debentures.
9.45 p.m.
I pass to certain questions which were asked by the hon. Member for Harwich (Sir S. Holmes). He seems to misunderstand the position, judging by the picture he sought to draw by way of contrast between three companies, each of which made £50,000, one of which paid it out in the form of profits and, therefore became liable to 12½ per cent. tax, one of which kept it as a reserve, used it for the purpose of capital extension and had

1145
to pay 5 per cent., and the other company which wanted permanently to keep it and had to pay not merely the 5 per cent. but the 10 per cent. bonus issue tax. What he completely failed to realise—and what, after all, is crucial when one is considering it—is that that tax is paid once and for all if a bonus issue is made. It is not made each year. If the company is making a bonus issue, to pay, say, a 10 per cent. tax in respect of that bonus issue, it would be paid in the year in respect of which it made the bonus issue, once and for all. It is not a permanent tax of 15 per cent., as the hon. Member seemed to think. He then asked various questions, to which I will endeavour to give answers. One question was: what was the basis, in the case of the higher rate, in so far as parent and subsidiary companies are concerned? He wanted to know: is the tax charged twice? Is it charged once upon the profits of the subsidiary, and again upon those of the parent company?
I will answer that question in this way. As hon. Members probably know, under the existing law a parent company, resident in the United Kingdom, which owns not less than 75 per cent. of the ordinary share capital of a subsidiary company which is also resident in the United Kingdom, can elect to have the profits or losses of the subsidiary treated, for Profits Tax purposes, as the profits of the parent company. When it does make that election, the higher rate chargeable on distributed profits—that is to say, the 12½ per cent.—will not apply to dividends paid by the subsidiary to the parent company. In other words, the parent and the subsidiary are treated as a single group of companies. That being so, the charge of 12½ per cent. rate applies only to distributions to persons outside the group; that is to say, distributions by the parent company and distributions by the subsidiary company to any shareholders who are not in the group.
Of course, cases may arise where no election is made; where the parent company does not elect to exercise the option that it has. In that case, the subsidiary will be charged at the higher rate on its total dividend distribution, including distributions to the parent company, and the dividends received by the parent company from the subsidiary will not be charged to Profits Tax, again in the
1146
hands of the parent company, and the charge at the higher rate on the parent company will not apply to part of its distributed profits apportionable to profits so received. In other words, generally speaking the parent and the subsidiary are looked at as a single group, and the tax is charged accordingly on the group.
Mr. Pitman: I know my hon. Friend the Member for Harwich (Sir S. Holmes) did not raise this point, but it is a similar question. What about Investment Trusts, which would not come under the provisions for opting which the learned Solicitor-General has described? How is it proposed that they should be treated?
The Solicitor-General: They differ in character, and in the course of this speech it would be impossible to deal with the variations of different alternative situations which may arise. I ask the hon. Member to raise the question again in the course of the discussions on the Finance Bill if he so wishes. Then the matter will be elucidated by the terms of the relevant Clause, if the terms are intelligible, which all of them are not. Another point about which the hon. Member for Harwich asked was, what would happen with regard to dividends with a company whose chargeable accounting period overlaps the end of 1946; a company, say, whose chargeable accounting period ends in March, 1947. In that case, since the period falls partly before and partly after the end of 1946, the higher rate will he levied on a proportion of the distributions for that period corresponding to the part of the period falling in the first quarter of 1947; that is, in the case of a chargeable accounting period for the 12 months to 31st March, 1947—in the particular case which he instanced, of one quarter of the distributions for the period.
That is the general rule. I should make a qualification in order that the position may be clearer. It is possible, in view of the announcement of the higher rate to operate from 1st January, that there might be a tendency in the case of some companies now declaring dividends for 1946, or for periods falling partly in 1946, to increase the dividends for those periods in the hope that they could escape, or partially escape, the 12½ per cent. rate of tax. With regard to these companies, and in order to discourage that sort of tendency, it is proposed to provide in the

1147
Finance Bill that any increase in the dividend over such period over the figure of the previous year will be treated, for the purpose of the 12½ per cent. rate, as related to the period in which the dividend is declared, and not to that in respect of which it is expressed to be declared. A dividend which is not expressed to relate to any accounting period, or is expressed to relate to a period which ended more than six months before the date of declaration, will be treated as relating to the accounting period in which it is declared, so that a dividend declared in 1947 will not escape the higher rate of tax by being declared as a dividend for, say, 1945.
That is a technical explanation to satisfy the curiosity of the hon. Gentleman who raised the question. I want to deal with the speech of the right hon. Gentleman the Member for the City of London (Mr. Assheton). He quoted certain figures as being destructive of the case for this tax. He quoted from the "Economist" and from "The Times," and he obviously had gone to a great deal of trouble to extract the figures and make a comparison. The comparison, I thought, was one which argued strongly in favour of the imposition of this tax. What were the figures he extracted? He took two years, 1945 and 1946 and he took a sample of 240 companies.
Mr. Assheton: Two thousand and forty.
The Solicitor-General: I thought the right hon. Gentleman said 240. However, I am obliged to him—2,000. The conclusion which appeared to result, and on which he based his argument, was that 53 per cent. of the profits paid out in fallen dividends, contrasted in the same two years with the percentage of profits placed to reserves, was something like half. But the percentage was not 53 per cent.; in the case of 1945, it was 24 per cent., and in 1946, 25 per cent. I ask the House, if that is the position, and if these companies that paid out any form of dividends were placing only half the amount of their earnings to reserve, what stronger argument could one have for some discouragement of that sort of thing? That is the very object which this tax is designed to achieve.
Mr. Assheton: I have not, unfortunately, with me the copy of the "Economist" from which I quoted the figures. I have
1148
just sent it upstairs to the Official Reporters who asked to be allowed to see the quotation I made from the Chancellor's book. But the figures were designed to show just this: that, whereas the Chancellor complained that companies had been distributing more and putting less to reserve last year, since he gave his warning, as he called it, in fact that was not the case, and that the proportion distributed by way of dividends had fallen slightly, and the proportion used for reserves had risen slightly.
The Solicitor-General: Of course, I realise that. I know the right hon. Gentleman wanted to say that, but, unfortunately for him, he brought out figures which conclusively destroyed his case. What he wanted to say was that there was no increase, but what he did show was that the profits distributed were far too much, and far greater than the amount placed to reserves. If that was so, what stronger argument could there be for this tax?
Mr. Assheton: If it is a large amount, and he is saying it is far too much, does the hon. and learned Gentleman say that 25 per cent. for reserves is too little?
The Solicitor-General: I am very anxious not to overstate or exaggerate in the heat of discussion. If I used the words "far too much" they are subject to qualification. But what it does prove is that the amount distributed in the form of dividends was larger than the amount placed to reserves. I put that before the House—if these figures are correct—as an argument for saying that the object of this tax is extremely necessary, and the right hon. Gentleman, in his argument, has unwittingly assisted our case very materially.
Sir Arthur Salter: Does the Solicitor-General really mean that in any period, and whatever the situation of a company may be, it is always wrong that there should be considerably less allotted to reserve than is paid by way of dividends?
The Solicitor-General: I did not make any such sweeping statement. I want to conclude on this note. The case for this tax is threefold. First, the revenue has got to come from somewhere. That is the first point in its favour, and it is almost the strongest point in its favour. Second, it is necessary to secure that money is ploughed back into enterprises.

1149
That is a point of the greatest possible importance. Third, by way of general justification, this is a fair tax, in that it is an impositon on those who have not really borne their fair share as investors in the investing market, when their position is considered vis-à-vis the rentiers who live on the dividends of Government bonds, which are less as the result of the Government's cheap money policy. For these reasons, I ask the House to say that this Resolution is obviously necessary, and to approve it.
Mr. Boothby: I do not know what it is, but there is something about the speeches of the Solicitor-General which leaves me with the impression that I am Alice and that I have passed through the looking-glass. Except for the rather hot tip he gave us on tax evasion during his opening remarks, I did not deduce very much from what he said. I am not sure that there was a great deal in his hot tip, because I doubt whether any court of law would permit a company to reshuffle its shares, as he suggested, for the sole purpose of avoiding this tax. I really think it is too hot even for the present Government.
I found this Debate a little depressing. I watched hon. Members opposite laughing and jeering for a long time at the private enterprise system, and I could not help reflecting that they are depending on this system to the extent of 80 per cent. to get them and us through. They are doing a great deal to kill it, and not least by this tax. They are not merely driving out, companies, but are driving out a great number of enterprising young men and women in this country. That is even more serious. At the same time, they are driving inexorably, steadily and with ever-increasing speed into the greatest economic crisis this country has ever had to face. We shall get right into the middle of that in about 12 months time, and I wonder what we shall think of the Profits Tax then.
The Chancellor said, in his Budget speech, that he was not satisfied with the large increase in distributed profits and share dividends. I think it is only fair to ask him what is the evidence for that. We have never been given it. I do not think it has been at all excessive during the past 18 months. Before the Chancellor makes a sweeping statement of that character he ought to give some evidence,
1150
and even name some of the companies which have incurred his special dissatisfaction. If some companies—there are always a few black sheep—have made what the Chancellor considers to be excessive dividend distributions, that is no reason for imposing a tax upon all dividend distributions and upon all companies, whether the dividends are reasonable or unreasonable, whether they are What the Chancellor considers to be excessive, or whether they are fair. This tax falls upon the distributed dividends of all companies, those which have offended and those which have not. Far more serious than that, it falls wholly—no hon. Member opposite has been able to deny this—on the equity holding, and, therefore, on the man who takes the risk. That is the iniquitous part of this tax. I say that it is an insensate and quite unnecessary attack upon private enterprise, as such, in this country at a moment when private enterprise is more needed than it has ever been needed before.
10.0 p.m.
I want to give the right hon. Gentleman one example, following upon what my hon. Friend the Member for Bury (Mr. W. Fletcher) has said. Take, as an example, a mining company or a rubber plantation company. For six years, at least, they are in the process of development. The money has been invested, but they are in process of development, and during that period nobody expects any dividend or interest of any sort. The risk is taken. In many cases it is a very big risk, and in very many cases it results in a total loss of the capital invested; but under the present proposals of the Chancellor, when these developing companies at last reach the production stage, they are immediately to be mulcted of an additional 12½ per cent. of tax, although during six years, and perhaps even ten years, during the process of development, the shareholders have not received a single penny. They have taken the risk and when, finally, the first dividends begin to be declared, the full force of the tax of 12½ per cent. falls upon them.
Mr. Scollan: When the hon. Gentleman tells us about the risks taken by developing companies, is if not a fact that the losses of developing companies have been

1151
entirely due to blind and stupid competition?
Mr. Boothby: That is an absolutely crazy statement. If we had not had those developing companies, we would never have got anywhere.
Mr. Scollan: I was referring to the companies that failed.
Mr. Boothby: The failure may be due to the fact that there is no coal, or none of whatever mineral the company is seeking to mine. It has frequently happened in the past that companies have been floated and the particular metal they have been floated to exploit has not in fact proved anything like up to expectation, and in some cases has never been there at all. Do hon. Members opposite deny there is a risk involved in this particular type of company? The thing is not tenable. How can one compare these companies with the solid, established industrial companies of this country which have been paying dividends for years and years, and placing large amounts to reserve? Why should these two classes of companies be treated in exactly the same category? If the Chancellor will not remove this tax altogether, which I think he should do, why should he not differentiate between the developing and risk-bearing companies and the established companies. That is what I ask, and that is what the Government have not answered. If the Chancellor wants to make a distinction between incomes from property and incomes from work, I suggest that he ought to take the advice which I gave him an hour or two ago, and make a differentiation between the taxation on earned and unearned incomes. That is the sensible and the honest way of setting about this, and I would add to that what one of my hon. Friends has suggested, an increase in the allowances on capital actually spent in the re-equipment of industry in this country.
This is a rotten tax, which violates every valid economic principle. No one has denounced it more in the past than the Chancellor of the Exchequer. It reminds me of the original N.D.C. tax, introduced by Mr. Chamberlain, over which the right hon. Member for Bournemouth (Mr. Brendan Bracken) and I had such fun, and which was eventually withdrawn. I hope that the same fate awaits this particular proposal. My hon. Friend was looking for a past quotation, and I have
1152
one here which has already been quoted by my right hon. Friend, which is a scathing condemnation of this tax by the Chancellor, in words far better chosen than I could hope to employ. I will not repeat it because it will already have appeared in HANSARD, and I hope that it will be read, marked, learned and inwardly digested by hon. Members opposite. I would say with the "Economist," that the Opposition would be well advised to put their confidence in Dr. Dalton rather than in the Chancellor of the Exchequer, and give notice that they will repeal this piece of class malice at the earliest possible moment.
Mr. I. J. Pitman: I would like to ask one or two questions of the Solicitor-General and if possible of the Chancellor of the Exchequer. First, in regard to companies which have considerable arrears of dividends, they seem to present a very special problem. Ex hypothesi these are companies which have not distributed in the past. There are a number of companies in this country which have suffered as a result of the war. The ordinary shareholders of these companies, when they come to pay the arrears of dividends to the preference shareholders, will be, unless there is some special provision, penalised, for not only have they suffered in the war owing to non-distribution of dividends but they will have to bear the tax on the accumulated distribution to the preference shareholders, and they will get a very heavy additional penalty. It is an iniquitous situation, and one which ought to be put right.
I would like to ask also about co-partnership schemes. There are a number of firms in this country who issue shares to their staffs, which are usually of the equity character. Is it intended that the workpeople of these firms should be taxed 12½ per cent. not only on the distribution on their own shares but on the dividends and on all prior shares? That is a question on which I think we want an answer. In the same way, there is the question of the distribution of bonuses for staff. Lots of companies do so, and the company with which I am connected divides its profits and pays a bonus to the staff out of profits. The wording of the Chancellor of the Exchequer in his speech is that it is proposed to increase the tax to 12½ per cent., or from 1s. to 2s. 6d. in the pound on distributed profits. I would like to know

1153
whether the bonus distribution to staff out of profits will have to pay this additional tax of 12½ per cent. I have asked a question about the Investment Trust companies. It is important to know whether they will have to pay not only through the companies under this head but through the companies from which they derive their income.
Finally, I should like to ask two questions. One, a question of fairness and one, a question of intelligence. As far as the question of fairness is concerned, hon. Members opposite have clearly misunderstood our point of view. The degree of taxation proposed will depend entirely on what the structure of the company is, as to the incidence of this tax, because do not let us say that we are taxing a company. We cannot tax a company—only shareholders who own that company in predetermined shares. A company has shares and it depends on the way in which those shares are distributed, and on what they are called how we arrive at what the tax is to be. Is it fair that Company A with exactly the same capital employed, should pay more taxes than Company B, which has exactly the same capital but called by different names? Company A let us suppose has its preference shares, its preferred ordinary shares and a few deferred ordinary shares, while Company B has a debenture issue and possibly a note issue and a bank overdraft. In the case of Company A the few deferred shareholders may be paying over 100 per cent. tax because they are paying tax on the dividends distributed not only to them but to the other and prior classes of shareholder as well, whereas Company B, which happens to have a different structure, will pay no taxes at all on its main capitalisation and 12½ per cent. on the small distribution of the ordinary shares.
There is one principle of taxation to which this House throughout the ages has attached great importance and that is that taxes should fall with equal incidence and fairness on everybody and undoubtedly that is the cause of the damning criticism which the Chancellor had in mind in his famous book, for which extra paper has been allotted. This tax violates the principle of common fairness in taxation because it is undoubtedly a tax on the deferred shareholders always, and not on the priority shareholder. Consequently, it varies in its degree of incidence because of something which is purely fortuitous,
1154
namely the type of structure of that company.
Now I come to the question of intelligence. Really, this is not an intelligent tax at all. It was said from the benches opposite that the purpose of this tax is to leave more profits in the companies for future development, to be ploughed back into the business, and yet it is on the very amount to be left in the business that the tax will fall. It is true that it is calculated on the profit which is distributed but what is being taxed in fact is the undistributed profit of the companies. The tax will have the very opposite effect to that intended and it is the height of folly to base a tax deliberately on what something is "called." Here we have the learned Solicitor-General coming to this House and saying that a company can rename its shares so as to escape this tax.
The Solicitor-General: I said nothing of the sort.
Mr. Pitman: May I give the House a case in point? Take the case of a company with redeemable preference shares. That company can say to its redeemable preference shareholders, "We are paying 12½ per cent. on the distribution both to our equity shareholders and to you. That makes the equity shareholders suffer a very considerable burden—shall we say a 150 per cent. tax. But if we pay off your preference shares and call them notes instead, then we shall not have to pay that tax. Your security will be definitely greater by reason of the fact that the tax will not be levied on the company, and we shall have bigger undistributed profits for the equity shareholders." If that is intelligence where are we to look for guidance? Obviously, not to the benches opposite.
The whole scheme is clearly wrong in principle and I should like to ask the Chancellor of the Exchequer this question. He has formed this National Investment Council and he has dilated to this House on the importance of being advised by this important body, which has a great part to play, as he has told us, in the investment structure of this country. Did he in point of fact consult them on this very important investment matter before he raised it? If so, what were their views and has he followed them? I think the House has a right to expect that if there is a body to which he attaches importance

1155
he should consult it in an important issue of this kind, and let the House know what are the results of that consultation.
There is one final question I should like to ask. Why has the Chancellor changed his mind? Why is it that in his book he saw how perfectly' idiotic a tax of this kind was, whereas now he introduces it in his Budget? I think there can be only one answer—that he is playing on the drum of class hatred, that he is looking over his shoulder and finds it a popular thing to do if only he can pretend that dividends are something which are wholly immoral
He, the great Chancellor, is introducing some things which are unpopular to the Left wing extremists, but here he can show them that he is of the right and correct faith because there is something filthy and despicable about dividends.
The Parliamentary Secretary to the Treasury (Mr. William Whiteley)The Parliamentary Secretary to the Treasury (Mr. William Whiteley) rose in his place, and claimed to move, "That the Question be now put."
Question put, "That the Question be now put."
The House divided: Ayes, 256; Noes, 114.

Division No. 138.]

AYES.

[10.17 p.m.

Adams, W. T. (Hammersmith, South)

Ede, Rt. Hon. J. C.

Lang, G.

Alpass, J. H.

Edwards, A. (Middlesbrough, E.)

Lee, F. (Hulme)

Anderson, A. (Motherwell)

Edwards, N. (Caerphilly)

Lee, Miss J. (Cannock)

Anderson, F. (Whitehaven)

Evans, John (Ogmore)

Leslie, J. R.

Austin, H. Lewis

Evans, S. N. (Wednesbury)

Lever, N. H

Awbery, S. S.

Fairhurst, F.

Lewis, T. (Southampton)

Ayles, W. H.

Farthing, W. J.

Lipton, Lt.-Col. M.

Bacon, Miss A.

Fletcher, E. G. M. (Islington, E.)

Logan, D. G.

Baird, J.

Foot, M. M.

Longden, F.

Balfour, A.

Forman, J. C.

Lyne, A. W.

Barnes, Rt. Hon. A. J.

Foster, W. (Wigan)

McAdam, W

Barstow., P. G.

Fraser, T. (Hamilton)

McAllister, G.

Barton, C.

Freeman, Peter (Newport)

McGhee, H. G

Battley, J. R.

Gaitskell, H. T. N

Mack, J. D.

Bechervaise, A. E.

Gallacher, W

McKay, J. (Wallsend)

Ballenger, Rt. Hon. F. J.

Gibbins, J.

Mackay, R. W. G. (Hull, N. W.)

Benson, G.

Gibson, C. W

McKinlay, A. S.

Beswick, F.

Gilzean, A.

Maclean, N. (Govan)

Bing, G. H. C.

Gooch, E. G.

McLeavy, F.

Binns, J.

Goodrich, H. E.

MacMillan, M. K. (Western Isles)

Blyton, W. R.

Gordon-Walker, P. C.

Macpherson, T. (Romford)

Boardman, H.

Greenwood, A W. J. (Heywood)

Mainwaring, W. H.

Bowden, Flg.-Offr. H. W.

Grenfell, D. R.

Mallalieu, J. P. W.

Braddock, Mrs. E. M. (L'pl, Exch'ge)

Griffiths, D. (Rother Valley)

Mann, Mrs. J.

Braddock, T. (Mitcham)

Griffiths, W. D. (Moss Side)

Marquand, H. A.

Bramall, Major E. A.

Gunter, R. J.

Middleton, Mrs. L.

Brook, D. (Halifax)

Guy, W. H.

Mikardo, Ian.

Brooks, T. J. (Rothwell)

Haire, John E. (Wycombe)

Mitchison, G. R.

Brown, George (Belper)

Hale Leslie

Monslow, W.

Brown, T. J. (Ince)

Hall, W. G

Moody, A. S.

Bruce, Maj D. W. T.

Hannan, W. (Maryhill)

Morgan, Dr. H. B

Buchanan, G.

Hardy, E. A.

Morley, R.

Burden, T. W.

Harrison, J

Morris, P. (Swansea, W)

Burke, W. A.

Henderson, A. (Kingswinford)

Mort, D. L.

Butler, H. W. (Hackney, S.)

Henderson, Joseph (Ardwick)

Murray, J. D

Callaghan, James

Herbison, Miss M.

Nally, W.

Carmichael, James

Hobson, C R

Neal, H. (Claycross)

Champion, A. J.

Holman, P.

Nicholls, H. R. (Stratford)

Chetwynd, G. R

Holmes, H. E (Hemsworth)

Noel-Baker, Rt. Hon P J. (Derby)

Cobb, F A.

House, G.

Oldfield, W. H.

Cocks, F. S.

Hoy, J

Paget, R. T.

Collindridge, F.

Hubbard, T.

Paling, Rt. Hon. Wilfred (Wentworth)

Collins, V. J.

Hughes, Hector (Aberdeen, N.)

Paling, Will T. (Dewsbury)

Corbet, Mrs. F. K. (Camb'well, N.W.)

Hynd, H. (Hackney, C.)

Palmer, A. M. F.

Corvedale, Viscount

Hynd, J. B. (Attercliffe)

Pargiter, G. A.

Crawley, A.

Irving, W. J.

Parker, J.

Daines, P.

Janner, B.

Paton, Mrs. F. (Rushcliffe)

Dalton, Rt. Hon. H

Jay, D. P. T.

Paton, J. (Norwich),

Davies, Edward (Burslem)

Jeger, G. (Winchester)

Platts-Mills, J. F. F.

Davies, Ernest (Enfield)

Jeger, Dr. S. W (St Pancras, S.E.)

Poole, Major Cecil (Lichfield)

Davies, Harold (Leek)

John, W.

Porter, E. (Warrington)

Davies, S. O. (Merthyr)

Jones, Rt. Hon. A. C. (Shipley)

Porter, G. (Leeds)

Deer, G.

Jores, Elwyn (Plaistow)

Price, M. Philips

Delargy, H. J

Jones, J. H. (Bolton)

Proctor, W. T

Diamond, J.

Jones, P. Asterley (Hitchin)

Pryde, D. J.

Dobbie, W.

Keenan, W

Pursey, Cmdr. H

Dodds, N. N.

Kenyon, C.

Randall, H. E.

Driberg, T. E. N.

Key, C. W.

Ranger, J.

Dugdale, J. (W. Bromwich)

Kinghorn, Sqn.-Ldr. E

Reid, T. (Swindon)

Dumpleton, C. W.

Kinley, J.

Rhodes, H.

Durbin, E. F. M

Kirkwood, D

Richards, R.

Ridealgh, Mrs. M.

Stewart, Michael (Fulham, E.)

Wallace, G. D. (Chielehurst)

Roberts, Goronwy (Caernarvonshire)

Strauss, G. R. (Lambeth)

Wallace, H. W. (Walthamstow, E.)

Rogers, G. H. R.

Stross, Dr. B.

Watkins, T. E.

Ross, William (Kilmarnock)

Stubbs, A. E.

Webb, M. (Bradford, C.)

Royle, C.

Summerskill, Dr. Edith

Weitzman, D.

Sargood, R.

Swingler, S.

Wells, P. L (Faversham)

Scollan, T.

Sylvester, G. O.

Wells, W. T. (Walsall)

Scott-Elliot, W.

Symonds, A. L.

West, D. G.

Shackleton, Wing-Cdr. E. A. A.

Taylor, H. B. (Mansfield)

White, C. F. (Derbyshire, W.)

Sharp, Granville

Taylor, R. J. (Morpeth)

White, H. (Derbyshire, N.E.)

Shawcross, C. N. (Widnes)

Taylor, Dr. S. (Barnet)

Whiteley, Rt. Hon. W.

Shawcross, Rt. Hn. Sir H. (St. Helens)

Thomas, D. E. (Aberdare)

Wilkes, L

Shurmer, P.

Thomas, I. O. (Wrekin)

Wilkins, W. A.

Silverman, J. (Erdington)

Thomson. Rt. Hn. G. R. (Ed'b'gh, E.)

Willey, F. T. (Sunderland)

Simmons, C. J

Thorneycroft, Harry (Clayton)

Willey, O. G. (Cleveland)

Skeffington, A. M

Thurtle, E.

Williams, D. J. (Neath)

Skinnard, F. W

Timmons, J

Williams, J. L. (Kelvingrove)

Smith, Ellis (Stoke)

Titterington, M. F.

Williams, W. R. (Heston)

Smith, S. H. (Hull, S.W.)

Tolley, L.

Wills, Mrs. E. A.

Soskice, Maj. Sir F.

Tomlinson, Rt. Hon. G

Wise, Major F. J

Sparks, J. A.

Ungoed-Thomas, L.

Woodburn, A.

Spearman, A. C. M

Vernon, Maj. W. F.

Wyatt, W.

Stamford, W.

Viant, S. P.

Younger, Hon. Kenneth

Steele, T.

Walkden, E

Stephen, C.

Walker, G. H.

TELLERS FOR THE AYE:

Mr. Pearson and Mr. Snow

NOES

Agnew, Cmdr. P. G.

Gridley, Sir A.

Morrison, Maj. J. G. (Salisbury)

Amory, D. Heathcoat

Grimston, R. V.

Neven-Spence, Sir B.

Assheton, Rt. Hon. R.

Hannon, Sir P. (Moseley)

Noble, Comdr. A. H. P

Astor, Hon. M.

Harvey, Air-Comdre, A. V.

Orr-Ewing, I. L.

Baldwin, A. E.

Head, Brig. A. H.

Peake, Rt. Hon. O.

Barlow, Sir J.

Headlam, Lieut.-Col. Rt. Hon. Sir C

Pickthorn, K.

Beechman, N. A

Henderson, John (Cathcart)

Pitman, I. J.

Birch, Nigel

Hinchingbrooke, Viscount

Ponsonby, Col. C. E.

Boothby, R.

Hegg, Hon. Q.

Poole, O. B. S. (Oswestry)

Bower, N.

Hollis, M. C.

Prior-Palmer, Brig. O.

Boyd-Carpenter, J. A.

Holmes, Sir J. Stanley (Harwich)

Ramsay, Maj. S

Braithwaite, Lt.-Comdr. J. G.

Hope, Lord J.

Renton, D.

Buchan-Hepburn, P. G. T.

Howard, Hon. A.

Roberts, H. (Handsworth)

Bullock, Capt. M

Hurd, A.

Robinson, Wing-Comdr. Roland

Carson, E.

Hutchison, Lt.-Cm. Clark (E'b'rgh W.)

Ropner, Col. L.

Challen, C.

Hutchison, Col. J. R. (Glasgow. C.)

Ross, Sir R. D. (Londonderry)

Channon, H.

Jennings, R

Salter, Rt. Hon. Sir J. A.

Clarke, Col. R. S.

Joynson-Hicks, Hon. L. W.

Scott, Lord W.

Clifton-Brown, Lt.-Col. G

Keeling, E. H.

Shepherd, W. S. (Bucklow)

Conant, Maj. R. J. E.

Lambert, Hon. G.

Smiles, Lt.-Col. Sir W.

Cooper-Key, E. M.

Lancaster, Col. C. G

Spence, -H. R.

Corbett, Lieut.-Col. U. (Ludlow)

Langford-Holt, J.

Stanley, Rt. Hon. O.

Crookshank, Capt. Rt. Hon. H. F. C.

Linstead, H. N.

Stoddart-Scott, Col. M.

Crosthwaite-Eyre, Col. O. E

Low, Brig. A. R. W

Strauss H. G. (English Universitles)

Cuthbert, W. N.

Lucas, Major Sir J.

Stuart Rt. Hon. J. (Moray)

De la Bère, R.

Lucas-Tooth, Sir H.

Taylor, C. S. (Eastbourne)

Dodds-Parker, A. D.

McCallum, Maj. D.

Thomas. J. P. L. (Hereford)

Dower, E. L. G. (Caithness)

Macdonald, Sir P. (I. of Wight)

Vane, W. M. F.

Drayson, G. B.

Mackeson, Brig. H. R.

Wadsworth, G.

Drewe, C.

McKie, J H. (Galloway)

Walker-Smith, D

Dugdale, Maj. Sir T. (Richmond)

MacLeod, J.

Ward, Hon. G. R.

Eccles, D. M.

Macpherson, Maj. N. (Dumfries)

Wheatley, Colonel M. J

Elliot, Rt. Hon. Walter

Maitland, Comdr. J. W

Williams, C. (Torquay)

Fletcher, W. (Bury)

Marlowe, A. A. H

Willoughby de Eresby, Lord

Foster, J. C. (Northwich)

Marples, A. E.

York, C.

Fraser, Maj. H. C. P. (Stone)

Marshall, D. (Bodmin)

Young, Sir A S. L. (Partick)

Fyfe, Rt. Hon. Sir D. P. M

Mellish, R. J.

Galbraith, Cmdr. T. D.

Mellor, Sir J

TELLERS FOR THE NOES:

Gomme-Duncan, Col. A. G.

Moore. Lt.-Col. Sir T

Mr. Studholme and Lieut.-Colonel Thorp.

Question put accordingly, "That this House doth agree with the Committee in the said Resolution."
The House divided: Ayes, 254; Noes, 115.

Division No. 139.]

AYES

[10.28 p.m.

Adams, W. T. (Hammersmith, South)

Barnes, Rt. Hon. A. J

Binns, J.

Alpass, J H.

Barstow, P. G.

Blyton, W. R.

Anderson, A. (Motherwell)

Barton, C.

Boardman, H.

Anderson, F. (Whitehaven)

Battley, J. R.

Bowden, Flg.-Offr. H. W.

Austin, H. Lewis

Bechervaise, A. E.

Braddock, Mrs. E. M. (L'pl, Exch'ge)

Awbery, S. S.

Ballenger, Rt. Hon F. J.

Braddock, T. (Mitcham)

Ayles, W. H.

Benson, G.

Bramall, E. A.

Bacon, Miss A.

Beswick, F.

Brook, D. (Halifax)

Baird. J.

Bing, G H. C.

Brooks, T. J. (Rothwell)

Brown, George (Belper)

Irving, W. J.

Richards, R.

Brown, T. J. (Ince)

Janner, B.

Ridealgh, Mrs. M.

Bruce, Maj. D. W. T.

Jay, D. P. T.

Roberts, Goronwy (Caernarvonshire)

Buchanan, G.

Jager, G. (Winchester)

Rogers, G. H. R.

Burden, T. W.

Jager, Dr. S. W. (St. Pancras, S.E.)

Ross, William (Kilmarnock)

Burke, W. A.

John, W.

Royle, C.

Butler, H. W. (Hackney, S.)

Jones, Rt. Hon. A. C. (Shipley)

Sargood, R

Callaghan, James

Jones, Elwyn (Plaistow)

Scollan, T.

Carmichael, James

Jones, J. H. (Bolton)

Scott-Elliot, W.

Champion, A. J.

Jones, P. Asterley (Hitchin)

Shackleton, E. A. A.

Chetwynd, G. R.

Keenan, W

Sharp, Granville

Cobb, F. A.

Kenyon, C.

Shawoross, C. N. (Widnes)

Cocks, F. S.

Key, C. W.

Shawcross, Rt. Hn. Sir H. (St. Helens)

Collindridge, P.

Kinghorn, Sqn.-Ldr. E.

Shurmer, P.

Collins, V. J

Kinley, J.

Silverman, J. (Erdington)

Corbet, Mrs. F. K (Camb'well, N.W.)

Kirkwood, D

Simmons, C J.

Crawley, A.

Lang, G.

Skeffington, A. M.

Daines, P.

Lee, F. (Hulme)

Skinnard, F. W.

Dalton, Rt. Hon. H.

Lee, Miss J. (Cannock)

Smith, Ellis (Stoke)

Davies, Edward (Burslem)

Leslie, J. R.

Smith, S. H. (Hull, S.W.)

Davies, Ernest (Enfield)

Lever, N. H.

Soskice, Maj. Sir F

Davies, Harold (Leek)

Lewis, T. (Southampton)

Sparks, J. A.

Davies, S. O. (Merthyr)

Lipton, Lt.-Col. M.

Stamford, W.

Deer, G.

Logan, D. G.

Steele, T.

DeWray, H. J.

Longden, F.

Stephen, C.

Diamond, J.

Lyne, A. W.

Stewart, Michael (Fulham, E.)

Dobbie, W.

McAdam, W.

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

Dodds, N. N.

McAllister, G.

Strom, Dr. B.

Driberg, T. E. N.

McGhee, H. G.

Stubbs, A. E.

Dugdale, J. (W. Bromwich)

Mack, J. D.

Summerskill, Dr. Edith

Dumpleton, C. W.

McKay, J. (Wallsend)

Swingler, S.

Durbin, E. F. M.

Mackay, R. W. G. (Hull, N.W.)

Sylvester, G. O.

Ede, Rt. Hon. J. C.

McKinlay, A. S.

Symonds, A. L.

Edwards, A. (Middlesbrough, E.)

Maclean, N (Govan)

Taylor, H. B. (Mansfield)

Edwards, N. (Caerphilly)

McLeavy, F

Taylor, R. J. (Morpeth)

Evans, John (Ogmore)

MacMillan, M. K. (Western Isles)

Taylor, Dr. S. (Barnet)

Evans, S. N. (Wednesbury)

Macpherson, T. (Romford)

Thomas, D. E. (Aberdare)

Fairhurst, F.

Mainwaring, W. H.

Thomas, I. O. (Wrekin)

Farthing, W. J.

Manahan, J. P. W.

Thomson, Rt. Hn. G. R. (Ed'b'gh, E.)

Fletcher, E. G. M. (Islington, E.)

Mann, Mrs. J.

Thorneycroft, Harry (Clayton)

Foot, M. M.

Marquand, H. A.

Thurtle, E.

Forman, J. C.

Middleton, Mrs. L.

Timmons, J.

Foster, W. (Wigan)

Mikardo, Ian

Titterington, M. F.

Fraser, T. (Hamilton)

Mitchisan, G. R.

Tolley, L.

Freeman, Peter (Newport)

Monslow, W.

Tomlinson, Rt. Hon. G.

Gaitskell, H. T. N.

Moody, A. S.

Ungoed-Thomas, L.

Gallacher, W.

Morgan, Dr. H. B.

Vernon, Maj. W. F.

Gibbins, J.

Marley, R.

Viant, S. P.

Gibson, C. W.

Morris, P. (Swansea, W.)

Walkden, E.

Gilzean, A.

Mart, D. L.

Walker, G. H.

Coach, E. G.

Murray, J. D.

Wallace, G. D. (Chislehurst)

Goodrich, H. E.

Nally, W.

Wallace, H. W. (Walthamstow, E.)

Gordon-Walker, P. C.

Neal, H. (Clayoross)

Watkins, T. E.

Greenwood, A. W. J. (Heywood)

Nicholls, H. R. (Stratford)

Webb, M (Bradford, C.)

Grenfell, D. R.

Noel-Baker, Rt. Hon. P. J. (Derby)

Weitzman, D.

Griffiths, D. (Rother Valley)

Oldfield, W. H.

Wells, P. L. (Faversham)

Griffiths, W. D. (Moss Side)

Paget, R. T.

Wells, W. T (Walsall)

Gunter, R. J.

Paling, Rt. Hon. Wilfred (Wentworth)

West, D. G.

Guy, W. H.

Paling, Will T. (Dewsbury)

White, C. F (Derbyshire, W.)

Haire, John E. (Wycombe)

Palmer, A. M. F.

White, H. (Derbyshire, N.E.)

Hale, Leslie

Pargiter, G. A.

Whiteley, Rt. Hon. W.

Hall, W. G.

Parker, J.

Wigg, Col. C. E.

Hannan, W. (Maryhill)

Paton, Mrs. F. (Rushcliffe)

Wilkes, L.

Hardy, E. A.

Paton, J. (Norwich)

Wilkins, W. A.

Harrison, J.

Platte-Mills, J. F. E.

Willey, F. T. (Sunderland)

Henderson, A. (Kingswinford)

Poole, Major Cecil (Lichfield)

Willey, O. G. (Cleveland)

Henderson, Joseph (Ardwick)

Porter, E. (Warrington)

Williams, D. J. (Reath)

Herbison, Miss M.

Porter, G. (Leeds)

Williams, J. L. (Kelvingrove)

Hobson, C. R.

Price, M. Philips

Williams, W. R. (Heston)

Holman, P.

Procter, W. T.

Wills, Mrs. E. A.

Holmes, H. E. (Hemsworth)

Pryde, D. J.

Wise, Major F. J

House, G.

Pursey, Cmdr. H.

Woodburn, A.

Hoy, J.

Randall, H. E.

Wyatt, W.

Hubbard, T.

Ranger, J

Younger, Hon. Kenneth

Hughes, Hector (Aberdeen, N.)

Rankin, J

Hynd, H. (Hackney, C.)

Reid, T. (Swindon)

TELLERS FOR THE AYES:

Hynd, J. B. (Attercliffe)

Rhodes, H.

Mr. Pearson and Mr. Snow.

NOES.

Amory, D. Heathcoat

Birch, Nigel

Bullock, Capt. M.

Assheton, Rt. Hon. R.

Boothby, R.

Carson, E.

Astor, Hon. M.

Bower, N.

Challen, C.

Baldwin, A. E.

Boyd-Carpenter, J. A.

Channon, H.

Barlow, Sir J.

Braithwaite, Lt.-Comdr. J. G.

Clarke, Col. R. S.

Bee man, N. A.

Buchan-Hepburn, P. G. T.

Clifton-Brown, Lt.-Col. G.

1160

1161

Conant, Maj. R. J. E.

Hutchison, Lt.-Cm. Clark (E' b'rgh, W.)

Prior-Palmer, Brig. O.

Cooper-Key, E. M.

Hutchison, Col. J. R. (Glasgow, C.)

Renton,-D.

Corbett, Lieut.-Col. U. (Ludlow)

Jennings, R.

Roberts, H. (Handsworth)

Crookshank, Capt. Rt. Hon. H. F. C

Joynson-Hicks, Hon. L. W.

Roberts, Maj. P. G. (Ecclesall)

Crosthwaite-Eyre, Col. O. E.

Keeling, E. H.

Robinson, Wing-Comdr. Roland

Cuthbert, W. N.

Lambert, Hon. G.

Ropner, Cal. L.

De la Bère, R.

Lancaster, Col. C. G.

Ross, Sir R. D. (Londonderry)

Dodds-Parker, A. D.

Langford-Holt, J.

Salter, Rt. Hon. Sir J A

Dower, E. L. G. (Caithness)

Linstead, H. N.

Scott, Lord W.

Drayson, G. B.

Low, Brig. A. R. W.

Shepherd, W. S. (Bucklow)

Drewe, C.

Lucas, Major Sir J.

Smiles, Lt.-Col. Sir W

Dugdale, Maj. Sir T. (Richmond)

Lucas-Tooth, Sir H.

Spence, H. R.

Eccles, D. M.

McCallum, Maj. D.

Stanley, Rt. Hon. O.

Elliot, Rt. Hon. Walter

Macdonald, Sir P. (I. of Wight)

Stoddart-Soott, Col. M.

Fletcher, W. (Bury)

Mackeson, Brig. H. R.

Strauss, H. G. (English Universities)

Foster, J. G. (Northwich)

McKie, J. H (Galloway)

Stuart, Rt. Hon. J. (Moray)

Fraser, H. C. P. (Stone)

MacLeod, J

Studholme, H. G.

Fyfe, Rt. Hon. Sir D. P. M

Macpherson, Maj. N (Dumfries)

Taylor, C. S. (Eastbourne)

Galbraith, Cmdr, T. D

Maitland, Comdr. J. W.

Thomas, J. P. L. (Hereford)

Gomme-Duncan, Col. A.

Marlowe, A. A. H.

Thorp, Lt.-Col. R. A. F.

Gridley, Sir A.

Mercies, A. E.

Vane, W. M. F.

Grimston, R. V.

Marshall, D. (Bodmin)

Wadsworth, G.

Hannon, Sir P. (Moseley)

Medlicott, F.

Walker-Smith, D.

Harvey, Air-Comdre. A. V.

Mellor, Sir J.

Ward, Hon. G. R.

Head, Brig. A. H.

Moore, Lt.-Col. Sir T.

Wheatley, Colonel M. J.

Headlam, Lieut.-Col. Rt. Hon. Sir C

Morrison, Mai. J. G. (Salisbury)

Williams, C. (Torquay)

Henderson, John (Cathcart)

Neven-Spence, Sir B.

Willoughby de Eresby, Lard

Hinchingbrooke, Viscount

Noble, Comdr. A. H. P.

York, C.

Hogg, Hon. Q.

Orr-Ewing, I. L.

Young, Sir A. S. L. (Partick)

Hollis, M. C.

Peake, Rt. Hon. O.

Holmes, Sir J. Stanley (Harwich)

Pickthorn, K.

TELLERS FOR THE NOES:

Hope, Lord J

Pitman, I. J.

Major Ramsay andCommander Agnew.

Howard, Hon. A.

Ponsonby, Col. C. E.

Hurd, A

Poole, O. B. S. (Oswestry)

Eighteenth Resolution read a Second time.

PROFITS TAX AND EXCESS PROFITS TAX
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Mr. Oliver Stanley: May I ask if the Financial Secretary can give some explanation of this Resolution?
Mr. Glenvil Hall: This is to make provision in the forthcoming Finance Bill for the definition of directors' remuneration for the purposes of Excess Profits Tax and the new Profits Tax which we have just been debating. Secondly, it is to close a gap, or loophole, for the avoidance of tax, which has recently shown itself. It was recently held in the courts that the remuneration of a director for service in a secretarial, or managerial, or advisory, or technical capacity, was not remuneration as a director. In other words, a director's remuneration covers only remuneration paid to him purely in his capacity as a director. That, clearly, puts director-controlled companies in a more advantageous position than individuals and firms where the proprietors do not get any such advantage. It is desirable that in matters of this kind all firms should stand on the same footing and bear, as far as possible, their due share of tax. This Resolution provides for that. When we reach the
1162
Finance Bill a Clause will be inserted to put that matter right. Also, as the House is very well aware from the Press, there has recently been a case dealing with the sale of whisky in regard to avoidance of tax. Proposals will be made in the Finance Bill for closing that gap and preventing if we can that kind of thing happening again.
Colonel Crosthwaite-Eyre: There is no intention, I assume, on the part of the Government to make this retrospective and thus upset the decision given in the courts.
Mr. Glenvil Hall: The hon. and gallant Gentleman is quite correct. This will not be made retrospective. The case I mentioned was decided in January.

LEGACY AND SUCCESSION DUTIES: CHARGE OF ADDITIONAL DUTY
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution.
Captain Crookshank: I am not going to ask the Chancellor of the Exchequer for an explanation. I am not going to tax his brain unduly at this time of night. In one part of his lengthy oration introducing the Budget he dealt with this

1163
matter and every hon. Member who is interested in the matter is, I am sure, quite seized of the proposal here made. Although last year the right hon. Gentleman increased Death Duties—or this part of the Death Duties; it is a generic term for the whole—and Estate Duty, so that they ran up to 75 per cent. at £2,000,000, and although the result of that was to get a great deal more revenue than he had expected, this year he is continuing the policy of increasing the total amount of the Death Duties by taking over a slice on the side. The latest thing is Succession Duties, and well as he did last year, when he was making certain exemptions and reductions in the lower rates, it still remains a fact that he has doubled these duties in the cases which he specified in his speech. It will be apparent in the Finance Bill, however, and we need not discuss in detail. As a result of all that, the right hon. Gentleman has budgeted for a further £9,000,000 next year.
Mr. Dalton: In a full year.
Captain Crookshank: Yes, in a full year. This year does not come very much into it. This is one more step in increasing this particular duty and of course the more that is collected in Death Duty, the less remains. After all, it is in the nature of a capital receipt, for a particular estate only pays at the death, and, while it may be repeated within a short period, there may, too, be a very long gap. But I think it is generally looked upon as not being in the same class of revenue as the yield of the Income Tax and other revenue duties, and the higher it goes in the long run, the less the eventual return.
10.45 p.m.
There has been a steep increase in recent years in the receipts from these duties. In 1943, £93 million came in; in 1945, £120 million; last year the right hon. Gentleman budgeted for £140 million and got £148 million; now he is hoping to get £155 million. So the House will see that in a very short period, the receipts are expected to be much increased. Perhaps that is partly due to a change in cost-of-living figures and everything else, but it is a very substantial increase. How long that will go on, and how wise it is to let it go on over a long period is a question of general policy which I merely indicate. We do not think at the present time that a further increase on Death Duties, in
1164
view of what happened last year, is justified and therefore, as a party, we should protest against it.
Mr. Dalton: I do not know how late the House wishes to sit—
Mr. Hogg: Very late.
Mr. Dalton: The less time we take on matters on which the issue is clear, the longer we can take on matters on which the issue is not so clear and on which debate can be more useful. There is a perfectly clear division on this issue before the two sides. The right hon. and gallant Gentleman's party are against this increase. I am confident that the Government's supporters are in favour of it and I wonder whether it is really necessary, as we have it all in more detail on the Finance Bill, to go into it at length now. I adduce a further reason for taking a division now and passing on to the next Resolution. This Resolution merely proposes a double tax but that is not the whole of my proposal, as the right hon. and gallant Gentleman apprehends. I do not merely propose a double tax; I am making certain alleviations and relaxations which in the aggregate would be of considerable value to those affected and they will not be set out fully until we get the Clause—
Captain Crookshank: That has nothing to do with this Resolution.
Mr. Dalton: It is not in the Resolution. It is not necessary, as the right hon. and gallant Gentleman knows, to have that set out in the Resolution. For technical reasons, it is set out in the Finance Bill itself. It occurs to me that if the House wants more time on other matters, we had better have a division on this Resolution now.
Mr. Hogg: I do not propose to quarrel with the right hon. Gentleman's principle in this matter at this stage. After all, the purpose of an increase in Death Duties in a Socialist Budget is well known. It is just the dash of political sadism which is necessary in order to give zest to an otherwise unpleasing performance and I do not grudge the right hon. Gentleman and his friends their shot of dope. I wish to draw attention at the present stage to something of less importance. If Death Duties are to be applied on political grounds as apparently they are, let them be rationalised a little and

1165
put into a more consistent and coherent form. Income Tax, which has provided a main source of revenue in the past, has undergone such a rationalisation. A higher rate of tax inevitably demands that inherent defects in the system should be exposed and removed in successive Budgets, and it is to that aspect of the matter that I desire to draw the Chancellor's attention. The Death Duty, as a whole, unlike the Income Tax, has certain curiously anomalous features. In the first place, the great bulk of the revenue is not raised from the Legacy and Succession Duties at all. The right hon. Gentleman will concede that. On the contrary, the great bulk of it is raised from the Estate Duty. A characteristic feature of the Estate Duty is that it penalises the estate—
Mr. Deputy-Speaker (Major Milner): I do not think we can have a review of the whole of the Death Duties, and I hope the hon. Gentleman will content himself with dealing with the Resolution.
Mr. Hogg: In order to exhibit the point at its real value, it was necessary for me to draw the contrast between this duty, which we are now discussing, and the Estate Duty, which we are not discussing. The point of the contrast is precisely this—that, whereas, under the Estate Duty, the penalty lies upon the size of the estate, and not upon the amount which comes into the hands of the recipient, in the case of the Legacy and Succession Duties, duty is levied on what comes into the hands of the recipient, and not upon the size of the estate. It is, therefore, anomalous that the great bulk of this should be levied on that series of Duties which is borne by the estate, and not by the recipient. That, in my submission, is entirely wrong. It leads to numerous anomalies, of which I shall give only the broadest and most general examples.
If we had the extreme position of a man worth, say, £2 million, who left his entire estate in parcels of £2,000 each, each recipient would pay no Legacy and Succession Duty at all. On the other hand, he would receive only a very small proportion of his legacy, because the estate as a whole would pay much more than half in the way of Estate Duty. On the other hand, if we take a person worth, say, only £2,500, leaving his estate in one block, the recipient does pay Legacy and Succession Duty, but receives almost
1166
everything left to him. It is inevitable that, when the duty has swollen to the present extent, this kind of anomaly will produce injustices.
There is another anomaly to which I draw the attention of the House in relation to Income Tax. There is, in the case of the Succession and Estate Duties, a lower limit which constitutes a free allowance. There is £2,000 in the case of the Succession Duty under the present Resolution, and the personal allowance in Income Tax, but there is this difference in the way in which the two allowances work. If a person has an income of a value of £10 above the personal allowance, he pays Income Tax only on the £10. The personal allowance is generally free. If, on the other hand, he inherits an estate which is worth £10 above the minimum exemption allowance in the Legacy and Succession Duty, he pays also Succession Duty upon the total estate. There can be no justification for these ramifications of inconsistency. I do not complain of the Chancellor's decision to raise this particular tax. But the higher he raises it, the stronger becomes the case for making it a sensible tax, and it is manifestly not a sensible tax, as it is left at the moment.
Viscount Hinchingbrooke: I should like to make the general observation upon this Resolution that the higher the party opposite attempt to raise the salary of the Prime Minister, or the Chairman of the National Coal Board—[Interruption]
Mr. Deputy-Speaker: I really do not think that question arises.
Viscount Hinchingbrooke: I was giving an illustration. The higher hon. Members opposite raise the salary of the Prime Minister—[Interruption]
Mr. Hogg: On a point of Order. I have not heard my noble Friend complete a single sentence. May we not, Mr. Deputy-Speaker, have some semblance of courtesy from hon. Members on the benches opposite? May we not hear what hon. Members wish to say to one another in this House of Commons, or are we to be subject to the constant interruptions of the Bandar-Log?
Viscount Hinchingbrooke: It is all too clear that hon. Members opposite are not disposed to hear the kind things I proposed to say to them. I submit, Mr. Deputy-Speaker, that I am perfectly entitled to make a statement of this kind.

1167
All I say is that the higher the party opposite raise the salary of the Prime Minister—[HON. MEMBERS; "Order."]
Mr. Alpass: On a point of Order. Is the noble Lord in Order, Mr. Deputy-Speaker, in speaking about the salary of the Prime Minister and his allowances on this Motion?
Mr. Deputy Speaker: I should not have thought so, but I am waiting until the noble Lord completes his sentence.
Mr. George Porter: Further to that point of Order. Is the noble Lord in Order, Sir, when he accuses hon. Members on this side of the House of passing the increase in the Prime Minister's salary, when in fact, the House was responsible?
Viscount Hinchingbrooke: The higher they make the salary—[HON. MEMBERS: "Order."].
Mr. Deputy-Speaker: The noble Lord is now indulging in repetition. If he would be good enough to proceed with his argument, we should then see how far it was in Order.
Mr. Hogg: On a point of Order.
Mr. Deputy-Speaker: The hon. Member should permit the noble Lord to get on with his speech. That would be the most satisfactory way of dealing with the matter.
Mr. Hogg: I understood you to rule, Sir, that the noble Lord, having been interrupted again and again before he had completed one sentence, was to be allowed to complete it. Indeed, so much interruption has taken place between the noble Lord's various efforts to complete his sentence that I have quite forgotten how he began it. My point of Order is this: If, owing to the interruptions from the opposite side, it is not possible to remember how my noble Friend had begun the sentence, is my noble Friend not entitled to repeat it for the benefit of the House?
Mr. Deputy-Speaker: I am afraid I cannot be responsible for the hon. Gentleman's memory.
Viscount Hinchingbrooke: I will pass from the Prime Minister's salary, and I will now say that the higher the party opposite raise the salary of the chairman of the Coal Board, the chairman of the Transport Board and those other minions of Socialism the more difficult it will be for them to make up their minds between two courses—one, whether they will try to keep the salaries low, and the other, whether they will stop putting Resolutions of this sort before the House of Commons.
Question put, "That this House doth agree with the Committee in the said Resolution".
The House divided: Ayes, 226; Noes, 100.

Division No. 140.]

AYES.

[11.2 p.m.

Adams, W. T. (Hammersmith, South)

Collindridge, F.

Gaitskell, H. T. N.

Alpass, J. H.

Collins, V. J.

Gibbins, J.

Anderson, A. (Motherwell)

Comyns, Dr. L.

Gibson, C. W.

Anderson, F. (Whitehaven)

Corbet, Mrs. F. K. (Camb'well, N.W.)

Gilzean, A.

Austin, H. Lewis

Crawley, A.

Gooch, E. G.

Awbery, S. S

Daines, P.

Goodrich, H. E.

Baird, J.

Dalton, Rt. Hon. H.

Gordon-Walker, P. C.

Barnes, Rt. Hon. A. J.

Davies, Ernest (Enfield)

Greenwood, Rt. Hon. A. (Wakefield)

Barton, C.

Davies, Harold (Leek)

Greenwood, A. W. J. (Heywood)

Bechervaise, A. E.

Davies, S. O. (Merthyr)

Grenfell, D. R.

Benson, G.

Deer, G.

Griffiths, D. (Rother Valley)

Beswick, F.

Delargy, H. J.

Griffiths, W. D. (Moss Side)

Bing, G. H. C.

Diamond, J.

Gunter, R. J.

Banns, J.

Dobbie, W.

Guy, W. H.

Blyton, W. R.

Dodds, N. N.

Haire, John E. (Wycombe)

Bowden, Flg.-Offr. H. W.

Driberg, T. E. N.

Hale, Leslie

Braddock, Mrs. E. M. (L'pl, Exch'ge)

Dumpleton, C. W.

Hall, W. G.

Braddock, T. (Mitcham)

Durbin, E. F. M.

Hannan, W. (Maryhill)

Bramall, E. A.

Ede, Rt. Hon. J. C.

Hardy, E. A.

Brown, George (Belper)

Edwards, A. (Middlesbrough, E.)

Harrison, J.

Brown, T. J. (Ince)

Evans, John (Ogmore)

Henderson, A. (Kingswinford)

Buchanan, G.

Evans, S. N. (Wednesbury)

Henderson, Joseph (Ardwick)

Burden, T. W

Fairhurst, F.

Hobson, C. R.

Burke, W. A.

Farthing, W. J.

Holman, P.

Butler, H. W. (Hackney, S.)

Fletcher, E. C. M. (Islington, E.)

Holmes, H. E. (Hemsworth)

Callaghan, James

Foot, M. M.

House, G.

Carmichael, James

Forman, J. C.

Hoy, J.

Champion, A. J.

Foster, W. (Wigan)

Hubbard, T.

Chetwynd, G. R

Fraser, T. (Hamilton)

Hughes, Hector (Aberdeen, N.)

Cooks, F S.

Freeman, Peter (Newport)

Hughes, H. D. (Wolverh'pton, W.)

Hynd, H. (Hackney, C.)

Nally, W.

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

Hynd, J. B. (Attercliffe)

Neal, H. (Claycross)

Stross, Dr. B.

Irving, W. J.

Nicholls, H. R. (Stratford)

Stubbs, A. E.

Janner, B.

Paget, R. T.

Summerskill, Dr. Edith

Jay, D. P. T.

Paling, Will T. (Dewsbury)

Swingler, S.

Jeger, G. (Winchester)

Palmer, A. M. F.

Sylvester, G. O.

Jeger, Dr. S. W. (St. Pancras, S.E.)

Pargiter, G. A.

Symonds, A. L.

Jones, Rt. Hon. A. C, (Shipley)

Parker, J.

Taylor, H. B. (Mansfield)

Jones, J. H. (Bolton)

Paton, Mrs. F. (Rushcliffe)

Taylor, R. J. (Morpeth)

Jones, P. Asterley (Hitchin)

Paton, J. (Norwich)

Taylor, Dr. S. (Barnet)

Keenan, W.

Piratin, P.

Thomas, D. E. (Aberdare)

Kenyon, C.

Platts-Mills, J. F. E.

Thomas, I. O. (Wrekin)

Key, C. W.

Poole, Major Cecil (Lichfield)

Thorneycroft, Harry (Clayton)

King, E. M.

Porter, E. (Warrington)

Thurtle, E.

Kinghorn, Sqn.-Ldr. E.

Porter, G. (Leeds)

Timmons, J.

Kinley, J.

Price, M. Philips

Tolley, L.

Lang, G.

Proctor, W. T.

Vernon, Maj. W. F.

Lee, F. (Hulme)

Pryde, D. J.

Viant, S. P.

Lee, Miss J. (Cannock)

Pursey, Cmdr. H.

Walkden, E.

Leonard, W.

Randall, H E.

Wallace, G. D. (Chislehurst)

Lever, N. H.

Ranger, J.

Wallace, H. W. (Walthamstow, E.)

Lewis, T. (Southampton)

Rankin, J.

Watkins, T. E.

Lipton, Lt.-Col. M.

Reid, T. (Swindon)

Weitzman, D.

Logan, D. G.

Rhodes, H.

Wells, P. L (Faversham)

Longden, F.

Richards, R.

Wells, W T. (Walsall)

Lyne, A. W.

Ridealgh, Mrs. M.

West, D. G.

McAdam, W.

Roberts, Goronwy (Caernarvonshire)

White, C. F. (Derbyshire, W.)

McAllister, G.

Rogers, G. H. R.

White, H. (Derbyshire, N.E.)

Mack, J. D.

Ross, William (Kilmarnock)

Whiteley, Rt. Hon. W.

McKay, J. (Wallsend)

Royle, C.

Wigg, Col. G. E.

Mackay, R. W. C. (Hull, N.W.)

Sargood, R.

Wilkes, L.

McKinley, A. S.

Scollan, T

Wilkins, W. A.

Maclean, N. (Govan)

Willey, F. T. (Sunderland)

McLeavy, F.

Shackleton, E. A. A.

Willey, O. G. (Cleveland)

MacMillan, M. K. (Western Isles)

Sharp, Granville

Williams, D. J. (Heath)

Macpherson, T. (Romford)

Shawcross, C. N. (Widnes)

Williams, J. L. (Kelvingrove)

Mallalieu, J. P. W.

Shawcross, Rt. Hn. Sir H. (St. Helens)

Williams, W. R. (Heston)

Mann, Mrs. J.

Shurmer, P.

Wills, Mrs. E. A.

Marquand, H. A.

Silverman, J. (Erdington)

Wise, Major F. J.

Middleton, Mrs. L.

Simmons, C. J.

Woodburn, A.

Mikardo, Ian

Skeffington, A. M.

Wyatt, W.

Mitchison, G. R.

Skinnard, F. W.

Yates, V. F.

Monslow, W.

Smith, S. H. (Hull, S.W.)

Younger, Hon. Kenneth

Moody, A. S.

Snow, Capt. J. W.

Morgan, Dr. H. B.

Soskice, Maj. Sir F.

TELLERS FOR THE AYES:

Morley, R.

Sparks, J. A

Mr. Pearson and Mr. Michael Stewart.

Morris, P. (Swansea, W.)

Steele, T.

NOES

Agnew, Cmdr. P. G.

Gomme-Duncan, Col. A

Neven-Spence, Sir B.

Assheton, Rt. Hon. R.

Grimstan, R. V.

Noble, Comdr. A. H. P.

Astor, Hon. M.

Head, Brig. A. H.

Orr-Ewing, I. L.

Baldwin, A. E.

Headlam, Lieut.-Col. Rt. Hon. Sir C.

Peake, Rt. Hon. O.

Barlow, Sir J.

Hinchingbrooke, Viscount

Pickthorn, K.

Beechman, N. A.

Hogg, Hon. Q.

Pitman, I J.

Birch, Nigel

Hollis, M. C.

Poole, O. B. S. (Oswestry)

Bower, N.

Hope, Lord J.

Prior-Palmer, Brig. O.

Boyd-Carpenter, J. A.

Howard, Hon. A.

Roberts, H. (Handsworth)

Braithwaite, Lt.-Comdr. J. G.

Hurd, A.

Roberts, Maj. P. G. (Ecclesall)

Buchan-Hepburn, P. G. T.

Hutchison, Lt.-Cm. Clark (E'b'rgh, W.)

Ropner, Col. L.

Bullock, Capt. M.

Hutchison, Col. J. R (Glasgow, C.)

Ross, Sir R. D. (Londonderry)

Carson, E.

Jennings, R.

Scott, Lord W.

Challen, C.

Joynson-Hicks, Hon. L. W.

Smith, E. P. (Ashford)

Channon, H.

Keeling, E. H.

Spence, H. R.

Clarke, Col. R. S.

Lambert, Hon. G.

Stanley, Rt. Hon. O.

Clifton-Brown, Lt.-Col. G.

Stoddart-Scott, Col. M.

Conant, Maj. R. J. E.

Lancaster, Col. C. G.

Strauss, H. G. (English Universities)

Cooper-Key, E. M.

Langford-Holt, J.

Corbett, Lieut.-Col. U. (Ludlow)

Linstead, H. N.

Stuart, Rt. Hon. J. (Moray)

Crookshank, Capt. Rt. Hon. H. F. C

Low, Brig. A. R. W.

Studholme, H. G.

Crosthwaite-Eyre, Col. O. E.

Lucas, Major Sir J.

Taylor, C. S. (Eastbourne)

Cuthbert, W. N.

Lucas-Tooth, Sir H.

Thomas, J. P. L. (Hereford)

De la Bère, R.

McCallum, Maj. D.

Thorp, Lt.-Col. R. A. F.

Dodds-Parker, A. D.

Macdonald, Sir P. (I. of Wight)

Vane, W. M. F.

Drayson, G. B.

Mackeson, Brig. H. R.

Wadsworth, G.

Dugdale, Maj. Sir T. (Richmond)

McKie, J. H. (Galloway)

Walker-Smith, D.

Eccles, D. M.

Macpherson, Maj. N. (Dumfries)

Wheatley, Colonel M. J

Elliot, Rt. Hon. Walter

Maitland, Comdr. J. W.

Williams, C. (Torquay)

Fletcher, W. (Bury)

Marlowe, A. A. H.

Willoughby de Eresby, Lord

Foster, J. G. (Northwich)

Marples, A. E.

York, C.

Fox, Sir G.

Marshall, D. (Bodmin)

Young, Sir A. S. L. (Partick)

Fraser, H. C. P. (Stone)

Medlicott, F.

Fyfe, Rt. Hon. Sir D. P. M.

Mellor, Sir J.

TELLERS FOR THE NOES:

Galbraith, Cmdr. T. D.

Morrison, Maj. J. G. (Salisbury)

Mr. Drewe and Major Ramsay.

Twenty-second Resolution read a Second time.

STAMPS: CONVEYANCES, TRANSFERS AND LEASES
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Mr. Stanley: We are anxious, as the Chancellor knows, to have a reasonable chance of discussion of the Resolution dealing with bonus issues, and, therefore, we propose to allow both this and the next two Resolutions to go through with only this warning: that, although we do not oppose them, we feel that when we come to the Finance Bill there may be considerable discussion upon them. During the Chancellor's Budget speech the only explanation that he gave of this general increase in the Stamp Duties, related to those covered by the next Resolution. Even that was unsatisfactory. No real explanation of the reason for the increase in this Resolution was given. It does occur to us—and, indeed, some reference was made to it by hon. Members opposite—that there is hardness in the manner in which this may fall on certain classes of wholly desirable transactions. Therefore, in letting these three Resolutions through tonight, we would have it clearly understood that that does not commit us to whole-hearted acceptance of the details in the Resolutions, when we see them in the Finance Bill.
Mrs. Ridealgh: I am glad to have this opportunity to appeal to the Chancellor once more to exempt from the Stamp Duties conveyances and transfers of property in the case of small house property up to a limit of £2,500. During this depressing and tragic need for houses, as I am sure the Chancellor realises, thousands of our people up and down the country have no hope whatever of getting houses to rent for a few years to come. In my own area, we have 8,000 families on our waiting list, and the largest number of houses we can hope to build in our area is about 1,500. So these people have to hope they will be able to buy houses. I am sure the Chancellor is aware that small houses which, prior to the war, were built for £600 or £900 have now reached fabulous prices—£2,000, £2,500, and even £2,800. People who are living in the most tragic conditions have to pay exorbitant prices to go elsewhere—perhaps, still in miserable conditions. I am asking only that
1172
small house property shall be free from this Stamp Duty. Stamp Duty now paid on a house of about £1,950 is £19 10s. If this Stamp Duty is doubled it will be £37 10s., and £1 for every £50 added; with the result that if a person has to pay £2,500 for a house, he will have to pay something like £48 Stamp Duty—a deposit on top of the deposit which he has probably had great trouble to find. Men who have been away in the Forces are putting their gratuities, or what is left of their gratuities, into deposits for these houses, so as to get away from the miseries of living in overcrowded conditions. Many of them come to me asking how they can raise money to buy houses, some of them come to me after they have got into these houses and are having to face the many problems involved. I would ask the Chancellor to give sympathetic consideration to this matter.
11.15 p.m.
Mr. C. Williams: This Debate has taken an extremely fortunate turn, and I will do nothing to discourage the Chancellor, from accepting the point of view which has been expressed. I would like to congratulate the hon. Member for North Ilford (Mrs. Ridealgh) on having made the first practical speech from that side of the House in this discussion. I would like to recommend to the Chancellor that a remission of Stamp Duty on these small purchases of property, as the hon. Lady suggested, would have a very valuable effect in many ways. I need not do more than remind the Chancellor that he attempted to do a similar thing last year, though not in this connection. At present it is essential that we should do everything we can 'to encourage small people to build houses. When we get really sound back bench Tory speeches, such as we have just had from the hon. Lady, I feel sure that many on this side of the House will support those speeches. I would like to ask the Chancellor whether, between now and the Finance Bill, he will make some concession on this matter. We have been informed that there is a certain amount of money to be given away. The Chancellor will never get a more deserving cause, than this and it could not have been better put than it was in the speech we haw just heard. May I say, that the way in which hon. Members opposite appear to regard the hon. Lady's remarks made it obvious that they knew she was speaking

1173
a good deal of truth, and giving valuable advice to the Chancellor of the Exchequer. Therefore, he can take the hon. Lady's advice and my advice without any fear of a mutiny, which might cause him trouble with his backbenchers, such as he had over the Tobacco Duty.

BONUS ISSUES OF SECURITIES.
Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
Mr. Assheton: About these bonus shares. The Chancellor of the Exchequer is very apt to tell us in the House, when we are debating financial matters, that any proposal he has made has been warmly praised in the financial Press. That is one of his gambits. He usually seems to find, in trying to secure backing, some reference less slighting than usual to the Chancellor's proposals. If I might quote from "The Times" and the "Financial Times," I would be able at once to dispose of the suggestion that there is support for this proposal from financial writers. What "The Times" said was that this was "transparently obnoxious, restrictive, and pointless" and that it should be strongly fought by all sane people until it was removed. The "Financial Times" had an article, which began, not in very good Latin, "Boni, Bono, Bunkum" on this same proposal. The Chancellor has made a lot of remarks about bonus issues, and I hope to debunk 'em. In the Budget speech, he said:
"These issues may sometimes be a defensible method of capitalising reserves or genuine profits. That may be. But often they are nothing more than a watering of capital, a method of concealing profits, and so misleading customers, employees, and the general public."
That was an advance, because if one looks back to the remark of the right hon. Gentleman at Question time, one finds that he did not go so far. I do want the House to appreciate that, when the Chancellor talks of deceiving the public, the boot is not always on the right foot. The Chancellor went on to say:
"In a quiet way I have been looking round to see how I might, at the same time, both give
1174
a little pleasure and collect a little revenue. It seemed to me that there was a case for my being a little more forthcoming in permitting bonus issues, on condition that the public also participated in a reasonable rake-off from these somewhat debatable operations."
These words were used to raise prejudice. The Chancellor was trying to lead the House to believe that all issues of bonus shares had something disreputable about them, and something of which the companies concerned ought to be ashamed. I see now that he does not really believe it, but he is not frank enough to say so. I would like the House to consider the two sorts of bonus shares, and I will refer again to the Chancellor's own remarks. He said:
"First, there is the bonus issue proper which is a gratuitous issue of new shares to existing shareholders in proportion to their holdings."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, c 82.]
What that means is that one bas an orange and cuts it into four pieces. One then cuts it into eight pieces. It is the same orange, but there are eight shares instead of four, and, similarly, if the company which has 100,000 ordinary shares, decides to give the shareholders another 100,000, the position is the same, and each person owns the same proportion of the business. Why it is done from time to time is this. Over a period of years a company which has been managing its affairs well, has put aside to reserve a considerable amount of money. As time goes on, that money put to reserve forms new capital, just as in the same way as an hon. Member who saves £100 a year from his income is forming £100 capital for himself. It is a desirable and proper thing for those who are able to do it.
When a company has done that over a number of years it finds that it has reserves which it has built up, which may perhaps be equal to, or more than, the original share capital, and that means that there is twice as much money in the business as there was before, and it is therefore a perfectly reasonable proposition that the proprietors of that company should look at the balance sheet and write down in the balance sheet what is in fact the truth—that the original capital of that company is double what it was before. That is the proposition and there is absolutely nothing objectionable in that practice, and when the Chancellor of the Exchequer talks in the way he does he is trying to create prejudice. "The

1175
Times" in dealing with this particular class of capitalisation of reserves says:
"Capitalisation of reserves would ordinarily be out of the question owing to the prohibitive weight of taxation which it would attract."
Now, the 10 per cent. tax which the Chancellor has imposed will result in this particular form of capitalisation of reserves not normally being used and therefore the public will more often than not be deceived in consequence of the Chancellor of the Exchequer's action. The real position of the company will not be as clearly disclosed as it might be. That deals with one class of bonus shares. The second type, he says, is the issue of new shares containing a bonus element, that is the issue of new shares for which indeed the shareholders pay something less—that is a remark to create prejudice—and sometimes very much less than their market value.
What is the position about those? If you have the case of a company with a capital of £100,000 and the shares stand at £2 each, and it is desired to raise new capital, and to issue to the shareholders a further 100,000 shares at £1 each, what happens then? The average value of the shares after that manoeuvre will be 30 shillings. The man who has taken up the bonus shares at £1 has a profit of about 10 shillings a share, and the shares which he held before, and which were previously worth have fallen to 30 shillings. The Chancellor proposes to tax him on the increase of the 10 shillings on the shares he gets but not to give him any rebate on the falling of the other. This is merely an illustration. I hope to show—
Dr. Morgan: What about those shares which instead of falling increase in value?
Mr. Assheton: I think I explained that to those who understand orthodox finance. The hon. Gentleman told us earlier in the day that he was not a believer in orthodox finance. I accept what he said.
Dr. Morgan: On a point of Order. Is the right hon. Gentleman entitled completely to misinterpret my remarks—to attribute to me remarks which I did not make and then refuse to allow me to correct him?
Mr. Assheton: I certainly will give way for the hon. Gentleman to make an explanation.
Dr. Morgan: I never said that I was against orthodox finance. I said that I was against orthodox political economy.
11.30 p.m.
Mr. Assheton: I apologise. I misunderstood the hon. Member. I withdraw entirely, what I said about him. What he is against is orthodox political economy. He believes in orthodox finance—or I assume that he believes in orthodox finance.
I have only one illustration to give the House before I sit down. Earlier in the life of this Government the Chancellor perpetrated the manoeuvre which acquired the Bank of England. What did he do? The Bank of England was a very old-established company, and Bank of England £100 stock was standing somewhere in the 300's. The Chancellor bought the Bank of England; about the price he paid, there was much dispute. He gave the shareholders for their £100 stock, £400 of Treasury 3 per cent. stock, a bonus of 400 per cent., a well deserved, well-merited bonus which those shareholders in the Bank had accumulated during those 200 years of patient, hardworking endeavour. The Chancellor gave them the biggest bonus issue of which I have ever heard.
Mr. Birch: I am glad the right hon. Member for the City of London (Mr. Assheton) had a chance to put his case so clearly. It is very likely misunderstood by hon. Gentlemen opposite. The hon. Member for Uxbridge (Mr. Beswick) said all dividends ought to be 5 per cent. I do not think he quite understood what he meant. We had an even more startling illustration of confused interpretation and muddle headedness the other day when the Minister of Fuel and Power said, talking about electricity, there had been gross cases of watering of capital, by bonus issues, in the electricity industry. If that means anything, if he is making an accusation of substance, it must mean that shares were standing higher than they should have stood—and he proposed to take over at market value and pay public money for them, exactly in the same way as my right hon. Friend instanced in the case of the Bank of England. It is most important that hon. Gentlemen opposite should realise the difference between real and nominal capital and I believe a great many of them do not understand. It was very clearly put by my right hon. Friend.

1177
There are two other objections to the tax. First there is the fundamental one, on the principle of taxation. The right hon. Gentleman advocated the tax in his Budget speech. He said the tax would he made on the difference between the issue price and the market value of the shares on the Stock Exchange after the issue. Therefore we are imposing a tax the weight of which it is impossible to calculate at the time it is levied. Those who know how Stock Exchange prices go up and down, know that you always pull prices down on a new issue. If you get a turn of the market, they might go down very considerably, or might go up if there is enough pull on the price. You cannot calculate beforehand how much tax is going to accrue. It is not a dis-inflationary tax. So far as it is purely a capital tax, it withdraws no money whatever from circulation. I hope the Chancellor today will make a better defence of this tax than he did during the Budget speech. I hope he will explain clearly to his friends the real difference between real capital and nominal capital and excuse his right hon. Friend who made a fraud on the public by proposing to buy shares at inflated, watered values. I hope he will explain what the real purpose of a capital tax of this nature is and will further put up some reasonable excuses for going against the fundamental principles of taxation which, had I read the whole of his works, I would know he had himself supported.
Colonel Ropner: I want to ask the Chancellor a specific question in regard to a number of companies affected by this proposal. I want him to imagine the case of a company which, in the lean years between the wars, reduced the nominal capital in its shares. If these shares are again written up to the original value, will he tell the House whether such an operation would attract the taxation which he proposes?
Sir John Mellor: The Chancellor is showing a strange inconsistency in this Resolution, because, in the previous Resolution, he has deliberately discriminated in favour of that part of the profit which is retained in the business. Capitalisation of reserves ensures that those reserves shall be permanently retained in the business. Therefore, it seems to me that, in differentiating the Profits Tax, the Chancellor is aiming
1178
at ensuring the retention of the profits in the business, and, under this Resolution, is proceeding in precisely the opposite direction. I think that is unfortunate, and we ought to have some consistency from him, however unsatisfactory the Budget might be. I suggest that the really important thing is that companies should be enabled to bring their issued nominal capital into some real relation with their assets, and I hope that, when he comes to reply, the Chancellor will at least give an explanation to the House of what appears to me to be an inconsistency between this Resolution and the Resolution with regard to the tax on profits.
Mr. Eccles: I have no doubt that, when the Chancellor comes to defend this tax, he will quote the "Economist," because the "Economist" did say last week that there were instances where bonus issues had been used to evade Surtax. That may be so, but I am asking the "Economist" to give me instances of that, which is not very easy to do. Supposing it is so, we have the machinery of the Capital Issues Committee, which judges whether a bonus issue is made for a sound or a bad reason. If it is for a bad reason, for instance, to evade Surtax, the Capital Issues Committee is there to prevent it. On the other hand, there are a number of bonus issues which it is a very good thing should be made, especially for the reason, given by my hon. Friend who has just spoken, that we want companies to retain profits and plough them back, but they cannot go on doing that for ever and keep their shareholders, I will not say quiet, but satisfied, unless, from time to time, they offer them something in exchange for a dividend. They must say to a man that they will take his dividend for five years because they want to extend their plant, but, at the end of that time, they will give him a bonus issue.
I would like the Chancellor to call to mind the way in which Courtaulds was financed. Are we not all proud of Courtaulds? It is undoubtedly one of the best businesses which has ever been established in this country. It could never have grown as it has without the bonus issue. That has been a means by which Mr. Samuel Courtauld has been able to finance his great business, and which now means so much to us. If we had had a Capital Issues Committee at that time, who would

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suppose that they would have refused Mr. Courtauld permission to make his bonus issues from time to time, which he did? Because he ploughed his profits back, we have had a great volume of employment, and we have got ahead of similar rayon manufacturers in other countries, and the whole country has benefited from the growth of that industry.
I think that the Chancellor should be content with his Capital Issues Committee. Let them refuse any bonus issue which is not made for proper commercial reasons, but when, on the other hand, a bonus issue is put up which is to capitalise profits that have been ploughed back, or to raise more money because an extension is in the interests of expanding employment and production, why put a tax on it? If we put taxes on this sort of issue, the same thing will apply, as I mentioned to the House, in the case of the Profits Tax. We shall find that businesses will go outside the United Kingdom. Take, for example, the mining business—the subscription to rights in a new mine. Hon. Members who know anything about the extraordinary length of time taken, and the risk of money involved, in proving a deposit of ore, will know that a parent company goes on for years, sometimes succeeding, but very often failing. Finally, having proved that a certain deposit is worth opening up, and worth sinking a shaft, which is going to cost millions of pounds, they then issue rights to their own shareholders to put up the money—the same shareholders who have put up other money which has been lost in bad speculations—and those rights, of course, are very valuable. All hon. Members know that that is the prime method by which South African mining ventures have been financed, and are being financed at the present time.
As far as I can understand, if the mining companies which are registered in this country—which is what we all wish, because where the head office is, there also is the technical staff and the whole prosperity of managing the business—have to pay 10 per cent. on the difference between the money subscribed to the rights in the mine when it is floated off, and the first price at which the shares are dealt in, I can tell the House exactly what will happen. All the great finance companies will move their head offices to Johannesburg or to somewhere else outside the
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United Kingdom, because it is not reasonable to bear this tax in addition to the cost of opening up the mine when all one has to do is to register the company somewhere else in the British Empire, and thus get out of paying the tax. This tax is anti-Imperial and militates against retaining London as the centre of a great Empire. That is not in the interest of any section of the British people. We want the employment here; we want the technical skill to come from here, and we want the management and the control of these companies to remain in London. It is one of the ways in which we can pay for our food and for our raw materials. If we cast all this away, we are going to be much worse off. We may be better Socialists, but we shall be poorer people.
I wish to say a word on the point raised by my right hon. Friend the Member for the City of London (Mr. Assheton) about calculating the actual liability. The only fair way of doing that is to take the capital value of the company before the bonus is made, and to recalculate the value after the bonus is made. If the tax must be paid at all—which is thoroughly wrong—it should only be paid on the difference. It is unfair that a tax should be paid on the difference between the subscription price and the first dealing price, if no set-off is given for the fall in the value of the old share. The only fair basis for what the Chancellor has described as the "rake-off" is this: Take, for example, the Selection Trust. There was a share issued at 45s. and they issued another for 35s.; shortly afterwards, the old and the new shares both stood at 37s. 6d. The only bonus to the old shareholder who has got two shares, for one of which he paid 45s. and the other for which he paid 35s., is the half-crown—the difference between the price at which the new one was issued and the price at which they both stood when the issue was made. As I understand the tax, the shareholder would have had to pay tax upon 7s. 6d.—the difference between the subscription price and the price at which the new share stood when the dealing first took place. That is not fair, and I hope the Chancellor will not do that.
11.45 p.m.
The Chancellor said that bonus issues are means of deceiving customers, employees and the general public, and heading off demands for lower prices and better conditions. That is obviously the matter

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which weighs with hon. Gentlemen opposite. If it is a bad bonus issue, made to deceive, then the Capital Issues Committee should squash it. On the other hand, it may be a genuine one, and we must remember that in this enlightened time customers and employees are all anxious to learn about the general economy of the country, we have White Papers like the economic White Papers, and we must bring the facts of our economic position down to the man at the bench. Is it beyond us to explain to these people when an issue is a sensible issue? I do not think it is. It is absurd to say that, if one takes the trouble, one cannot explain to people who are working in a business the good sense of ploughing back money and then capitalising it, rather than distributing it when it would attract this higher tax. If we are not able to make the people of this country understand elementary facts like that, all I can say is that we shall not survive. To start with a tax which is going to make confusion worse is not progressive. In fact, it is reminiscent of the time when it was not possible to make the worker understand the facts. We have left that time behind. If we have not, it is not the least good the Government thinking we shall recover. This is a bad tax, and the Chancellor ought to take it away.
Mr. I. J. Pitman: We had a most interesting meeting in Committee upstairs, when the Chancellor, the Financial Secretary and the Solicitor-General, discussed bonus issues in relation to the Control of Borrowing Bill. In that discussion it was made quite clear that the main objection to bonus shares was the allegation that they were a deception on working people. The Financial Secretary said that his objection was that it deceived people, and that it was a "racket." The hon. Member for South Nottingham (Mr. N. Smith), whose speeches we all enjoy so much, went on to say how the "Daily Herald" worked. He quoted the price of their shares, and the very high dividends which they paid. He said it was desirable that the father of the chapel should be aware of those very high dividends, so that he would be able to say, in his negotiations for the printing industry, "Now, we want some of these very high dividends that are being paid." In winding up the Debate the learned Solicitor-General said that it was deception and cloaking—he then withdrew the word "deception" and brought
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it back to cloaking—that it was doing down the working man at the bench, who was thereby being done out of what was his right.
I very much agree with my hon. Friend the Member for Chippenham (Mr. Eccles). If they cannot do the mathematics of bonus issues, and if their leaders in the trade unions cannot do it, then there is something wrong with both the rank and file and the leaders of the trade unions. But even supposing that they are so stupid that they really do not realise that a dividend of half the rate on a doubled share issue is equal to twice the dividend on the original, surely, it is perfectly easy for a company to declare a dividend of so much per share? So far as I know, there is absolutely nothing in company law which makes anyone describe a dividend as necessarily so much per cent. on the particular shares held. Therefore, if workpeople and their leaders really are so stupid that they cannot do the mathematics involved when there is a one for one bonus issue and a dividend which was 20 per cent. becomes 10 per cent., then, clearly, they cannot master the dividend per share, and there is no security to them in preventing bonus issues.
The other objection which the Chancellor has put forward is that it is a means of evading Surtax. He and I have corresponded on this, and I have challenged him to produce even one example. I repeat that challenge to produce even one example, real or hypothetical, in which Surtax has been evaded, and in which it is the bonus issue itself which is to be criticised. It cannot be the bonus issue that is in any way lending itself to, or responsible for, any Surtax evasion. Let us face the facts. The effect of a bonus issue is to treat profits, which until that moment were distributable, as from that moment onwards as part of the capital structure of the company, which can be distributed only under the most severe conditions, normally going to the courts and getting permission to distribute that part of the capital structure of the company. Therefore, the action of a bonus issue is the very thing which the Chancellor is constantly telling us he wants, namely, the fossilising permanently into the structure of a company the profits of the past, which can then be used only in the development of that company. I repeat my challenge. It is just impossible to find any means by which a bonus

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issue can be used as a distribution and as a means of evading Surtax.
There are only two explanations for that muddled thinking. Here I would ask the Chancellor to remember that he professes to be a professor in this subject. He was a Professor of Commerce, and this is a subject which he really ought to understand. Only one of two possibilities can be the explanation. Either hon. Members opposite are being deceived by the word "bonus"—that because a workman at the bench is paid a bonus, and that is something which is a distribution, therefore a shareholder who is paid a "bonus" is necessarily getting a distribution, when, in point of fact, he is getting the very opposite of a distribution, which is a permanent fossilising into the structure of the company of profits hitherto distributed—or it is another instance of this playing on the drum of class hatred. It seems to me that the Chancellor looks over that right shoulder of his at the people behind him too often. He likes to give them a sop, to show what a good Socialist he really is, and how he is socking the people they have come here to destroy. They are doing nothing less than destroying the life's blood of this country, by doing something which is idiotic, and purely class conscious.
Colonel Crosthwaite-Eyre: I do entirely agree with my hon. Friend the Member for Bath (Mr. Pitman), who pointed out to the Chancellor of the Exchequer that, really, the only reason for this Resolution can be to satisfy those behind him. I think one can discern that if one looks at his Budget speech, particularly the passage in which he said:
"In a quiet way, I have been looking round to see how I might, at the same time, both give a little pleasure and collect a little revenue.''—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, c. 82.]
Hon. Members opposite have got to take up one point of view or the other. Either bonus shares are bad, in which case they have got to stop them; or they are not bad, and serve a most useful purpose, in which case they ought to facilitate them. The Chancellor of, the Exchequer reminds me of Pooh-Bah in the "Mikado," who was always ready to receive a little sum to grease his palm, and was ready to do much for an "insult." But the Chancellor will remember how, in Act 1, he says, "Another insult, and I fear a light
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one." It is the same tonight with the Chancellor. He is compromising his conscience in exchange for 10 per cent. And even for a Socialist Chancellor that is a poor bargain. But if one looks at these bonuses, as so many of my hon. Friends have said, how can the Chancellor possibly justify the attitude he has taken, and defended with such vigour from that Box, in view of the previous Resolutions? How can he really say, as he did in his Budget speech—which passage, I think, ought to be printed in every one of the 600 new Labour Party journals that are to be published:
"The characteristic of this type of issue is that no new money what so ever is subscribed. This if one may use a colloquialism, is sheer' money for jam."—[OFFICIAL REPORT, 15th April 1947; Vol. 436, c. 82.]
What has been said by my hon. Friends is so true, that the money subscribed for this class of share is money which, in answer to the Chancellor and hon. Members behind him, has been permanently payed back into industry. It has been done at his request and put into industry for its development. How can he now manage to say this is "money for jam"? This is money in answer to the Chancellor's appeal, money for industry as a whole—and not only put into it at the Chancellor's request, but, naturally, for the consolidation of the companies' status, and so that the efforts of shareholders shall be recognised in the future.
I think the Chancellor was most unfair, too, when he talked about "watering of capital," and said that these shares were a means of giving shareholders something for nothing. If he will remember, the Minister of Fuel and Power, as the hon. Member for Flint (Mr. Birch) said, during the Second Reading of the Electricity Bill, produced various cases in support of this contention. He was challenged from this side of the House with accurate figures, and asked to substantiate one of them. I do think the Chancellor of the Exchequer, before he makes a statement like that, knowing well what effect statements have by him from that Box there on the commercial integrity of this country, should be able to produce a few cases, or give us some examples of what he is getting at. His colleague the Minister of Fuel was bowled out completely on every case. Can he now make a convincing case? Can he say anything, not to cheer on his

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hon. Friends behind him, but to give us something concrete on which he can base this quite new departure in the realms of commerce? Can he give us some idea of what he is aiming at, something to help us?
If I may refer again to the electricity industry, I asked the Minister of Fuel and Power on Second Reading of the Bill, if he could produce a single company that, as a result of information revealed in the two Reports, particularly the Sankey Report, had sinned in this way. He could not give us one. But perhaps the Chancellor can give us something to help.
12 p.m.
I will raise one further point. Can the Chancellor tell us why it is that in this tax a distinction is made between public and private companies? The public company is to pay on a basis which I think it is fair to say was a shock to hon. Members on this side of the House. But what about the private company? Why is it to pay 10 per cent. on issue price above par, whatever it may be? Why should that be? What is the justification for this penalisation of the private company? For penalisation it must be. If you have a prosperous private company which issues shares at the proper price, then it is going to be penalised, as I read the Chancellor's speech, under this proposal. I would say, in conclusion, that where we have a tax like this which, with the main proposition propounded by the Chancellor, will not bear examination, one is forced to conclude that it is 8esired to cheer his own supporters. So far as industry is concerned, this is an unjustified burden, so far as international commerce is concerned, it is something which will do this country irreparable harm. I hope we shall have support from all sides of the House for the view that this tax will adversely affect our industrial integrity.
Mr. Hogg: I entirely agree with my hon. Friends that one of the major elements entering into the introduction of this tax has been the desire of the Chancellor to justify himself before his own supporters. But I think my hon. Friends have a little under-estimated the astuteness of the Chancellor in using, exploiting, and even making a mock of what he knows is the ignorance of his own supporters. The Chancellor, who is a past teacher of economics, is perfectly aware, of course,
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that his own supporters have shown, not only this evening but on other occasions, that they are completely ignorant of the capital structure of a limited liability company. He knows that their view is rubbish. And the Chancellor knows that we know it, and he knows that we know that he knows it, too. Of course, hon. Members opposite do not know it. They think their views are sense, and they cannot know the interesting processes going on in the Chancellor's mind.
The right hon. Gentleman, of course, is as aware as any hon. Member of this House, that when a company is described as having a share capital of £100 divided into 100 £1 shares, that does not necessarily mean that its capital is valued at £100. He knows perfectly well that at least 75 per cent. of his own supporters will suppose that if a bonus is issued by that company of one for one, the capital of the company is mysteriously increased to £200 and that every shareholder will receive a present of £2 each. He therefore carefully frames his speeches so that they make some kind of economic sense, as inspired and briefed by those who sit behind him and in places in this House where they can listen but not intervene. But at the same time he uses language which he knows will appeal to the lunatic fringe behind him. That is the object of these operations, and in the meantime he is exploiting their ignorance and prejudices to get a different objective. His real object in imposing this tax has nothing whatever to do with the alleged wickedness of bonus shares. He knows that that is all nonsense. That is introduced simply for the purpose of giving his hon. Friends their shot of dope. His real object is to drive companies into paying more profits tax by discouraging them from making bonus issues. That, I submit, is his only real object in introducing this tax. I should not have objected to it if only the Chancellor would have admitted that that is his real purpose and reason. What merely makes me feel rather sick is his attempt to get popularity by doing this, while secretly laughing at the ignorance of his supporters.
Mr. Douglas Jay: Having listened to hon. Members opposite I think that the muddle and the ignorance are rather on their side, and that is particularly so in the case of the lunatic speech to which we have just listened. But I want to deal with the real issue. There is the case of

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the company which issues a bonus share merely to misrepresent dividends it intends to pay, or to avoid the payment of Surtax. An hon. Member opposite issued a challenge to us to give such an example. I will answer that challenge by quoting the case of the British Electric Traction Company which used to do this regularly on a big scale. It was done, largely, to avoid payment of Surtax, and the fact was well-known in the City.
Mr. Pitman Mr. Pitman rose— —
Mr. Jay: There are all sorts of other examples. In the case where the Capital Issues Committee agrees to a bonus issue—an issue which is completely genuine—that, of course, is all right. The fact is, nevertheless—and this is a point to which hon. Members opposite should listen—that there is a capital payment made to the shareholder—[HON. MEMBERS— "No."] Hon. Members opposite know that that is so. A capital is made in this way, and the total value rises as a result of that issue. Although this may be a legitimate thing to do, then, it is also legitimate to impose a tax. There is just as much a case for taxing this as for taxing income and for demanding death duties.
Mr. Henry Strauss: I do not think anybody will accuse the hon. Member who has just resumed his seat of belonging to the "lunatic fringe" on the benches opposite. That is a defence of his intelligence at the expense of his can dour in his address to the House, but I would ask him where he imagines a company gets the money to give away to its shareholders—[Interruption.] Sometimes, hon. Members opposite, by their interruptions, defy parody. I would ask the Chancellor, if he has not forgotten all his economics since he left his university, to treat this serious matter seriously. I agree with the hon. Member who spoke of the importance of considering this Resolution together with the Resolution dealing with profits that which we dealt with some time ago.
He found that there was a contrast between the treatment of the ordinary shareholder interested in that former resolution and the treatment which he is receiving under the present resolution. But the two resolutions have this in common, that they are designed quite clearly to ensure that the ordinary shareholder in whatever way the company seeks to make
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any return to him is penalised. Now, I wonder what the right hon. Gentleman's philosophy is regarding the ordinary shareholder and the duty of companies. In an earlier speech this evening we heard from the hon. and learned Solicitor-General that the ordinary shareholder really contributes nothing but merely spends so much money, gets the shares, and thereafter nobody was interested in his enterprise. That description, I assume, so far as it has any relation to the facts at all, refers to existing companies. The first thing I want to put to the Chancellor of the Exchequer is that he must, I suppose, realise that one day a new company may be created in this country, and he desires that to happen. I imagine that in his more serious moments, which I think must be very common at the Treasury, however much they have to be disguised on the Treasury Bench, he desires that a new company when created shall have such a success as Courtaulds have had, the Company mentioned by my hon. Friend the Member for Chippenham (Mr. Eccles). Does the Chancellor really desire that never in the future shall a company be able to build up its business in the way that the business of Courtaulds has been built up? I ask for an answer to that question.
It is quite clear that if the two Resolutions I have mentioned had been embodied in legislation at the time, the progress of Courtaulds as we have known it would have been absolutely impossible. I do not think that the right hon. Gentleman desires that for a moment. Does he really either desire that nothing like that should happen in the future or wish to make it impossible? On a former resolution there was a very illuminating observation made by the Communist Party behind the right hon. Gentleman. The Communist Party said: "supposing profits instead of being distributed were ploughed back, then the shareholders would in due course demand more." That was quite obviously true. Apparently the Communist Party are of the opinion that the one thing that is quite intolerable is that the shareholder should ever get a return for his money. Any return is prima facie wrong. If it is given in the form of dividends the right hon. Gentleman says that it ought to have been ploughed back. Whether it is always to be ploughed back, asked in a very relevant intervention by the right hon. Gentle-

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man the Senior Burgess for Oxford University (Sir Arthur Salter), has not been answered today. Well, that was the theory, that profits must never be distributed, that they must be ploughed back. Now we are told that they must not be capitalised and given to the shareholders in capitalised form. Surely when any new company is formed the shareholders when invited to subscribe to the company ought, to know what they can expect. Can they assume that the philosophy now prevailing on the Treasury Bench is going to be embodied in legislation?
I think that these two Resolutions taken together are so clearly unjustifiable, so clearly indefensible by reason, but so utterly discouraging to ordinary equity shareholders, that the object may be further to boost the gilt-edged market by showing that nothing could be more dangerous than to risk any money in ordinary shares. That at least would give a reason, though not a good reason, for the action the right hon. Gentleman has taken. There is one other argument the right hon. 'Gentleman has given in his budget speech: that there might be some justification for dealing with ordinary shareholders in this manner because they have hitherto suffered less than the holders of fixed interest bearing bonds. The fallacy of that argument is that the normal investor is both a holder of ordinary shares and of fixed interest bearing securities and the fallacy becomes more obvious when one remembers the arguments the Chancellor used on an earlier occasion.
I remember on one of the nationalisation Bills when the right hon. Gentleman was challenged about the unfairness of compensating a bondholder deprived of the securities he has hitherto held with government stock bearing a low rate of interest, the Chancellor said—I am not quoting his exact words but I think I am being quite fair to him—that what was given him would have the same capital value and if he needed more income he could sell it and buy equities. The Chancellor then clearly recognised that equities were entitled to a greater distribution because of the risk they bore than would be earned on fixed interest bearing securities and also recognised clearly that the typical investor is both a holder of equity shares and a holder of fixed interest bearing securities. But for the future, in the interests of the expansion of our trade
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and the capture of external markets, I think the right hon. Gentleman is bound to need new enterprise. He wants the public to participate in that enterprise. He wants the public to subscribe for ordinary shares and stocks. Why on earth should the public do this unless they have some opportunity of receiving a return which the Chancellor thinks right. What is the rate the Chancellor thinks right? Is a company only behaving well when it ploughs back everything and never gives anything to the shareholders, and if that is not his argument, will he explain why when anything is given to the ordinary shareholders, either in the way of dividend or bonus issue, he thinks it proper to subject it to exceptional taxation?
Mr. Pritt: I do not want to consider what the hon. and learned Member has said, because he repeated the speeches of seven or eight other people, but I would deal with some of the observations of the hon. Member for Oxford (Mr. Hogg). He spat out some observations about the "lunatic fringe" behind the Chancellor. If the hon. Member had another ten years' training he could become quite abusive. He spoke of hon. Members on this side of the House in terms of withering contempt that I have heard before, and heard very often, in the descriptions given by company promoters of their own shareholders and victims. I would just remind the hon. Member for Oxford of what this "lunatic fringe" consists. It consists almost entirely of people who did not have the advantage of rich fathers. It consists of people who through long years of hard work in local government and various unadvertised jobs have trained themselves into becoming good politicians. It consists, as I know from my own personal experience of them, of people who understand economics very much better than do most hon. Members opposite. Finally, it consists exclusively of people who kicked out of Parliament at the last Election people like the hon. Member for Oxford.
Mr. Norman Bower: May I give one short example in answer to the hon. Member for North Battersea (Mr. Jay)? I submit to the Chancellor that this tax is being levied on the wrong basis, as has been pointed out by the hon. Member for Chippenham (Mr. Eccles).

1191

The hon. Member for North Battersea said that, when bonus issue shares are made, the shareholder gets a capital benefit. In most cases, I do not believe that he does, but it is possible that he may. Supposing, for example, a shareholder in a company has 100 shares worth £2 each; he then gets, by way of a bonus issue, another 100 shares for nothing. Normally, in a case like that, the price after issue will be £1, so that he will have 200 shares of £1 each, and, if so, he will get no benefit at all. It is possible, if the market happens to be good, that the after-issue price will be 25s., in which case the real capital profit of that shareholder will be 5s. on 200 shares; in other words, a capital profit of £50. I submit that it is on that basis that the tax should be levied, whereas, as I understand it, the tax is really being levied on the basis that the shareholder is making a profit of 25s. on 100 shares, or £125, which he is not making at all, but only £50.
Mr. Dalton: We have had a number of very lively speeches and many subtle points, including some very subtle suspicions. I think that some hon. Members did me altogether too much credit in attributing obscure motives for this proposal. Perhaps I may begin by answering the broad points raised, but, before I do so, I would say that the hon. Member for Bath (Mr. Pitman) surely exaggerated very much when he said that a tax of this kind would destroy the very lifeblood—that was his phrase—of British industry and commerce. Surely, that is fantastic over-emphasis?
Mr. Pitman: I was referring to the registration of companies, not in London, but elsewhere. It was only in regard to this development and its effect upon a large and important part of London's commercial life.
Mr. Dalton: But what we are actually talking about is a proposal to have a tax of 10 per cent. on certain classes of bonus issues, and I do not for a moment believe that that is going to lead to an enormous movement of that kind. They need not be made at all. Commerce would not be disadvantaged, in any serious or real way, if never again were a single bonus issue made in this country. This business of issuing bonus shares, of which I will say something more in a moment, has no bearing whatever on the profits earned by a
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company. All that it has a bearing upon, is the nominal capitalisation of a company. Therefore, it does not directly affect production energies in any way at all. What I am desirous of arguing—and it is a perfectly serious argument—is that British industry and commerce would not seriously suffer if never again were a bonus issue made in this country.
Reference has been made to Courtaulds. I myself paid a tribute to that particular concern on a previous occasion. In the course of my Budget speech, in connection with the changes in the Budget, I paid a tribute to the rayon industry generally. I have not all the facts before me, but I fully accept the fact that what Courtaulds issued were bonus element issues, not straight bonus issues, as one means of raising money on existing shares. But I do not believe that Courtaulds' success was entirely due to that. Mr. Samuel Courtauld and the other people associated with him were intelligent and far-sighted men, and they would have made just as great a success as they did through their bonus issues, if new issues had been put on the market in the ordinary way. The bonus element method is an alternative method of collecting new money for business, and, in my opinion, a method very often open to objection, and, to that extent, a proper object for taxation.
The hon. Member for Flint (Mr. Birch) and other hon. Members made the point that the objection to the mode of taxation proposed on the bonus element, was that we did not know beforehand what would be the market value of the shares after they had been augmented in number by the new issues. That is quite true, but it would surely be much worse if the tax was based upon the difference between the price paid by the recipient of the share and the value before the bonus issue was made. That would yield me a larger revenue; it would yield a revenue which would be based upon a previously ascertainable statistic. But I am sure that the hon. Member for Flint would not advocate that that should be substituted for the method that I propose, and, if he does not propose that, I do not see any third alternative. If, when we reach the Committee stage of the Finance Bill, he were to propose that I should look at it again—as I have often agreed to do in other matters—I would certainly look into it sympathetically, because it would give me

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more revenue. But I do not think that would be an improvement.
With regard to the suggestion which the hon. Member for Sutton Coldfield (Sir J. Mellor) made, and to which I believe other hon. Members have referred, that there is some conflict, or contradiction, between what I am proposing and what was proposed in regard to the Profits Tax, surely there is some confusion? The bonus issue does not distribute profits at the time when the new scrip is distributed. It is merely an arrangement for the recapitalisation of the company, and, in the case of the bonus element, though not of the bonus issue proper, it brings in a certain amount of new money, though, I think, in a manner which is not, generally speaking, the best, or the most clearly understood by the people. I do not think there is any conflict between that approach to bonus issues and the desire which I expressed in support of Profits Tax, that some encouragement should be given for ploughing back profits into the business rather than their distribution in dividends.
12.30 a.m.
Sir J. Mellor: May I explain? The capitalisation of reserves ensures their permanent retention in a business, whereas if they are not capitalised they can always be paid out in dividends. Therefore, it seems to me to run counter to the Chancellor's desire to see profits ploughed back permanently if he imposes this 10 per cent. tax.
Mr. Dalton: I do not see that, when making a bonus issue, one can predetermine what will be the total distribution of profits in the future. It may be that a company will think, if the concern is doing well, that in the next year they will make an increased distribution of profits, and the increased distribution of profits on a larger capitalisation might, of course, yield the same rate of dividend. Alternatively, it might be possible that within the next year they would pay out so much more because they thought they had so much more profit, due to the success of the business, that they would be paying out at a higher rate of dividend than before the bonus issue. The two things seem to me to be quite separate, and to depend upon the decision of the directors of the company. Therefore, I merely desire to rebut the suggestion that there is any inherent contradiction between my advocacy of this tax and my advocacy of the Profits Tax.
Mr. Henry Strauss: Would not the example which the right hon. Gentleman has just given us be a definite and final capitalisation of past profits?
Mr. Dalton: No. If we seek to study the matter in its simplest form, in the case of a bonus issue, what is happening, surely, is this. Profits are not distributed. What are distributed are scrip, shares. They are distributed either for nothing, in the case of the bonus issue proper—I do not think it is right to describe it as gratuitous, because that implies something which is given for no return—
Mr. Assheton: Why I said it was gratuitous was because it is not a gift to the shareholders. They are in exactly the same position as they were before. The orange is cut into smaller slices. The shareholders are in the same position. Instead of holding 100 shares, they hold 200 shares in exactly the same proportion.
Mr. Dalton: In that case, why does any shareholder ever welcome any bonus issue?
Mr. Pitman: May I give the Chancellor the answer? The real answer is that the units become more manageable. By ploughing back, one gets, say, ten times the capitalisation with £100 shares, and, as there are few people who can spend £1,000, it is a good thing to make it a more manageable and more marketable unit.
Mr. Dalton: It is a technical point which has some substance, but I do not think it is a major point. The major point, surely, is, as my hon. Friend the Member for North Battersea (Mr. Jay) said, that after distribution, the holding of the individual shareholder is worth more in the market than it was before. In the vast majority of cases it will be so, surely? This is simple arithmetic, which can be checked up by anybody.
Colonel Crosthwaite-Eyre: Could the Chancellor, in support of that argument—which I think is quite insupportable—give a few examples of where that has happened?
Mr. Pitman: Might I put to the Chancellor this point, which I think, with respect, is more important? There is no difference between a technical improvement in the market, in some news connected, say, with the assaying of the ore in a particular mine, and the technical

1195
situation which arises from a decision to do a capitalisation of this kind. It shows the prospects of a company are good, and the price goes up because the prospects are good, not because, of the bonus issue. The bonus issue is the occasion, not the cause.
Mr. Dalton: I am obliged to the hon. Members for the guidance that they are giving to the line of discussion. I am anxious to follow the point raised, and to deal with the House frankly. When I said the hon. Member for Bath had raised a point which had some technical importance, I meant exactly what I said; but I do not think it applies, by any means, to all these bonus issues. There are a great many bonus issues when the capital value of the shares is nothing like 10 times the nominal value. There are many cases where that is not so, and in those cases I do not think there is any real additional manageability—to use his word—arising. This technical advantage arises only in a minority of cases. I have not come here with a long list of cases. Indeed, one hon. Member said, very rightly, that he was sure I did not wish to pick out and name a whole series of companies to whose bonus issues I thought objection might be taken. I have not come prepared to indict particular concerns at all. However, it is certain that such cases will be found. I am quite confident that if particular cases are studied the net effect upon the value of the holdings of a particular shareholder of these issues will be that, in the aggregate, they are increased as a result of those bonus issues. I am confident that is so. That can be checked up. We can have an inquiry about it.
Colonel Crosthwaite-Eyre: Yes, let us have one.
Mr. Dalton: It would not take very long to check it. I do not think there is any serious doubt about it. My submission is that in most cases, though not in all, the shareholder benefits in terms of the total market value of his holding. I think that can be checked. The hon. and gallant Member for Barkston Ash (Colonel Ropner) put to me a specific question, which I will answer right away. As I understood him, he asked: if after the date when this new tax takes effect, a bonus issue were made in a concern which had, at some previous date, writ-
1196
ten down the value of its shares, would such a bonus issue come to tax? The answer is, "Yes, we draw a dead line." We draw a line through the date when this begins to operate, namely, the date of the Budget Speech. Bonus issues subsequent to that will be subject. We do not go back into the past history of the concern; we merely look to what has happened after the date of the Budget Speech.
Colonel Ropner: What I am not quite sure about is whether, when a share re-valued at, say, £1, having been previously reduced to 10s., the revaluing bringing the share up to its old value is included in his term "bonus issue".
Mr. Dalton: I do not want to give a misleading answer. My impression is, that the answer I have given is quite correct. But I will check it up and let the hon. and gallant Member have a specific answer to the question as he has put it.
The general case is this. I do not want to make accusations against existing concerns, but if we go back into the i9th century, to days in respect of which most of the participants have since passed on, the early days of Britain's railways—this is not blaming any living person; far be it from me to do so—there is no doubt that there was a great deal of what everybody would now regard as watering of capital. There is no doubt that some of the very large number of companies. which, at that time, between them constituted the British railway system did issue new shares to their existing shareholders; in many cases they doubled their capitalisation. But there was not even any increase in the physical assets as represented by the permanent way, the rolling stock, the stations, restaurants and so on. None at all. They doubled the nominal value of their capital, and continued to pay out approximately the same sum of money in dividends, with the result that they appeared to be paying half the rate they were before.
I am trying to put this simply, in a way which may be understood, and without arousing undue passions, and so I hope it is not thought I am attacking a particular class of people. I said in my Budget speech that the result of operations such as that was to deceive the customers for the goods and services rendered and the employees who worked in those con-

1197
cerns, and to "head off"—I used the word deliberately—demands legitimately made for lower prices, on the part of the customers, for the services rendered, or better conditions of employment, by those who worked in the concerns. That was one of the arguments used by the railways in the last century when it was said by the railways, "Our operations are very expensive, and we are paying only a poor four per cent. "It was really double that, until they issued the additional shares. They said" We are very poorly off. We are struggling along. We have a very narrow margin for our shareholders. Therefore, we cannot afford cheaper railway travel, or cheaper freights, or pay more to our workers." That is, undoubtedly, an argument that was used, and the records will show it—the records of the debates between the railways and the general public, on the one hand, and the railways and the workers, on the other.
I deliberately take an event way back in history. But that is the kind of thing that may arise again now, particularly where we have a large monopolistic institution, where competition, by the very definition, has been largely done away with, where we have all the production of some important commodity in the hands of one or, perhaps, two of the leading, large concerns. The tendency of a monopoly, as we know, is to maximise its profits and they are able to do it better in the absence of competition. This is all very elementary, but. I was invited to give explanations. The tendency of monopolies—I do not wish hon. Members opposite to think I am speaking of nationalised public services—
Mr. Hogg: The Post Office.
Mr. Dalton: The Post Office is subject to continual pressure, which the Chancellor of the Exchequer has to resist in the interests of the Revenue, to render cheaper and cheaper services. In the case of the Post Office, again, we have a public monopoly. One of the arguments, indeed, for the socialisation of these institutions is that we are able to get the play of public opinion working on them in a way we cannot upon a private concern; and Members of Parliament become active, among others, in putting pressure on Ministers and the Administration in order, on the one hand, to reduce charges, and, on the other, to improve the con-
1198
ditions of employment of those concerns' employees. This is one of the arguments in favour of Socialism. I had not intended to produce it until I was challenged by the hon. and learned Member for Oxford—
Mr. Hogg: I am not "learned."
Mr. Dalton: I thought the hon. Gentleman was. But that is, no doubt, to come.
Mr. Hogg: But I am not stupid.
12.45 a.m.
Mr. Dalton: I have stated the broad, general case. As I said, these cases were objectionable, and that was why I said there was a prima facie case. By doubling capitalisation, without any corresponding change in the assets, companies can make it appear that they are less prosperous than they really are. Having doubled the nominal capital, and having made no increase whatever in their assets, they are able, thereby, to benefit shareholders and declare dividends only half of what they declared before, and use poverty as a defence against demands for better services, or for better conditions for their workpeople.
There are cases—and I mentioned these in my Budget speech—in which it can be shown that these transactions in particular circumstances are legitimate. But the Capital Issues Committee will now have a wider discretion to let them through, when they mean bonus issues proper, in which is represented no new money. In bonus issues proper, no new money is put up at all. Not an additional penny is put up by anyone to modernise plant or increase equipment. All that happens is that a number of pieces of paper are distributed among existing shareholders, who are then told that they hold a larger number of shares than they did before, in a company with which they were previously associated. No one can deny that that is a true statement of the facts. Even the Opposition is reduced to acquiescent silence.
Mr. Eccles: It is true that it is a gratuity, that no new money is put up. But money has previously been subscribed. Auditors will not allow the issue of this gratuitous bonus, unless there is something in the balance which has been acquired which can be capitalised. If you tried to do it without having accumulated a profit you would go to prison.
Mr. Dalton: None of us would wish the hon. Member to go to prison. I thought we had nearly reached agreement on the facts. In changing to a bonus issue proper, nothing is done to improve the physical equipment of the company, or the production efficiency, or the social value of the employment. It remains the same, except that there has been a distribution of pieces of paper which constitutes a financial rearrangement which has no counterpart in the world of real affairs.
Lord William Scott: Does the Chancellor suggest that Courtaulds' issues resulted in no increase in the production?
Mr. Dalton: The mere issue of bonus shares did nothing to increase it—that is, bonus issues proper. In the case of bonus issues proper, not one penny of new money is put up. No good purpose is served; there is purely a financial rearrangement. I do not believe that hon. Members opposite disagree with this part of the argument. Bonus issues proper do nothing but bring about certain financial rearrangements. On the other hand, there is the other type of bonuses, where you acquire some new money, though less than the equivalent of the value of the share. It was generally these that Courtaulds issued. It was not so much the bonus element under which existing shareholders were required to pay something, for shares which were worth a great deal more than they had paid for them. The new money collected was, no doubt, put by them to new uses. My submission is that this new money could have been got by a straightforward issue in the market, and not by an ambiguous method such as the bonus issue.
I do hope that the Opposition acquit me of a desire, as has been suggested, merely to put forward a plan which has no real argument behind it. The argument is not nonsense. There is a general suspicion, which we are entitled to entertain, that these things have a deceptive effect in the minds of the public, and, for that reason, as well as for others, this is a suitable object for taxation. That is especially so at a time when we are looking about for sources of revenue. At a time when, on the one hand, we are anxious to give certain reliefs, what hon. Member is going to say it would have been better had I not increased the child allowance in order to refrain from imposing a
1200
tax on bonus shares? Is it not really better that I should have put a tax on bonus shares if that is one way in which we can get relief for the families of the income tax payers? There is no reason for this tax to bring me any revenue at all, for there is no need for any bonus issue to be made. If one is made, then there should be this entrance fee payable to the Treasury. This is a case which is rational. There may be a rational counterargument on the other side. I have not heard it. I am sorry that the accusation is made that the argument from this side has not been rational nor sincere, but I assure the House that there is every sincerity, and I assure the House that this measure is one which, at this time, we consider necessary and fair.
Mr. Stanley: I am glad to think that we shall have many more opportunities of discussing this most interesting topic and, therefore, I do not propose to say very much. We have listened to a typical speech from the Chancellor. Some people may have believed the case he made out. If so, I can only use the words used by the Prime Minister at Question time this afternoon—words which, incidentally, were used by the Duke of Wellington a good deal earlier—that "If they believe that, they will believe anything." But I am not going tonight over the technical financial arguments used on one side or the other. I do not, for instance, pretend to the great economic knowledge displayed by the hon. and learned Member for North Hammersmith (Mr. Pritt) in a speech in which I think we all felt that he had finally paid his passage home. I have even heard rumours, which I believe to be true, that the hon. and learned Gentleman is to be accepted back in the fold.
Mr. Pritt: Is the right hon. Gentleman so naive that he really believes what he reads in the Tory Press?
Mr. Stanley: Well, I accept that rebuke. When a suggestion was made, so prejudicial to the party opposite—that the hon. and learned Gentleman was going to return to their ranks—I should, perhaps, have been a little suspicious. As I say, I would leave the more technical aspects of this Resolution and put to the House our dilemma, which to a simple person like myself does need some resolving. The Chancellor has spent the whole of his time this evening in telling us, in one

1201
way or another, how wholly undesirable bonus share issues are, whether they are, as he calls them, gratuitous or whether they have some element of new issue. If they are so wholly undesirable, why did they suddenly become desirable provided they contribute to the Exchequer? We are told that, in one way or another, they contribute to the deception of the worker, to the deception of the consumer, to the deception even of the right hon. Gentleman. But we are told that it does not matter if the worker is deceived, if the consumer is deceived, or even if the right hon. Gentleman is deceived, so long as they pay 10 per cent. for the privilege of doing so. I was brought up on the principle that there was such a thing as right, and such a thing as wrong and that the two things were always different. This new morality preached by the Chancellor of the Exchequer, that something which is wrong can easily become right at 10
per cent., is one that I must confess I have not yet been able to assimilate.
No doubt, between now and the further stages of these proposals, we shall discuss this Measure, and we simple souls on these benches shall see whether we can adapt ourselves to this new morality which is being preached. Seriously, we shall take another opportunity of challenging the whole case which the Chancellor has put up against bonus issues. We shall press for an explanation of how it is that, if he really believes his own case, if he really believes what he has been saying tonight, about bonus issues, he can possibly consent to a bonus issue on any terms, even one contributing 10 per cent. to the Treasury.
Question put, "That this House cloth agree with the Committee in the said Resolution."
The House divided: Ayes, 181; Noes, 75.

Division No. 141.]

AYES.

[12.57 a.m.

Adams, W. T. (Hammersmith, South)

Griffiths, W. D. (Moss Side)

Morgan, Dr. H. B.

Alexander, Rt. Hon. A. V.

Hale, Leslie

Morley, R.

Alpass, J H.

Hall, W. G.

Morris, P. (Swansea, W.)

Anderson, A. (Motherwell)

Hannan, W. (MaryhiII)

Nally, W.

Austin, H. Lewis

Hardy, E. A.

Neal, H. (Clayoross)

Baird, J.

Henderson, A. (Kingswinford)

Nicholls, H. R. (Stratford)

Barnes, Rt. Hon. A. J.

Henderson, Joseph (Ardwick)

Paget, R. T.

Barton, C.

Hobson, C. R.

Paling, Will T. (Dewsbury)

Bechervaise, A. E.

Holman, P.

Palmer, A. M. F.

Beswiok, F.

Holmes, H. E. (Hemsworth)

Pargiter, G. A.

Bing, G. H. C.

House, G

Paton, Mrs. F. (Rushcliffe)

Binns, J.

Hoy, J.

Paton, J. (Norwich)

Blyton, W. R.

Hughes, Hector (Aberdeen, N.)

Pearson, A.

Boardman, H.

Hughes, H. D. (Wolverh'pton, W.)

Piratin, P

Braddock, Mrs. E. M. (L'pl, Exeh'ge)

Hynd. H. (Hackney, C.)

Platts-Mills, J. F. E.

Braddock, T. (Mitcham)

Hynd, J. B. (Altercliffe)

Porter, E (Warrington)

Bramall, E. A.

Irving, W. J

Porter, G. (Leeds)

Brown, George (Belper)

Janner, B.

Price, M. Philips

Brown, T. J. (Ince)

Jay, D. P. T.

Pritt, D. N.

Burke, W. A.

Jeger, G. (Winchester)

Proctor, W. T.

Butler, H. W. (Hackney, S.)

Jeger, Dr. S. W. (St. Pancras, S.E.)

Pryde, D. J.

Callaghan, James

Jones, J. H (Bolton)

Pursey, Cmdr. H.

Carmichael, James

Jones, P. Asterley (Hitchin)

Randall, H. E.

Champion, A. J.

Keenan, W.

Ranger, J.

Collindridge, F.

Kenyon, C.

Rankin, J.

Comyns, Dr. L.

King, E. M.

Reid, T. (Swindon)

Corbel, Mrs. F. K (Camb'well, N.W.)

Kinghorn, Sqn.-Ldr. E.

Rhodes, H.

Crawley, A.

Kinley, J.

Ridealgh, Mrs. M.

Daines, P.

Lang, G.

Roberts, Goronwy (Caernarvonshire)

Dalton, Rt. Hon. H.

Lee, F. (Hulme)

Rogers, G. H. R.

Davies, Ernest (Enfield)

Lee, Miss J. (Cannock)

Ross, William (Kilmarnock)

Deer, G.

Leonard, W.

Royle, C.

Delargy, H. J.

Lever, N. H.

Sargood, R

Dodds, N. N.

Lewis, A. W J. (Upton)

Scollan, T.

Driberg, T. E. N.

Licton, Lt.-Col. M.

Shackleton, E. A A.

Dumpleton, C. W.

Longden, F.

Sharp, Granville

Ede, Rt. Hon. J. C.

McAllister, G.

Shawcross, C. N. (Widnes)

Evans, S. N. (Wednesbury)

Mack, J. D.

Shurmer, P.

Fairhurst, F.

McKay, J. (Wallsend)

Silverman, J. (Erdington)

Fletcher, E. G. M. (Islington, E.)

Mackay, R. W. G. (Hull, N.W.)

Skeffington, A. M.

Fcot, M. M.

McKinlay, A. S.

Skinnard, F. W.

Foster, W. (Wigan)

McLeavy, F.

Smith, S. H. (Hull, S.W.)

Gaitskell, H. T. N.

MacMillan, M. K. (Western Isies)

Snow, Capt. J. W.

Gibson, C. W.

Mallalieu, J. P. W.

Soskice, Maj. Sir F

Gilzean, A.

Mann, Mrs. J.

Steele, T.

Goodrich, H. E.

Middleton, Mrs. L.

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

Gordon-Walker, P. C.

Mikardo, Ian

Stross, Dr. B.

Greenwood, A. W. J. (Heywoed)

Mitchison, G. R.

Stubbs, A. E.

Griffiths, D. (Rother Valley)

Monslow, W.

Swingler, S.

Symonds, A. L.

Wallace, H. W. (Walthamstow, E.)

Williams, D. J. (Neath)

Taylor, H. B. (Mansfield)

Watkins, T. E.

Williams, J. L. (Kelvingrove)

Taylor, R. J. (Morpeth)

Weitzman, D.

Williams, W. R. (Heston)

Taylor, Dr. S. (Barnet)

Wells, P L (Faversham)

Wills, Mrs. E. A.

Thomas, I. O. (Wrekin)

Wells, W. T. (Walsall)

Wise, Major F. J.

Thorneycroft, Harry (Clayton)

West, D. G.

Woodburn, A.

Thurtle, E.

White, H. (Derbyshire, N.E.)

Wyatt, W.

Timmons, J.

Whiteley, Rt. Hon. W.

Yates, V. F.

Tolley, L.

Wigg, Col. G. E.

Younger, Hon. Kenneth

Vernon, Maj. W. F.

Wilkes, L.

TELLERS FOR THE AYES

Walkden, E.

Willey, F. T. (Sunderland)

Mr. Michael Stewart and

Wallace, G. D. (Chislehurst)

Willey, O. G. (Cleveland)

Mr. Simmonds.

NOES

Agnew, Cmdr. P. G.

Fyfe, Rt. Hon. Sir D. P. M.

Prior-Palmer, Brig. O

Assheton, Rt. Hon. R

Galbraith, Cmdr. T. D.

Roberts, Maj. P. G. (Ecclesall)

Baldwin, A. E

Gomme-Duncan, Col. A

Robinson, Wing-Comdr. Roland

Barlow, Sir J

Grimston, R. V.

Ropner, Col. L.

Birch, Nigel

Head, Brig. A. H.

Ross, Sir R. D. (Londonderry)

Hinchingbrooke, Viscount

Scott, Lord W.

Bower, N.

Hogg, Hon. Q.

Smith, E. P. (Ashford)

Buchan-Hepburn, P. G. T.

Hollis, M. C.

Spence, H. R.

Bullock, Capt. M.

Hope, Lord J.

Stanley, Rt. Hon. O.

Carson, E.

Howard, Hon. A

Stoddart-Scott, Col. M.

Channon, H.

Keeling, E. H.

Strauss, H. G. (English Universities)

Clarke, Col., R. S.

Lambert, Hon G.

Stuart, Rt. Hon. J. (Moray)

Clifton-Brown, Lt.-Col. G.

Lancaster, Col. C. G

Taylor, C. S. (Eastbourne)

Conant, Maj. R. J. E.

Lucas, Major Sir J.

Thomas, J. P. L. (Hereford)

Corbett, Lieut.-Col. U. (Ludlow)

Lucas-Tooth, Sir H.

Thorp, Lt.-Col. R. A. F.

Crookshank, Capt. Rt. Hon. H. F. C.

Macdonald, Sir P. (I. of Wight)

Vane, W. M. F.

Crosthwaite-Eyre, Col. O. E.

Mackeson, Brig. H. R.

Wadsworth, G.

Cuthbert, W. N.

Maitland, Comdr. J. W.

Wheatley, Colonel M. J

De la Bère, R.

Marshall, D. (Bodmin)

Williams, C. (Torquay)

Dodds-Parker, A. D

Medlicott, F.

Willoughby de Eresby, Lord

Drayson, G. B.

Mellor, Sir J.

York, C.

Drewe, C.

Morrison, Maj. J. G. (Salisbury)

Young, Sir A. S. L. (Partick)

Eccles, D. M.

Neven-Spence, Sir B.

Fletcher, W. (Bury)

Noble, Comdr. A. H. P

TELLERS FOR THE NOES:

Foster, J. C. (Northwich)

Pickthorn, K

Mr. Studholme and

Fox, Sir G.

Pitman, I. J.

Major Ramsay.

Fraser, H. C. P. (Stone)

Poole, O. B. S. (Oswestry)

Question put, and agreed to.

FINANCE [MONEY]
Resolution reported:
"That, for the purposes of any Act of the present Session relating to Finance, it is expedient to authorise such payments out of the Consolidated Fund, such borrowings under the National Loans Act, 1939, and such releases of debts due to the Crown a9 are required by any of the following provisions of the said Act of the present Session. that is to say—

(a) a provision that the permanent annual charge for the National Debt for the current financial year shall be five hundred and twenty-five million pounds and that the sums required in the current financial year for the purposes mentioned in paragraph (a) or paragraph (b) of subsection (4) of section twenty-three of the Finance Act, 1928, may be raised by such borrowings as aforesaid;

(b) a provision extending section twenty-six of the Finance Act, 1946 (which relates to the repayment of post-war income tax credits to elderly persons) to credits for the years 1944–45 and 1945–46; and

(c) a provision relaxing, in certain cases where assets of a trade or business are compulsorily acquired so that the trade or business or a part thereof can no longer be
1204
carried on by the persons carrying it on before the acquisition, the requirements of Part IV of the Finance (No. 2) Act, 1945, as to the giving and carrying out of undertakings in connection with the making of post-war refunds of excess profits tax."

FINANCE (SAVINGS BANKS)
Resolution reported:
"That, for the purposes of any Act of the present Session relating to Finance, it is expedient to authorise the payment out of the Consolidated Fund—

(a) of such sums, into the Post Office Savings Bank Fund and the Fund for the Banks for Savings, as may be provided for by the said Act;

(b) of such expenses (including the remuneration of members and officers) of the Inspection Committee established under section two of the Savings Banks Act, 1891, and such expenses of the National Debt Commissioners, as may be so provided for,

and to repeal subsection (2) of section four of the Savings Banks Act, 1891 (which requires expenses of the said Inspection Committee to be levied from trustee savings banks in certain cases.)"

WAYS AND MEANS (17th April)
Resolution reported:
"That it is expedient to amend the law with respect to the National Debt and the public revenue, and to make further provision in connection with finance."
Bill ordered to be brought in upon the said Resolution and upon the other Resolutions reported from the Committee of Ways and Means on 22nd April and agreed to by the House on that day, yesterday, and this day, and upon the Resolutions reported from the Committees on Finance [Money] and Finance (Savings Banks) and agreed to this day, by the Chairman of Ways and Means, the Chancellor of the Exchequer and Mr. Glenvil Hall.

FINANCE BILL
"to grant certain duties, to alter other duties, and to amend the law relating to the National Debt, the Public Revenue and Savings Banks, and to make further provision in connection with Finance," presented accordingly, and read the First time; to be read a Second time upon Monday next, and to be printed. [Bill 64.]

DEBTS CLEARING OFFICE (SPAIN)
Motion made, and Question proposed:
"That the Clearing Office (Spain) Amendment Order, 1947 (S.R. & O., 1947, No. 590), dated 31st March, 1947, made by the Treasury under Sections r and 3 of the Debts Clearing Offices and Import Restrictions Act, 5934, a copy of which Order was presented on 3rd April, be approved."—[Mr. Glenvil Hall.]
Mr. Driberg: Before we approve this Order, could my right hon. Friend tell us a little about it, and what are its implications? Does it bind us in closer commercial and friendly relations with General Franco? What is it all about?
1.9 a.m.
The Financial Secretary to the Treasury (Mr. Glenvil Hall): This Order removes the obligation at present placed upon United Kingdom importers to pay their debts to the Anglo-Spanish Clearing Office. That Clearing Office was first established in 1936 under a payments agreement to collect debts due to United Kingdom creditors from Spain. Of course, during the civil war, the Clearing Office was suspended, but it was revived in 1940 by an
1206
Anglo-Spanish Trade Agreement. That Agreement has now been superseded by a Monetary Agreement and an Order has been made which is similar in kind to one made recently in respect of Turkey. Agreements have in the past two years, been made with most other European countries in very similar terms.
The agreement is quite a good one from the point of view of this country, particularly now that we have the Exchange Control Act on the Statute Book. We a re now able to control currency transactions between this country and Spain under the provisions of that Act, through the banks, which is a much more convenient method than was previously the case under the Clearing Office arrangements, through imports in the normal way. The agreement provides that each Government shall hold £2 million worth of currency of the other country, and, in addition, the Spanish Government have undertaken to hold an extra sum in sterling. In the next few years, this is going to be of great benefit to us. We import quite a number of things from Spain which are necessary to our economy. For example, we import iron ore, including high grade ore, pyrites, potash, mercury, cork, and other raw materials, to say nothing of foodstuffs like oranges (including oranges for marmalade), dried fruits, tomatoes, sherry, onions and various other things which come to us from Spain, and which we are very glad to have and will continue to want for some years to come.
Finally, may I quote a passage from a speech made by my right hon. and learned Friend the President of the Board of Trade dealing with this matter. Last year, when our relations with Spain were under discussion, he said:
"It is the policy of His Majesty's Government to develop and expand their export trade with all foreign countries. Notwithstanding the character of the present Spanish régime, on which the views of His Majesty's Government have been made known, this policy holds for Spain also. We import from Spain a quantity of foodstuffs and other commodities which are essential to our economy"
Therefore, as the agreement is a favourable one, and as we get from Spain a number of imports which we badly need at the present time, I hope that the House will agree to this Order. The Order does not do away with the Clearing Office entirely, because there are still some debts to be cleared through it, but it will, in the main, be superseded by the

1207
new Monetary Agreement which I have explained in broad outline to the House.
Mr. Driberg: Before my right hon. Friend resumes his seat, could I ask him—although, of course, we are glad to get these imports—whether he would not more gladly get them from a Republican Spain than from a Spain controlled by the bloodiest and meanest Fascist tyranny that still exists?
1.14 a.m.
Colonel Crosthwaite-Eyre: The Financial Secretary has said that this agreement is favourable to ourselves. I do not wish to' go into the politics of it, because that is something outside this Order, but I would suggest to the right hon. Gentleman that there are a great many factors in this agreement which are far more favourable. I would ask the House to consider some of them tonight. In the first place, we are now abrogating the agreement which set up the Clearing Office in 1936 and whose working was substantially amended in 1940. We are asked in this Order to leave it to His Majesty's Government, in consultation with the Spanish Government, to settle all outstanding debts. I think that the Financial Secretary might have told us something about the position in regard to the debts at present in the Clearing Office.
I spent some time this afternoon in the Library trying to work through all the Clearing Office Orders, and it seems to me that it would need quite a lot of disentangling to get the position back to normal. We should be told something of the position which His Majesty's Government wish to take with this Order, what they propose to do, and what is the sum which they hope to receive or may have to pay. I would like the Financial Secretary to tell us what is actually the credit or the debit with the Clearing Office, what His Majesty's Government propose to do with it, what negotiations they have had with the Spanish Government, and what is their proposal in this matter.
The next question is, why have the Government agreed to this rate of exchange? The rate of exchange set out is 44 pesetas to the £. No one who has any knowledge of the true value of the Spanish peseta would imagine that such a
1208
rate is favourable to this country. It is utterly unfavourable, and represents something like 50 per cent. of the true value of the £ against the peseta in the free market. Why have the Government agreed to this rate of exchange? What justification have they? With whom have they consulted? Why have they done this, which is penalising the trade of this country with Spain? I would like the House to remember that we have a great adverse balance of trade with Spain at the moment. I think I am right in saying that in 1945 our adverse balance of trade was something like £1 million, and that in the last year it was £9 million. That adverse balance could be materially affected by getting a proper rate of exchange for the peseta. Why has nothing been done about it? Why do the Government say it is favourable to accept this rate of exchange?
I pass to the item called the equalisation account. Under that, as I understand it, in Spain and in England there is to be set up a fund which at no time is to excede £2 million in credits due to either nation. If it goes above that sum, gold is to be made available to the country which has that credit. If that is so, how do His Majesty's Government think this agreement is going to be favourable to them? The Financial Secretary has reinforced my fears by saying we need goods from Spain badly. I do not think the Financial Secretary would be prepared to tell the House that we can anticipate a favourable balance of trade. Yet we agree that £2 million shall be the maximum balance of credits to be held by either country, and that anything beyond that has got to be provided from gold. If we take the figures in the Trade and Navigation Account, we see that it means this country has to provide £8 million of gold each year to General Franco in exchange for trade. Does the Financial Secretary consider that a satisfactory bargain for this country? If so, why? It may well be that there are considerations outside what I have said.
The agreement goes on to say that sterling balances shall be payable at any time by His Majesty's Government in full or in part by the payment of gold. I hold no brief for General Franco. All I would say—and I hope hon. Members will not misinterpret what I am saying—is that I would much rather have General Franco than Mr. Negrin. But why should

1209
we make this sort of agreement about the settlement of sterling balances with Spain of all countries? How can we afford to pay off Spain when we have an adverse balance of trade, and when we have this convertibility liability? Where are we to get the money from? If this is the way we are to deal with hard currency and our gold reserves, no wonder we shall be faced with an economic crisis in the next few months.
Finally, I want to raise one question on Article 9 of this agreement, which says that, as soon as possible, we are to make an arrangement for the convertibility of current trading debts into, not only currencies outside the Spanish area, but, particularly, hard currencies. What does the Financial Secretary estimate this will cost this country in this financial year, which will be only a part year, and in the first full financial year after this agreement comes into operation? We on this side of the House have tried to bring home to His Majesty's Government that these financial agreements they are making about convertibility, these clauses they are putting in about sterling balances, and these arrangements they are making for paying gold over when they have an unfavourable trade balance, are things which are draining the very lifeblood away from this country.
Here, above all, is a case where we are doing it to Spain, which, in view of her political record, is, I think, a country which should have no prior consideration in settling our payments. Spain did nothing to help the United Nations during the war. When I hear the Financial Secretary say he considers this agreement satisfactory to His Majesty's Government, I can only come to the conclusion that His Majesty's Government have no real intention to try to face the grim situation with which we are faced, in which it is necessary for us to guard our dollars and gold with the utmost care, and to try to see ourselves through the very difficult years that are coming. I must say, I should be very loath to see this Motion pass the House unless some Member from the Front Bench opposite can give us a much more satisfactory reason than those advanced by the Financial Secretary.
1.22 a.m.
Mr. David Eccles: I have some interest In this agreement,
1210
because, on behalf of the Minister of Economic Warfare, now the Chancellor of the Exchequer, I negotiated the agreement of 1940, which took five months. That agreement is now being replaced by the one which we are discussing tonight. It is a very interesting fact that, I suppose, the only right hon. Gentleman—I would almost say the only Minister in the world—who has the distinction of lending to General Franco is now borrowing from one and the same man: that is the Chancellor. I would point out that it has worked very well until now. I have, I suppose, as intimate an experience of General Franco and his Government as any other hon. Member, having struggled with them on behalf of my Minister day in and day out for months. I do not wish to say anything about a foreign Power, except that I am glad that I have exchanged my job and am now an hon. Member of this House.
Under the agreement of 1940, which is now being altered, Britain collected the whole of the debts owed to private persons in this country previous to the civil war breaking out in Spain. No other country in the world, with the possible exception of Portugal—and I am not sure whether that is an exception—was paid by the Franco regime what they were owed before the civil war. They did not pay Germany, and Germany fought for Franco in the civil war. Franco Spain did not pay Italy. They have not paid the United States, in spite of the oil squeeze which the United States have put on from time to time. But they did pay the whole of their pre-civil war debts to this country. In addition to that, they have repaid the £4 million which the Chancellor instructed me to lend them in the first winter of the war.
We now find a new situation. The debts are being repaid, and we are now in debt to Spain. I am not quite sure that my hon. and gallant Friend the Member for the New Forest and Christchurch (Colonel Crosthwaite-Eyre) has got the gold part of the case right. The fact that Spain has to put up gold if they withdraw, but we do not—
Mr. Glenvil Hall: It is not £2,000,000.
Mr. Eccles: There is a slight advantage to us in this matter. The whole essence of the agreement is, how much sterling will General Franco's Spain be willing to

1211
leave in London? It is not very easy to get people to increase their sterling balances at this moment. That brings me to the excellent point raised by my hon. And gallant Friend, that the amount of sterling which we give to Spain, as a result of this agreement, will be greatly increased because of the ridiculous rate of the peseta. I think I am right in saying that His Majesty's servants in Spain use a rate very different from that of 44 pesetas to the pound. The cost of oranges, potash, or iron ore is steady. Wages are fixed. They have gone up—not as much as they might have done—but they have gone up very much. We have to cover the whole of that peseta outlay. We were faced with this problem in the war, but we then did something which I am glad we cannot do now. We had the United Kingdom-Commercial Corporation, through which things were sold to Spain in exchange for what we got from Spain, and we doubled the prices of some goods that were sold to Spain to compensate ourselves far the wretched rate of exchange. We cannot do that now because the United Kingdom Commercial Corporation is wound up. So there is no way of offsetting or bolstering up our own prices under what is a totally false rate of exchange.
I welcome trading relations with Spain. I do not think we can mix these things up with politics. We need potash for our agriculture. It would be absurd to refuse it because we do not like the politics of the Spanish regime. On the other hand, I should like to get it at the proper price. I do not wish that we should pay too much for it. If we put up the rate of exchange at less than the true comparative value of the pound to the peseta, that will happen. We are entitled to some explanation on that point. We have to be careful not to pile up more claims against London than is absolutely necessary. I think the Government have done right to encourage this agreement. It is quite right to regularise trade with Spain. They have done well to get another country, politics apart, to leave sterling here. But the rate of exchange is a mistake, and I wonder whether something could be done about it.
1.29 a.m.
Mr. Hollis: As my hon. Friend has shown, the Financial Sec-
1212
retary has very effectively refuted a most unfair slander that was directed against His Majesty's Government at some of the Easter week meetings of the trade unions, if I read my newspapers aright. The Socialist Government were attacked on the ground that they were financing General Franco. It is quite clear that General Franco is financing the Socialist Government. The Financial Secretary is perfectly right to refute that slander. My hon. Friends have shown that it is not possible for us to provide Spain with a volume of goods equal to those we need from Spain. Therefore, we are making no complaint that an agreement has been reached. But I join with my two hon. Friends in wondering whether it was through mere incompetence that we had to get into debt to General Franco, and whether we are getting into debt to an entirely unnecessary extent. The only other point upon which I would like an assurance from the Financial Secretary is the old question of the United States raising any objection to these arrangements. When the Argentine Agreement was before us, it will be remembered, my hon. Friends and I asked some questions of the Chancellor of the Exchequer whether objections had come from the United States. When the questions were asked objections had not been delivered. Therefore we were told that no objection had been made, but later representations were made by Mr. Snyder and the Chancellor assured the Americans that such things would not occur again. Therefore I presume that it has been made certain that the United States are not taking exception to anything in this Agreement. I would be grateful if the Financial Secretary could reassure us on that point.
1.32 a.m.
Mr. Glenvil Hall: I will briefly answer the main points which have been put to me. It is true that there are two rates of exchange obtaining in Spain. I understand that there is what is called the tourist rate of exchange at 66, but there is also the official rate which is embodied in this monetary agreement, namely 44 pesetas to the £1. That rate, in spite of what has been said tonight, is comparable with the rate in which transactions are made with the United States and other countries. I cannot say any more than that. It is my view that the representatives who made this agreement, fixing, as they did by mutual agreement,

1213
a rate of 44 pesetas to the £1, were not doing anything unfair or out of line with the rates which obtain between the Spanish Government and other countries. I think the hon. Member for Chippenham (Mr. Eccles) answered for me the question put by the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) about the gold deposits. So far as the advantage—and there is one—is concerned, this country is to be allowed to import on credit over and above £2,000,000, and to that extent the advantage is all on our side.
Colonel Crosthwaite-Eyre: Is it not a fact that once that limit is exceeded all current debts have to be paid in gold?
Mr. Glenvil Hall: It is not a definite obligation, but provision is made in one of the articles for a deposit of gold to be made in the Institute or the Bank of England as the case may be. I hesitate to contradict the hon. Member for Chippenham. It is true that he did on behalf of the Minister of Economic Warfare, now the Chancellor of the Exchequer, undertake certain missions in the autumn of 1940. But it was not the present Chancellor of the Exchequer who actually made that agreement. It was made in March, 1940, when the Chamberlain Government were in power, and some months before the present Chancellor joined the Coalition Government to become Minister of Economic Warfare. The hon. Member for Chippenham answered one of the questions put by the hon. Member for New Forest and Christchurch. As he told the House, he negotiated on behalf of H.M. Government certain loans to the Spanish Government to the tune of some £4,000,000, and the amount owed by the Spanish Government was about £5½ million on loans and the servicing of loans, and £8,000,000 for commercial transactions. All these have been liquidated, and payment for current transactions are being made as we go along.
Colonel Crosthwaite-Eyre: I do not want to interrupt, but I would like to know if, as from the date that this Order comes into force, the Financial Secretary will tell us what is the balance for or against this country on that date.
Mr. Glenvil Hall: So far as old transactions are concerned, they have been paid, and we are now starting, in one sense, with a clean sheet. There are no
1214
outstanding debts as a result of the agreement made in 1940.
I was asked what the position is today. At the moment, it is impossible, of course, to give exact figures, but the imports from Spain to this country are running at something over £10,000,000 a year, and there are expectations that they may run to £25,000,000 in sterling. What the exact figure will be it is impossible to say at this juncture. One final question put to me was what was the attitude of the United States, and whether we were contravening any agreement which we have come to with that country. The answer is "No." This agreement is very similar to agreements made with other European countries, and the Order is almost identical with the one we made in the case of Turkey, with whom we had previously a similar clearing office. If the United States Government had any objection, or knew of any matter to which they could have taken exception, they would have expressed it earlier on the other agreements which were similar.
Mr. Driberg: Before he finishes, can my right hon. Friend say one word to indicate that he realises that economics cannot be completely separated from politics; that he hopes that trade agreements will also be concluded with Socialist countries; and that His Majesty's Government still detests that bloodthirsty little louse General Franco?
Mr. Glenvil Hall: We are trying desparately hard to make an agreement with Russia and we have a trade delegation in that country at present. This agreement has nothing to do with General Franco, or the present régime, as such, in Spain. It is a pure trading agreement between one country and another.
Resolved:
"That the Clearing Office (Spain) Amendment Order, 1947 (S.R & O., 1947, No. 590), dated 31st March 1947, made by the Treasury under Sections 1 and 3 of the Debts Clearing Offices and Import Restrictions Act, 1934, a copy of which Order was presented on 3rd April, be approved."

IMPORT DUTIES (PEPPERCORNS)
Motion made, and Question proposed,
"That the Import Duties (Substitution) (No. 1) Order, 1947 (S.R. & O., 1947, No. 604), dated 2nd April, 1947, made by the Treasury under Section 16 of the Finance Act, 1933, a copy of which Order was presented

1215
on 3rd April, be approved."—[Mr. Glenvil Hall.]
1.40 a.m.
Mr. Oliver Stanley: Are we not to have any explanation of this important Order?
The Financial Secretary to the Treasury (Mr. Glenvil Hall): This Order substitutes an ad valorem duty of 10 per cent. for one of 4s. 6d. a cwt. on this commodity. As a result of the Ottawa Agreement, we are pledged to India to maintain a duty of 10 per cent. on peppercorns. In 1937, when the 4s. 6d. rate was fixed, that was approximately equal to 10 per cent. Now the price is 290s. a cwt., and 4s. 6d. is not 10 per cent. of that. This Order will rectify the discrepancy and enable us to keep faith with India.

IMPORT DUTIES (ARTIFICIAL TEETH)
Resolved:
"That the Additional Import Duties (No. 1) Order, 1947 (S.R. & O., 1947, No. 588), dated 1st April, 1947, made by the Treasury under the Import Duties Act, 1932, a copy of which Order was presented on 3rd April, be approved."—[Mr. Glenvil Hall.]

TRANSPORT [Money] (No. 2)
Considered in Committee under Standing Order No. 69.—(King's Recommendation signified.)
[Major MILNER in the Chair]
Motion made, and Question proposed,
"That, for the purposes of any Act of the present Session to provide, amongst other things, for the establishment of a British Transport Commission, it is expedient to authorise—

(a) the payment out of the Consolidated Fund of such sums as may be required to fulfil any guarantee by the Treasury of the principal of and interest on moneys temporarily borrowed by the said Commission or any other body having functions under the said Act, so, however, that the moneys temporarily borrowed by the Commission do not at any time exceed twenty-five million pounds;

(b) the payment out of moneys provided by Parliament of the remuneration of officers and servants of the Transport Tribunal referred to in the said Act appointed under the said Act in excess of the number authorised by section twenty-one of the Railways Act, 1921.

1216
For the purposes of this Resolution, the expression "borrow" does not include—

(i) the receipt of money by the Commission in the course of the carrying on of a savings bank operated for the benefit of the employees of the Commission, or the use by the Commission of money so received; or

(ii) the receipt or use by the Commission of moneys received by trustees carrying on such a savings bank as aforesaid; or

(iii) the receipt or use by the Commission of moneys of a pension fund established for the purposes of a pension scheme (as defined in the said Act of the present Session) in which employees of the Commission are participants.—[Mr. Barnes.]

1.42 a.m.
The Minister of Transport (Mr. Barnes): This Financial Resolution is proposed for the purpose of meeting an undertaking which I gave in Committee to my hon. and learned Friend the Member for Richmond (Sir H. Watt). It has been the practice of the railway companies to utilise the funds of the railway savings banks in their general accounts and the original Financial Resolution which dealt with temporary borrowings did not make provision to continue that practice. This Resolution will regularise that position and the sums are fairly considerable. I am informed that in the savings bank account there is approximately £45 million and in the pension fund the figure is something like £73 million. By this Resolution the British Transport Commission will thereby continue the practice of the railway companies and utilise those funds, and they will not be classified under the figure of million temporary borrowings.
With regard to the details of the Financial Resolution, paragraph (a) repeats that part of the original Financial Resolution, and it is there for the purpose of bringing the Resolution back to the original Resolution. With regard to paragraph (b), under Section 21 of the Railways Act, 1921, the Railway Rates Tribunal staff was limited to ten persons. My attention has been drawn to the matter and various sections of industry and traders generally interested in the work of the Tribunal consider that the staff is inadequate. Therefore, for the purpose of enabling the Tribunal to increase its staff, we have introduced this paragraph. The remaining paragraphs give effect to my earlier remark, and permit the Transport Commission to use the pension funds and savings bank funds without their being classified as temporary borrowing.
Mr. Oliver Poole: I wish to raise one point. According to the statement of the right hon. Gentleman this Financial Resolution refers only to two matters—savings banks, about which he gave my hon. and learned Friend an undertaking, and the minor point of enabling more staff to be given to the Transport Tribunal. I understood there were other points which were to be brought forward on a later stage. Can the right hon. Gentleman say whether in fact they are covered under the old Financial Resolution or whether the new Resolution covers all the points raised in the various new Clauses which he has tabled?
Mr. Barnes: This Financial Resolution covers only the points I have referred to. The original Resolution covers all other necessary points.
Resolution to be reported this day.

Mr. Diamond discharged from the Select Committee on Estimates; Mr. Richard Adams added.—[Mr. R. J. Taylor.]

DOMESTIC FUEL, EAST ANGLIA
Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Snow.]
1.50 a.m.
Mr. Medlicott: I wish to raise a matter which affects a large number of people in East Anglia—that of the allocation of fuel for domestic consumption. This is not a new matter to the Minister concerned. Indeed, as late as yesterday he received a deputation of Members from the area affected, and received us with complete courtesy but without very much promise of being able to help us. The allocation of fuel for domestic consumption is made upon geographical considerations resulting from the line which is drawn from East to West. The line runs from the Wash on the East to the Severn on the West. I would like to make the preliminary point that those of us who have examined this matter do not admit. that questions of climate can be disposed of solely by drawing a line of that description. We suggest that questions whether an area is East or West are as material, from the point of view of climate, as whether they are North or South. But the drawing of this line has very material consequences for domestic users, because, in the areas which are above that line, their annual allowance of fuel is 50 cwts. per household, but, below that line, the amount allotted is 34 cwts. It is clear that a difference of 16 cwts.—
Notice taken that 40 Members were not present; House counted. and, 40 Members not being present the House was adjourned at five minutes to Two o'Clock, till this day.

GERMANY
  Generals and Admirals (Screening)
  Generals and Admirals (Screening)
  Art Treasures, Berchtesgaden
  Art Treasures, Berchtesgaden
  Former Political Prisoners (Polish Association)
  Former Political Prisoners (Polish Association)
  HONG KONG (INCOME TAX ASSESSMENT)
  HONG KONG (INCOME TAX ASSESSMENT)
COLONIAL EMPIRE
  Export Duties
  Export Duties
  Research Projects
  Research Projects
  MOMBASA (LABOUR DISPUTE)
  MOMBASA (LABOUR DISPUTE)
  GIBRALTAR (DAILY NEWSPAPER)
  GIBRALTAR (DAILY NEWSPAPER)
BROADCASTING
  B.B.C. Programmes (Restrictions)
  B.B.C. Programmes (Restrictions)
  Budget Broadcasts
  Budget Broadcasts
  Post Office (Trades Union Representations)
  Post Office (Trades Union Representations)
  TERRACE HOUSES, REGENT'S PARK (REPORT)
  TERRACE HOUSES, REGENT'S PARK (REPORT)
FOOD SUPPLIES
  Infestation Control Working Party
  Infestation Control Working Party
  Foreign Turkeys
  Foreign Turkeys
  Manufacturing Meat Licences
  Manufacturing Meat Licences
  Meat Allocations
  Meat Allocations
  Bananas
  Bananas
  Unfit Carcases
  Unfit Carcases
  Fish Arrivals, Billingsgate
  Fish Arrivals, Billingsgate
  New Ration Books
  New Ration Books
  Soft Fruit Crops (Transport)
  Soft Fruit Crops (Transport)
  Salt (Pig Curing)
  Salt (Pig Curing)
  SOAP PRICES
  SOAP PRICES
ROYAL AIR FORCE
  Meteorological Branch (Training Courses)
  Meteorological Branch (Training Courses)
  Civilian Manpower
  Civilian Manpower
  Manpower Economy Committee (Terms of Reference)
  Manpower Economy Committee (Terms of Reference)
  Mail Service, Middle East
  Mail Service, Middle East
TRADE AND COMMERCE
  Raw Materials (Price Changes)
  Raw Materials (Price Changes)
  Generator Parts (Exports)
  Generator Parts (Exports)
  Hand-Loom Weaving
  Hand-Loom Weaving
  Tobacco Trading Services
  Tobacco Trading Services
COAL INDUSTRY
  Weekly Output (Statistics)
  Weekly Output (Statistics)
  Miners' Allowances
  Miners' Allowances
  Domestic Supplies (Allocation)
  Domestic Supplies (Allocation)
  BRITISH BOOKS (EXPORT TRANSACTIONS)
  BRITISH BOOKS (EXPORT TRANSACTIONS)
  ROYAL NAVY (DENTAL OFFICERS, RELEASE)
  ROYAL NAVY (DENTAL OFFICERS, RELEASE)
  MENTAL DEFECTIVES, WORCESTERSHIRE (SCHEME)
  MENTAL DEFECTIVES, WORCESTERSHIRE (SCHEME)
Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers.
  LORD MORTON OF HENRYTON.
  The Right Honourable Sir Fergus Dunlop Morton, Knight, M.C., a Lord Justice of Appeal, having been created a Lord of Appeal in Ordinary under the provisions of the Appellate Jurisdiction Act, 1876, as amended by any subsequent enactment, with the dignity of a Baron for life by the style and title of Baron Morton of Henryton, of Henryton in the country of Ayr—Was (in the usual manner) introduced.
  LORD MACDERMOTT.
  The Right Honourable John Clarke MacDermott, M.C., one of the Justices of the High Court of Justice for Northern Ireland, having been created a Lord of Appeal in Ordinary, under the provisions of the Appellate Jurisdiction Act, 1876, as amended by any subsequent enactment, with the dignity of a Baron for life by the style and title of Baron MacDermott, of Belmont in the City of Belfast—Was (in the usual manner) introduced.

  DUDLEY CORPORATION BILL. [H.L.]
  2.50 p.m.
  Read 3a, and passed, and sent to the Commons.

  FORTH ROAD BRIDGE PROVISIONAL ORDER CONFIRMATION BILL.
  Order of the Day for receiving the Report of Amendments read.
  LORD MORRISON: My Lords, I beg to move that this Report be now received.
  Moved, That this Report be now received.—(Lord Morrison.)
  VISCOUNT ELIBANK: My Lords, the noble Lord who has moved this Report has given us no information at all about the Bill. I had hoped that he would have indicated to your Lordships how this matter came to be on the Order Paper, and a little about it. I hope that when I have sat down he will make good that omission, but before he does so I would like to say that I am particularly pleased to see this Confirmation Bill before your Lordships' House to-day. In Scotland there are quite a number of us who have been urging this project for a number of years. As one from the South of Scotland who felt (again with many others) that a road bridge was particularly required over the Forth, I have taken part in a good many conferences, and in debates in your Lordships' House, urging this matter forward.
  I always felt it was absolutely wrong, that the capital of Scotland should be separated from part of the country by water, and that the only available crossing should be by ferry. For that reason alone I have always felt that the two shores ought to be joined. But the matter goes much further than that. It affects the whole of the traffic from south to north, and from north to south, in a straight line. If one is going north it is particularly irksome to have to go round by Stirling; on the other hand, if one wants to go through Edinburgh—which is quite natural, because many people, certainly those coming from the south, want to visit the capital before going on—one has to wait at South Queensferry for a ferry. In some cases you perhaps see it starting just as you arrive, and there is a wait for half an hour or more until another comes. The weather is sometimes very inclement in the north, as most people know, and the ferry is not always a comfortable form of crossing.
  Under this Bill, I understand that the time will come—and I hope very shortly—when all that will be changed; but I am not quite clear as to how soon that will be. For instance, in the preamble to the Schedule it states:
  "And whereas the Minister of Transport has agreed to make from the Road Fund at such time as Parliament decides to approve the necessary financial provision in the grant in aid of the Road Fund a grant of seventy-five per centum of the approved expenditure incurred on the construction of such a bridge and work …."

  53
  It is very pleasing to know that the Minister of Transport is satisfied that this is a good project. It appears from this preamble that he is also satisfied that it is a project to which the Road Fund may properly contribute 75 per cent. What I should like to know from the noble Lord is how soon that 75 per cent. is to, be contributed. How soon will this project come into being? That is a very important point, especially as to-day in Scotland there is some unemployment, and how far that unemployment will increase nobody knows. In any case, as this project is bound to take two or three years to complete, it shoud be started as soon as possible.
  I do not wish to detain the House very long, but there are two or three other points connected with the Schedule to which I should like to refer. I am glad to see that it has been agreed that tolls should be applied towards helping to pay the cost of maintenance of the bridge. There was great opposition at one time to making it a bridge with tolls, and I think that was one of the reasons why it was held up. Tolls have now been agreed to, and although the natural inclination is to dislike tolls, at the same time the fact that they have been agreed to shows that Edinburgh and the adjoining councils want this bridge.
  There is another point, and that is that a Joint Forth Bridge Board is to be appointed. That Board will consist of representatives of Edinburgh and the neighbouring councils, but the important point in connexion with the Board is that it will be self-administering. It will administer the affairs of the Forth Road Bridge, and whilst it will report to the councils, they will be unable to control the decisions of the Board. It is something like the Clyde Navigation Board. With all the various measures of nationalization which are being passed at the present moment, in which everything is centred in the Minister or in the official centre, it is pleasing to find in a Bill that we may still sometimes be permitted to set up boards of the old public utility nature, and that the administration of this bridge has not been placed with the council; themselves. Then there is a final point. I see that £150,000 has been provided for compensation to the L.N.E.R. I think that is very fair. For a long time they opposed this new Forth Bridge because they felt, naturally, that their
  54
  receipts from the old Forth Bridge would be affected. Therefore, it has been an act of great wisdom to compensate the L.N.E.R. for such losses as they might incur by this new bridge. With those few words, I wish to welcome this measure and to express the hope that the money for it will soon be forthcoming, and that it will be pressed forward as soon as possible.
  EARL HOWE: My Lords, I hope I shall be forgiven for rising to speak, but I will not detain your Lordships more than a few seconds. The noble Viscount who has just spoken welcomed the system of tolls on this bridge. and it is quite obvious that a number of Sassenachs will have to pay money for using the bridge. But that is not the purpose of my remarks. The point about which I am anxious concerns the Board which is to be set up for administering the bridge. Will the Minister be able to ensure that there will be a representative of road interests on that Board, either from the Royal Scottish Automobile Club, the R.A.C., or some other road interest? I hope he will ensure that a representative of road interests will be included on the Board.
  3.1 p.m.
  LORD MORRISON: I should apologize for not having made a speech in moving Consideration of this on Report. On the other hand. I rather think it is just as well I did not, because it has given your Lordships an opportunity of hearing a speech by the noble Viscount, Lord Elibank, who knows se much more on this subject than I can ever hope to know. Most people, even those with only a slight association with Scotland, know the part he has played and his great activity in connexion with this subject. This measure is more in the nature of private legislation, for it is not a Government Bill, nor is it a Government Order. Several local authorities, headed by the Corporation of the City of Edinburgh, promoted this scheme, and the only part the Government have played in it is that they have promised to contribute 75 per cent. of the preliminary costs. The noble Viscount raised a question, which I am afraid I cannot answer, as to the speed with which the bridge will be built. All I can say is that the pressure of public opinion in Scotland will largely determine how quickly it can be started. The reason I

  55
  did not make a speech when introducing this measure was not that I had no information available. I have a few items here, although out of consideration for the feelings of your Lordships I will not go into the details of what is contained in all these folios; but all the answers are here. I will say, however, that the tolls to be set up under this Bill will be jointly owned by a number of corporations' situated in the neighbourhood.
  On Question, Motion agreed to, and Amendments reported accordingly.

  TERRORISM IN PALESTINE.
  3.3 P.m.
  LORD BROUGHSHANE: My Lords, I beg to ask the question standing in my name.
  [The question was as follows:
  To ask His Majesty's Government, what are the total British casualties caused by terrorists in Palestine: how many terrorists have been apprehended and tried; and what sentences have been inflicted upon them?]
  THE FIRST LORD OF THE ADMIRALTY (VISCOUNT HALL): My Lords, throughout the war years terrorism in Palestine was, I am glad to say, on a minor scale and few casualties were caused. Since August I, 1945, however, the following British casualties have been caused by Jewish terrorists:

  Killed

  Wounded (including assaulted)

  Military

  68

  191

  Police

  30

  49

  Civilians

  15

  9

  These figures do not include casualties in the railway disaster caused by a terrorist mine on April 22 of which full details have not yet been received.
  During the same period 168 Jews were convicted by military courts for offences in connexion with terrorist activities. The majority of these were sentenced to terms of imprisonment, but twenty-eight were sentenced to death, of whom four were executed on April 16. Twenty-two persons have had their sentences commuted to life imprisonment, and two persons recently committed suicide while lying under sentence of death. In clashes with the military and police during this period thirty-three Jewish terrorists were
  56
  killed and at least twenty-nine are known to have been wounded.
  LORD BROUGHSHANE: Can the noble Viscount explain a situation in which two persons under sentence of death were enabled to take explosives into their cells and to commit suicide immediately before they were due for execution?
  VISCOUNT HALL: The information I have received is that the explosives were taken into the cells in oranges. The insides were sucked out and I understand the explosives were then inserted.
  LORD BROUGHSHANE: I presume that precautions against the supply of fruits to condemned persons, except under supervision or inspection, will be taken in future.

  PURCHASES BY OVERSEAS VISITORS.
  3.5 p.m.
  LORD LLOYD: My Lords, on behalf of my noble friend Lord Barnby, I beg to ask the question standing in his name.
  [The question was as follows:
  To ask His Majesty's Government, whether, in view of their authoritative encouragement of United States and Canadian visitors coming to this country, they will arrange to remove one of the adverse impressions conveyed to, and inconveniences incurred by, such visitors and arrange that apparel may be freely bought without coupons by visitors when payment is tendered in United States or Canadian currency.]
  LORD CHORLEY: My Lords, arrangements already exist whereby overseas visitors can order reasonable quantities of most non-utility rationed goods from retailers for delivery abroad. The only practicable extension of this arrangement would be to give a generous allowance of coupons to visitors; but whilst rationing is at its present level the right honourable and learned gentleman, the President of the Board of Trade, does not regard this as justified. In any case there was a doubt whether a particular class of visitors such as those mentioned in the question should be singled out for special treatment.
  LORD LLOYD: I am grateful to the noble Lord for his reply.

  BUSINESS OF THE HOUSE.
  3.7 p.m.
  THE SECRETARY OF STATE FOR DOMINION AFFAIRS (VISCOUNT ADDISON): My Lords, I beg to move the Motion standing in my name on the Order Paper.
  Moved, That Standing Orders Nos. XXI and XXXIX be considered in order to their being suspended for this day's sitting for the purpose of giving precedence over other Notices and Orders of the Day to the Report Stage of the Army and Air Force (Annual) Bill, and in order to take the Bill through its remaining Stages.—(Viscount Addison.)
  On Question, Motion agreed to, and ordered accordingly.

  ARMY AND AIR FORCE (ANNUAL) BILL.
  Amendments reported (according to Order); then, Standing Orders Nos. XXI and XXXIX having been suspended, Bill read 3a with the Amendments, and passed, and returned to the Commons.

  SUNDAY ENTERTAINMENTS ACT, 1932—
  CITY OF WORCESTER ORDER,
  COUNTY BOROUGH OF SUNDERLAND ORDER,
  BOROUGH OF BRECON ORDER,
  COUNTY BOROUGH OF WOLVERHAMPTON ORDER.
  LORD WALKDEN: My Lords, I beg to move that these Orders be approved.
  Moved, That the Orders made under the Act by the Secretary of State for the Home Department, for extending Section one of the Act to the said areas, be approved.—(Lord Walkden.)
  On Question, Motion agreed to.

  PALESTINE.
  3.10 p.m.
  LORD ALTRINCHAMrose to call attention to the recent statements of His Majesty's Government on Palestine; and to move for Papers. The noble Lord said: My Lords, the Motion which I rise to move this afternoon has figured on the Order Paper for a considerable time. As
  58
  noble Lords opposite will remember, it was postponed once or twice because the conditions were really not appropriate; conferences were going on and so forth, and it was better, by agreement on both sides, not to discuss the matter at those times. A further postponement was due to consideration for myself, for which I am very grateful to noble Lords on both sides of the House. Finally, yet another short delay was due to our anxiety to hear the noble Viscount, Lord Hall, reply for His Majesty's Government upon this Motion. We all desire this, in view of his long experience at the Colonial Office and his participation in the important conferences which have taken place. I understand that he has been away upon a naval inspection in the Mediterranean. I hope that he has come home refreshed by the Mediterranean breezes, and I can assure him that the statement which we are counting upon him to make cannot be too full for our satisfaction. We hope that he will take all the time that is necessary to give us all the information that he possibly can give at the present moment. I particularly emphasize that because the form of my Motion is now rather out of date. It is not my desire now so much to call attention to statements which have been made on Palestine as to ask for further statements to be made and for answers to be given by His Majesty's Government to questions of which I have given notice, and to most of which, I understand, the noble Viscount will be prepared to reply.
  The first subject with which I would like to deal is one which I am sure fills Parliament in general, and all parts of the civilized world, with horror: that is, the continuation of illegal immigration into Palestine. This traffic is carried on under conditions which really resemble the old slave trade across the Atlantic. It is an inhuman process; it is disgusting and it is disgraceful. No feeling can be too strong in dealing with it. The ships which are employed are less well-found than the ships which carried slaves to North America—much less well-found. The human cargoes, on the other hand, do start out borne up by hope, but that hope is doomed to end in the most terrible disillusionment. One can hardly conceive a trade which deserves more condemnation from the civilized world. I cannot emphasize too strongly that this disgrace on the name of civilization is not the fault

  59
  of this country. All civilized Governments are bound to resist an unauthorized and unfiltered rush of immigrants into any territory for which they are responsible. This Government do so; the Government of the United States do so; every Government in Europe do so.
  That we should be blamed for resisting immigration in that form is out of all reason. Other Powers, Powers who guard their gates with such keen vigilance, are in no position to criticize us, and failure to resist such immigration, terrible as the conditions are, would be an abdication of government, on our part, in Palestine. I therefore most strongly support His Majesty's Government in the steps which they have taken to resist it, despite the suffering which is caused, and I can only congratulate the Services chiefly engaged, the Royal Navy and the Royal Air Force, on the extraordinary skill and care with which they have done their best to prevent this dreadful traffic turning Palestine into an even more terrible shambles than it is at the present time.
  The Jewish sufferers from this traffic are the victims of two things—political fanaticism in their own people, and political indifference in others. Of these two things I think that political indifference among Christian Powers is the worse. Jewish misery and Jewish hopelessness are Europe's responsibility, and Europe cannot attempt to foist the whole of that responsibility upon Islam and the Arab peoples. The problem was first created by a nation which abjured Christianity—Hitler's Germany. It was immensely aggravated by the conditions of the war, and since then it has been prolonged and intensified by cynical indifference on the part of Powers which profess to be, and call themselves, Christian. I would therefore ask the noble Viscount if he can tell us what success His Majesty's Government have had in the inquiries which they have made, and in requests which they have made, for co-operation from the French Government and the Italian Government, and from others from whose ports, I believe, this terrible traffic sets out. I would also ask whether it is not the case that strictures which General Morgan made upon the organization of U.N.R.R.A. were perfectly justified. I do not know General Morgan, but I think that when one of our countrymen—and a distinguished
  60
  fellow countryman of ours—holding a position of responsibility in an international organization is grossly traduced, something should be said in defence of him in Parliament.
  The evil will not, however, be cured by merely treating the symptoms. The cause of the evil is the suffering and the hopelessness in camps of dispossessed Jewish persons in Europe, and it is that cause which has to be dealt with if the problem of illegal immigration is ever to be solved. I would ask the noble Viscount what is the number of dispossessed Jewish persons in the camps who have to be dealt with; also how many are now interned in Cyprus? We would be very glad to have these figures. I understand that although the number is, perhaps, in the neighbourhood of half a million, it is probably altogether too great for absorption by Palestine, at any rate over any short period. But it is not a very great number if it is to be dealt with wholeheartedly by the United Nations. I would ask, in that connexion, what this country and the United States are doing about the admission of Jewish persons. There are great difficulties about that, but we cannot face the Arab peoples, we cannot face Islam, with any moral standing if we refuse to do anything and demand that they, and they alone, shall accept Jewish immigrants. I understand that the regulations are at present very hard in some respects upon Jewish people living in this country who wish to bring their relations here. I should be glad of any information which the noble Viscount can give us on that subject.
  I would also ask—I apologize for putting one question after another so fast, but we are very short of information—what is being done to implement undertakings which were given in the United Nations about the International Refugee Organization. That organization, I understand, is to take the place of U.N.R.R.A. after June I. When U.N.R.R.A. ceases to operate there will be no system of financing the camps of dispossessed persons, unless another organization is established by that time. I have been told this, and I ask whether this is true. I am told that up to the present only this country and New Zealand have offered to contribute their quota to this organization. I would ask if that is true. I think it is extremely unfortunate that since the end of the war this question of refugees

  61
  and of dispossessed persons in Europe has not been placed under some individual possessed of great drive, as it was after the last war, when it was entrusted to Nansen. What Europe owes to Nansen is almost incalculable, and it is a great misfortune that this problem has not been handed over to a man of that imagination and with that broad capacity.
  If one wants to realize what can be done by a man of imagination and resource., one has only to look at what has been done in the way of forming a new settlement in South America. It may interest your Lordships to know of the kind of settlement established in one of the richest parts of Brazil (but a part which was entirely uncultivated) by a Brazilian subject named Señor Antonio J. Moura Andrade. In 1938 he started a settlement in the forest; he provided the whole capital himself, and he advanced money for implements, and so on, to new settlers. The only bar to settlers which he imposed was that they must be capable of working with their hands, and they should not be German, Italian, or Japanese, because he was antitotalitarian.
  That settlement, Andradina, has been a resounding success. In nine years a city of 10,000 people has been established in the centre of it. The total number of successful settlers is 100,000, and only 2 per cent. have failed, while 60 per cent. have paid off the whole of the cost of their land and of their own establishment. Señor Andrade has said there ought to be many more Andradinas. Who is to say that if there had been a man of imagination and drive in charge of this international organization, something of that kind might not have been done? I recommend it to His Majesty's Government as an example of what can be done by private enterprise. Compare private enterprise with Government enterprise in this very important matter. So much for Andradina.
  I hope that when this question comes before the United. Nations, they will be invited to deal with the Jewish problem as a whole—as'the Anglo-American Commission were invited—and not merely with the Palestine aspect. You cannot deal with the main problem of Palestine unless you look at the question throughout the world as a whole. Certainly, there will be no reduction of tension in
  62
  Palestine until this problem of the dispossessed persons living hopelessly in camps is disposed of. I would remind His Majesty's Government that the present effect of this state of affairs, and of the terrorist activities in Palestine (to which I shall come in a moment), is to create among our Services a very dangerous, but nevertheless entirely natural, feeling of anti-Semitism that will come back to this country. It will have its reaction in this country; indeed, it is coming in letters every day. That is a very grave aspect of this appalling tension and of the failure to deal with the problem of the suffering of Jewry—suffering which is entirely due to the crimes of Europe.
  I come now to the question of terrorism, and If have some questions to ask about that. In the first place, can the noble Viscount tell us what co-operation the Government of Palestine and the military authorities in Palestine have received from the Jewish Agency? I think we are entitled to demand whole-hearted co-operation from the Jewish Agency, because the Jewish Agency have been endowed with some of the powers and responsibilities of government in Palestine; they raise the taxes, and command armed forces. These are powers which are normally given only to a Government, and therefore the Jewish Agency, in virtue of the powers which they enjoy and of the position with which they have been endowed, ought to co-operate whole-heartedly in the suppression of terrorism.
  While I feel in that way about the Jewish Agency, I am much more doubtful about asking for the ea-operation of the Jewish population in general. I understand that in many quarters the Jewish population have shown great courage in this matter; terrorist posters have been torn down; villagers have refused to give comfort, assistance or shelter to terrorists; they have resisted demands for a subscription; and I understand that they have suffered very severely in the process. Can the noble Viscount tell me whether it is true that whole villages have been deprived of water by the terrorists because they attempted to co-operate with the Government in the suppression of terrorism? That has been reported in the newspapers, and I think we ought to have the facts about it. If these reprisals have taken place it is easy to understand the difficulties experienced by the ordinary

  63
  Jewish population. Ordinary men and women are, of course, bound to resist terrorist demands for help and shelter, but we must recognize that if the Government cannot guarantee them security they are faced with very great difficulties in carrying out their duties under the law.
  Finally, on this question of terrorism, I would ask His Majesty's Government whether they are satisfied with the efficiency of our intelligence service. It appears to us uninformed people that the terrorist intelligence is greatly superior to our own. It always seems to be ahead of ours, and it is far better informed about our movements than we are about the movements of the terrorists. That is a great reflection upon the Government's services. I emphasize this because everybody who has had experience of this problem knows that intelligence is the key to the suppression of terrorism. You can do nothing unless your intelligence service is good. That was exemplified, as noble Lords opposite will remember, at the time when Sir John Anderson was Governor of Bengal. There was at that time a widespread, bitter, and terrible terrorist movement in Bengal. It was not suppressed by asking for co-operation from the population; it was suppressed, in the main, by a good intelligence service. I am sure that anybody who knew Bengal then would support that statement.
  Of course, there is a great difference between Bengal and Palestine. In Bengal in the 1930's it was possible, to a very large extent, to control the movement and supply of arms and explosives; owing to the conditions left by the war, this is extremely difficult in Palestine. It is only fair to allow for that important factor, but, even so, the failure of our intelligence services is conspicuous. The noble Lord, Lord Broughshane, called attention just now to the suicides in gaol. That unopened oranges should be conveyed into the cell of a condemned man is an unspeakable reflection upon an efficient prison service. Surely, the intelligence service ought to know about there being in the vicinity of the gaol people who are likely to connive at the defeat of justice in that manner. To mention only one of many examples, there was the attack on the train yesterday, with great loss of life, of which we have not yet heard full details.
  64
  I would call attention to another matter. The organization called Irgun Zvai Leumi is the most active and the largest of the terrorist organizations. It was responsible for the assassination of Lord Moyne, my predecessor in the Middle East. A £2,000 reward was placed upon the head of a Pole named Beigin who is known to be the head of that organization. Our intelligence service has never been able to trace Beigin. We know all about him. He was brought by our own Government from Russia to Palestine; he served in our Forces, and then became a single-minded and devoted fanatic who believes he is conducting not a programme of association with but a programme of warfare against the British Government. That is the explanation why we have placed a price upon his head. We have been endeavouring to find him—with absolutely no success. Month after month follows and nothing is ever heard of this elusive person.
  I would call the attention of His Majesty's Government to this fact. I hold in my hand a copy of the New York Herald Tribune of March 17 of this year, which contains a report of an interview between an American correspondent and Beigin which took place either in Jerusalem or in the neighbourhood of Jerusalem. It would seem that American correspondents are very much better informed than our own intelligence service. I am glad to hand this copy over to the noble Viscount. I think it will be worth his study. I give that simply as an example of the fear I have that our intelligence services are not as thorough as they ought to be at the present moment. Therefore, I ask: Is there complete cooperation and liaison between the civil and military authorities in Palestine? Is there really no failure in working together between the Army and the Police? So many valuable lives, British and others (a terrible list was read out earlier this afternoon) are being sacrificed in Palestine because of this failure on the part of our intelligence services, without any sign of improvement, that I beg His Majesty's Government to look carefully into the matter and to make sure that the intelligence services are what they ought to be and what we have certainly succeeded in making them at critical times in other parts of the Empire.
  I do not wish to detain your Lordships too long. I merely want to ask one or

  65
  two questions about the ultimate issue of this Palestine question—its reference to the United Nations. In the first place, I congratulate His Majesty's Government on their decision to refer the question to the United Nations. That is undoubtedly the only course to be taken at the present time, and the only comment that noble Lords on this side of the House would make is that we wish it had been done much earlier. I think that comment was made by Mr. Churchill in another place and I most certainly endorse it. I repeat, however, that while I think it right that the matter should be referred to the United Nations, that is not because I believe we have ourselves failed in our task in Palestine. The reason for referring it to the United Nations is that the question should be brought to book in that international forum; for the responsibility for the situation in Palestine is really due to the crimes of Europe and to sabotage by other civilized powers of our government in Palestine. They have sabotaged it by the encouragement of illegal immigration. We all know that. They have sabotaged it by ignorant support of Jewish extremists, and the whole of the responsibility for what is now taking place in the Holy Land will, I hope, be brought home in the inquiry which is to be conducted by the United Nations. Only the United Nations can correct a terrible defect of that kind, and I hope, as I said earlier in my speech, that the United Nations will deal with the problem as a whole.
  I also think—indeed all the noble Lords on this Bench think—that His. Majesty's Government are quite right in putting this issue to the United Nations without in the first instance advancing any solution of their own. I consider that that is a wise decision. If the United Nations are to deal with the question as a whole, no excuse must be given to them for concentrating upon one aspect of the matter. Such an opportunity would be provided if a British scheme were laid before them. I think we may say with confidence, from recent performances of that organization, that if a British scheme were laid before them, it would he torn to pieces, and weeks—perhaps indeed months—would be taken in that enjoyable process without any advantage to Palestine. Ultimately, however, we must be pressed to give our view as to the right solution. I am not
  66
  going to ask His Majesty's Government for any statement to-day as to what they will say when that moment comes. It is far better to leave that for His Majesty's Government to determine when the time comes.
  But I would say two things on the subject. In the first place, we on this Bench feel that a clear answer should be given: that when the times comes we should say what we consider to be the best solution. When that moment comes, any failure on our part to give a clear account of our view of what should be done would be a great failure and an abdication on our part as the Mandatory Power. The other remark I can only make for myself, because, as everybody knows, very varied opinions are held by all Parties on this Palestine question; but for my part I most earnestly hope that the original principle; of the Mandate will be sustained as it is in what are called the Bevin Proposals. I hope, indeed, that when an answer is given on inquiry by the United Nations, it will be on the lines of what are called the Bevin Proposals. I am convinced that that is the only solution which will ensure a stable peace in the Holy Land, and I am convinced it is a practicable solution provided we have the moral support of the United Nations and of those great Powers which have hitherto denied it.
  Some say that the solution may lie in the application to Palestine of what is called "Dominion status." There have been many admirable Jewish arguments on that subject, which have been endorsed by distinguished English opinion. It seems to me, however, that the solution is surely based on a misunderstanding of what constitutes Dominion status. Dominion status is not a thing that can be established by the hat of any British Government; it is a thing that can be established only by the wish of the inhabitants of the proposed Dominion. That is the history of every Dominion. The British Government cannot say: "This shall be a Dominion"; it rests entirely with the inhabitants.
  LORD STRABOLGI: Yes, but this is very important: in tin case of Ireland, which is the most recent example of the setting up of Dominion status, we let it be known that such a solution would be acceptable to the British Government. We did not impose it on them, but we let

  67
  it be known in the negotiations—as the noble Lord knows perfectly well—that that would be acceptable.
  LORD ALTRINCHAM: I think it is pretty obvious from what has happened in Ireland that the issue rests with the Irish people, and that is going to be the case everywhere.
  LORD STRABOLGI: That was the machinery.
  LORD ALTRINCHAM: Let me take the case of Canada, a very apt parallel. After the Napoleonic Wars a distinguished member of this House, Lord Durham, went to Canada. He found, as he said in his famous Report, "two nations warring in the bosom of a single state"— exactly what is happening in Palestine. And how did he deal with it? He dealt with it first of all by reconciliation of those two nations on the spot; then matters passed to joint self-government and ultimately, by the wish of the inhabitants, Canada has followed, through federation, to great development as a Dominion and is now one of the most powerful in the world—entirely based on the spirit and sentiment of the wish of her own people. Now the first step in Palestine must be the same. There must be reconciliation between the peoples; there must be agreement between the peoples to establish joint government. If that is what is meant by Dominion status, I am entirely with those who advocate it, but I would suggest that it is no use arguing as if we could to-morrow establish Dominion status in Palestine, any more than we have ever been able to do it elsewhere. It is a matter that depends upon the course taken by affairs, and ultimately upon the sentiment of the people.
  I have no doubt, however, that the reconciliation of the two races, and the establishment of a bi-racial State, was the original principle which we undertook to carry out in the Mandate. There is no question whatever about that. I hope that in this matter, as in every other matter, we shall hold to our undertakings. What this country has once said it will do it ought to go on to do, and it should never go back on its undertakings. The Arabs attach considerable importance, as does a very large section of Jewry—although it is the quieter section—to this undertaking. Since the
  68
  Mandate itself is sometimes regarded as equivocal, let me quote what was said about it in the document published in 1922—a document well known as the Churchill Memorandum—to explain exactly what we mean by it. I quote only one section on this subject from that Memorandum. It said:
  "Further, it is contemplated that the status of all citizens of Palestine in the eyes of the law shall be Palestinian, and it has never been intended that they, or any section of them, should possess any other juridical status."
  That shows clearly that we mean to create one Palestinian state, and not two or three, as has been suggested since in various quarters.
  I hope that we shall not go back in any way upon the great responsibility and the great mission which we undertook, which I believe is the only way of establishing peace in the Holy Land. I am sure that our failure to stand by our undertakings in this matter would be regarded as a further surrender, and as a further abdication, throughout the Middle East and throughout Islam. My noble friend the Leader of the Opposition, who is not present to-day, has sometimes offended noble Lords opposite by using the words "humbug" and "scuttle." I know that they are sensitive about those two words, but perhaps I may console them if I say generously that in other parts of the world, at any rate, there has been no humbug about their scuttle. I hope that in Palestine there will be absolutely straight dealing and no abdication in any form whatever from our undertakings.
  I would support that by one final argument. The Mandate was based upon an appreciation of the situation in Palestine put forward by the ablest Arab of that day, the Emir Feisal, afterwards the first King of Iraq. While every other Mar? date was regarded as inconsistent with the undertakings given to the Arab people, the leading Arabs of that time—not the political Arabs, but the leading Arabs—took the view that the Mandate was the best way of dealing with the situation in Palestine. I will not quote his actual words, as they are well known. Most of them are contained in the memorandum which he addressed to the Peace Conference in Paris in 1919, on which the Mandate was based. I would go further than that; I would go back to the Balfour Declaration. The Balfour Declaration contains a very grave warn-

  69
  ing as to watching the effect of what we do in Palestine upon the welfare of Jewry in other parts of the world. That is the end of the last sentence in the Balfour Declaration. I might perhaps read those words:
  "… it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine or the rights and political status enjoyed by the Jews in any other country."
  Consider what would happen if a Jewish state were set up in Palestine. At the very most it would contain not more than one-fifth or one-sixth of the whole of world Jewry. Five million Jews are in the United States, and there are many millions elsewhere. To whatever number it was possible to raise the population of the Jewish State in Palestine, it would be only a small fraction of world Jewry. Naturally, therefore, it is important to study what effect that would have upon Jewry elsewhere. That Jewish State would be located in a part of the world where great interests meet, where the great Powers are often in controversy, in an area which has always in the history of the world been a difficult and dangerous strategic area. Any State established there is bound to have very difficult questions of policy to decide, and whatever decision it makes is sure to dissatisfy great Powers in some part of the world. What would then be the effect upon the Jews who live in the dissatisfied country? Those who framed the Balfour Declaration were very wise in calling attention to this danger. There it is, in the last sentence of the Balfour Declaration. I have been urged, I think I may say, by representative Jews not only in this country but also in America to call some attention to this aspect of the matter.
  I hope that His Majesty's Government will stand by our undertaking. Let me repeat—and this is the last word that I have to say—that we have no reason to admit failure, and no reason to accept responsibility for the present state of Palestine. It is clue, in the first instance, to Hitler's Germany, and, in the second instance, to the failure of Christendom. Let us then, when the time comes, declare before the United Nations that we will be faithful to the engagement which we made in Palestine on one essential condition, and that is, the support of that great section of the world which shares our concept of civilization. I beg to move for Papers.
  3.49 P.m.
  VISCOUNT SAMUEL: My Lords, in addressing your Lordships to-day I must first refer to the matter which I am sure is uppermost in the minds of all your Lordships—namely, the continuance of the terrible terrorist outrages in. Palestine. In view of my long connexion with the Palestinian question, since before the Balfour Declaration, and the fact that I devoted five years of my life in the attempt to establish a stable and prosperous Government in Palestine, it is a matter upon which I feel perhaps more deeply than can any other member of your Lordships' House. This group of fanatics, mostly very young enthusiasts, are animated by that abominable doctrine that the end justifies the means; that any purpose-which is held to be good in itself may warrant any methods in its pursuit, however wicked they may be. That doctrine has been the curse of mankind all through its history. The Jewish people have always taken pride in the good deeds performed and the distinctions won by their members; in the number of great scientists, writers, musicians, philosophers and statesmen who have come from the Jewish ranks. far out of pros portion to their numbers. They remember that in the distant past it was the Jewish people who laid the foundations for the three greatest religions of the world. Here in this city, and in all the great cities of the West, vast cathedrals and abbeys are dedicated to the names of men of Jewish stock; their psalms are sung and their prayers are recited in these fanes.
  To-day these same people have given birth to a set of assassins, who, disguised in false uniforms, waylay soldiers and policemen, hurl bombs promiscuously, blow up trains, and are responsible for the terrible list of casualties, particulars of which have been given to your Lordships only this afternoon. I feel bound to say to-day, as I have said before in this House, that the Jewish population of Palestine and the Jewish Agency are blameworthy for not having, by resolute determination and at whatever. cost, extirpated this curse which has brought shame upon all members of the Jewish community. I do not to-day say that the Government should take this or that action in order to end this terrorism—far from it. On the contrary, if the British Government were to say that until the

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  terrorism stopped nothing else could be done, it might perhaps be justified, although it might not be statesmanlike. I urge to-day that action should be taken, not because of it but in spite of it.
  With regard to immigration, I look upon that from an entirely different point of view. I do not put that on the same footing. I think that there the noble Lord, Lord Altrincham, has missed the real point, which is that the Jews of Palestine—of all sections, from the most moderate and law-abiding to the most violent and extreme—with hardly a single exception, support this immigration and approve of it. They declare that it is not illegal and that what is illegal is the ordinance that forbids it. That is the point to which the noble Lord did not give any attention. It may seem rash to claim, after all these controversies have raged for so many years about Palestine, that anyone can bring forward a new point; yet I think this afternoon there is one thing new which can be said. It arises out of a recent speech by the Foreign Secretary, Mr. Bevin, in another place, and it touches very closely this point whether the prohibition of immigration is itself legal or illegal.
  Speaking in another place on February 25 last, Mr. Bevin discussed whether there should be in Palestine a Jewish State, or an Arab State, or a mixed State. He said that the British Government had no power to decide that point, and that, therefore, it must be taken to the United Nations. I quote his exact words because they are exceedingly important. He said:
  "That, therefore, raises the issue which has got to be decided and we, as Mandatory Power, cannot solve that problem until the United Nations have recommended which of these three alternatives is to form the basis of the future organization of Palestine. We, as Mandatory Power, have no power to make that decision. Nothing that I can find in any of the documents, either at the League of Nations or in the discussions between the great Powers at Versailles and after, indicate that we have that power. The Mandate certainly does not give it…"
  It may not be thought that is relevant to the particular point; but it is, because he declares that the British Government cannot decide this hut must refer it to the United Nations since the Mandate would not authorize anything of this kind—any one of these three courses departing from the existing conditions. But
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  has the Mandate authorized the prohibition of Jewish immigration into Palestine? Where is there anything in the Mandate that would confer that power upon the British Government, acting under it and with the approval of the League of Nations?
  The White Paper of 1939 (which is the root of the whole of the present difficulties and which was enacted by the Chamberlain Government) declared that after five years from that date there was to be no more Jewish immigration into Palestine at all, unless the Arab community of Palestine give their assent to it. Everyone knew that there was no reason why the Arabs of Palestine should give their assent; that was universally agreed. Consequently, there was to be, after five years, a prohibition of Jewish immigration Into Palestine. Is that in accordance with the Balfour Declaration? The Balfour Declaration declared—and this is embodied textually in the Mandate itself—that the Mandatory Power should favour the establishment of a Jewish National Home, should encourage Jewish immigration and should enact such laws with regard to land settlement and so forth as would conduce to it. That was approved, first of all, by all the great Powers—the United States, France, Italy and others—and afterwards, formally, by the League of Nations itself in 1922. How the Mandate is to be interpreted was not left to the Mandatory Power itself; it was not for the British Government to say, "This is allowed and this is not allowed", as Mr. Bevin very frankly and clearly stated.
  The League of Nations set up a Mandates Commission which was to exercise supervision over all the Mandates entrusted to various Powers and to be the authority charged with the duty of interpreting the Mandates. The White Paper of 1939 was brought before that Mandates Commission in June of that year, and it occupied their attention at a number of sittings. They heard Mr. Malcolm Macdonald, the then Colonial Secretary, with regard to it, and they went into the whole subject with the utmost thoroughness. The Mandates Commission was an extremely competent body, consisting largely of representatives of the smaller Powers, some of them with colonial experience. They were perfectly impartial. When I was High Commissioner I had the privilege of appear-

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  ing before them for three days, and I was greatly impressed by their competence and their impartiality. On this occasion the views of the members diverged, but they were unanimous on one point.
  I have lately been refreshing my memory by reference to the voluminous reports of that Commission—a great volume of some 300 or 400 pages and there I find these records. This is one paragraph, on page 275:
  "From the first, one fact forced itself to the notice of the Commission—namely, that the policy set out in the White Paper was not in accordance with the interpretation which, in agreement with the Mandatory Power and the Council, the Commission had always placed upon the Palestine Mandate."
  That was unanimous. The White Paper put a different interpretation upon the Mandate from that which had been, for many years until then—this was 1939 and the Mandate was 1922—adopted by the Mandatory Power, by the Commission and by the Council of the League. Then they said:
  "It"—
  that is the Commission—
  "went on to consider whether the Palestine Mandate might riot perhaps be open to a new interpretation which, while still respecting its main principles, would be sufficiently flexible for the White Paper not to appear at variance with if."
  There the Commission was divided. The noble Lord, Lord Hankey—whom I see in his place to-day—was the British representative at that time. The divergent views that were expressed could only be recorded by the Commission, which could not judge between them, and they set out what they were.
  The noble Lord, Lord Hankey—the British Government representative—supported by two other members, held that existing circumstances would justify the policy of the White Paper, provided that the Council did not oppose it; that is, that the matter ought to be referred to the Council and then, if they did not oppose it, it might be held that this restriction on immigration was in accordance with the letter or the spirit—I do not know what their view was—of the Mandate. But the majority of the Commission—four members—refused to say, I quote again—
  "that the policy of the White Paper was in conformity with the Mandate, any contrary conclusion appearing to them to be ruled out by the very terms of the Mandate and by the fundamental intentions of its authors."
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  Here is the argument which I wish to address to your Lordships. The Foreign Secretary has lately stated that proposed future arrangements for Palestine must he referred to the United Nations. because the Government here have no authority under the Mandate to adopt any one of the three courses or any substantial departure from the Mandate. The international body which was appointed to interpret the Mandate considered this prohibition of Jewish immigration. They were unanimous that the new departure differed from all previous interpretations of the Mandate. Four of the Commission held that it was contrary to the terms of the Mandate. That was the majority view; that it was not justified by the Mandate, and was contrary to its terms. Three of them held that it might be justified, subject to any ac ion by the Council of the League. But the war came and the Council of the League had never considered this matter, never assented, and never even had an opportunity of declaring its opposition.
  Thus the present Foreign Secretary, by saying that he has no power to adopt this policy, is saying in effect that his predecessors, the Chamberlain Government and Mr. Malcolm Macdonald, as Colonial Secretary, had no power to do this very thing which I now in dispute. That is the reason why the Jewish community of Palestine, Jews throughout the world and the Zionist Organization, say that the illegality is not on the part of the immigrants, but was on the part of the British Government here, at the time of Mr. Malcolm Macdonald, who declared that five years from then the doors of the Jewish national home should be closed, and this prohibition should be clamped down upon Zionists throughout the world who were seeking to go to Palestine. That is the essence of the whole present situation. When the noble Lord denounces with so much vehemence the horrible conditions in which these immigrants are coming in, and says we must uphold the law, the Government of the United States and other Governments may be inclined to ask: "How dare you shut out these Jews, and stop this immigration in defiance of the very. spirit of the Mandate which you purport to administer?
  LORD ALTRINCHAM: As the noble Viscount has questioned my interpretation of the Mandate, may I say that the

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  Mandates Commission was not the body set up to interpret the Mandate? The only body to interpret the Mandate was the League itself. The Mandates Commission was set up simply to go into the detailed administration of Mandates in various parts of the world. This question was never put to the League of Nations, and there is no reason whatever to assume that because of a majority of four to three in the Mandates Commission on one particular view, that view would necessarily have been taken by the League before the matter had ever been submitted.
  LORD CALVERLEY: Would the noble Viscount say if he approves of these coffin ships?
  VISCOUNT SAMUEL: The answer to what the noble Lord, Lord Altrincham, has said—which is a point worth notice—is that it is quite correct that the Mandates Commission were a Commission of the whole body, like a Committee of this House; but the League were always very greatly guided by the Mandates Commission, which went into these matters with the utmost care and made the most elaborate reports to the Council of the League. The League naturally gave the greatest possible attention to the reports of these experts. The Commission were unanimous that a new interpretation was being put upon the Mandate—there was no question of four to three. Three of them said that this might be held to be justified, provided that the Council did not object. How can you say it was authorized to be done, when the Council had no opportunity either of objecting or of not objecting?
  For all these reasons the present Government, in fact, have rather belatedly stated quite clearly that they are not accepting the White Paper and are not acting upon it. The Prime Minister said in another place on July I of last year:
  "It is quite wrong to say that we are carrying on the White Paper policy."
  They disapprove of it themselves, and yet they support these measures for the prevention of immigration into Palestine. As a matter of fact, they are allowing a certain amount of immigration into Palestine in defiance of the White Paper of 1939.
  VISCOUNT HALL: Might I ask the noble Viscount whether he is now arguing that
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  immigration can be admitted into Palestine, irrespective of numbers or its effect upon the Arab community?
  VISCOUNT SAMUEL: I am coming to that a little later on. What I am now dealing with is the question of illegality—on which side the law rests. The Government says: "We have passed an ordinance and that is the law." The Zionist Organization says, "The law you have passed is itself an infringement of the law, an international law, approved by the League of Nations." Mr. Bevin says he cannot act contrary to the Mandate in this or that without the sanction of the League of Nations, yet this was done without the League of Nations.
  VISCOUNT HALL: On specific points.
  VISCOUNT SAMUEL: That is what I am saying. Let me turn to another aspect. We in this generation have been faced with what is unquestionably and literally the greatest crime in the whole history of the world. At the Nuremberg Trials Lord Justice Lawrence—now Lord Oaksey—in his judgment accepted the calculation that 6,000,000 human beings had been murdered by the Nazis in the concentration camps and in other ways. They were not all Jews, and undoubtedly vast numbers had nothing to do with the Jewish community but were Hitler's political opponents. All the great crimes in history, the massacres of Attila, of Jenghiz Khan, the St. Bartholomew Massacre, and the massacre of a large part of the Armenian nation, fall into almost insignificance compared with the scale of this latest crime committed in cold blood by the madman Adolf Hitler, who was on the throne of absolute power.
  A few days ago it was announced in the Press that a man named Hoess, who was in charge of the Auschwitz concentration camp, had been hanged, having been found guilty of the murder in gas chambers of 4,000,000 people in that camp. It was stated in the Press that he protested against this, and said there were not more than 2,000,000; but he confessed to 2,000,000. This fact was printed in small type in little paragraphs in the newspapers, and it attracted no particular attention that a man who was found guilty of having murdered 4,000,000 people had been hanged. We are too close to these events to be able to see them in their true scale and to recognize them for the

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  enormity that they present. There is no shock in our present-day civilization—hardly a tremor. What people are chiefly concerned about is that, of the survivors who have escaped, as few as possible shall be admitted into this country, or the United States or into other lands. There have been some survivors, and I have met some of them, whose fathers, mothers, brothers and sisters—whole families—have been murdered in the gas chambers. They were collected from Belgium, Holland, Poland, Austria and elsewhere, and form part of the 6,000,000 who have been murdered. Some of those who survived went back to their homes and received no very warm welcome, because the property they owned and the industries they had built up had been seized and looted and sold to other people. These are very unwelcome ghosts who, not having been killed, have the impertinence to claim their own property.
  As a result they wish to move away to start a new life and try to forget the awful horror of their past. They want to go to Palestine where they can be sure they can be free and live according to their own ways and customs. A Committee of the House of Commons on National Expenditure reported the other day that the movement of Jews through Austria on their way to Palestine amounted to a second exodus. Whether it be a second exodus, or a tenth or a twentieth, these people are tired; they want to go and settle somewhere. And Palestine is a place where they would wish to go.
  A NOBLE LORD: All of them?
  VISCOUNT SAMUEL: They go under conditions of the utmost hardship and in abominable circumstances which have already been referred to by the noble Lord who has just spoken. They have survived the massacre of their families, and have crowded hundreds, even thousands, into little ships, under conditions which the noble Lord, Lord Altrincham, rightly says recall the conditions of the slave trade. They have reached Palestine, which was to be the National Home of their race, only to find British destroyers patrolling off the coast. They are brought into harbour and then sent off to internment camps and called "illegal immigrants," while the British Army of 100,000 is holding down the Jewish population of Palestine which is only too eager to welcome them. There is no question of
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  their not being able to find accommodation. Accommodation could easily be found for 100,000 or more. It is not a question of being unable to find ships, because the United States have undertaken to provide all the means of transport that may be required. It is not a case of going there to crowd into some slum districts. The Jewish National Home has been a brilliant success. The Anglo-American Commission reported that it was a miracle, both of physical achievement and spiritual endeavour, and the Peel Commission some years ago spoke in similar terms. Those are the facts of the case.
  Noble Lords will ask: "What is your solution?" To my mind the most urgent matter is to settle this question of immigration. The Government say they are no longer pursuing the White Paper policy. In defiance of the White Paper policy they have for some time past allowed 1,800 immigrants a month to go in.
  A NOBLE LORD: 1,500.
  VISCOUNT SAMUEL: I thought it had been increased to 1,800; but let us say 1,500 a month. That amounts to less than 20,000 a year—an exceedingly small total, in view of conditions both in Europe and in Palestine. In my judgment 40,000 to 50,000 a year could quite easily be absorbed by the country. There is a great shortage of labour in Palestine to-day; the amount of capital awaiting investment in industry and trade amounts to scores of millions of pounds and it cannot be used. In addition, there is an immense demand for all kinds of commodities as well as for exports. If I am asked what policy I would recommend I would say that I would allow immigration of perhaps 50,000 a year, and date it back to the time when the Anglo-American Commission made their recommendation—that is, to April, 1946. From that number should be deducted those already admitted, and. others should he allowed in to bring it up to that rate. The principle should be laid down that that should continue for so long as economic conditions permitted.
  As to the future government of Palestine—this is the concluding portion of my observations—I do not agree with a common assertion that there are only three possible courses: a Jewish State, an Arab State or geographical partition. I think

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  all three are wrong. I can only repeat what I said previously. Neither a Jewish State nor an Arab State is practicable; nor is geographical partition. But there is a fourth course. I am not one of those who say that because those solutions are impracticable, therefore the whole question is insoluble. The Jewish State has been the aspiration of the Jewish people for centuries. It is an aspiration which at the present day cannot be realized. It is not contained in the Balfour Declaration. If the Balfour Declaration had intended that a Jewish Palestinian State should be set up, it would have said so. What was said, and what was said in speeches by those who drew it up, was that it might be that future conditions would be such that there would be a Jewish majority there; and there might be a Jewish State. There was no promise of a Jewish State. What was promised was that the British Government would favour the creation of a Jewish National Home—the term was most carefully chosen—in Palestine. The Declaration did not say that Palestine should be the Jewish National Home, but that it favoured a Jewish National Home in Palestine, without prejudice to the civil and religious rights of the Arab population.
  In 1922, in the White Paper quoted, the British Government of the day reaffirmed that Declaration. In view of the Jews' historic connexion with Palestine the White Paper said they should be regarded as going there as of right, and not by sufferance. That does not justify the Zionists or the Jewish population in Palestine saying that the Arabs are there on sufferance and not as of right. Arabs who have been there for a thousand years also have definite rights in Palestine; that must be admitted and acknowledged, and that is clearly admitted in the Balfour Declaration. The Declaration in 1917 with regard to the Jewish National Home, the Balfour Declaration, and the White Paper of 1922, issued when Mr. Churchill was Colonial Secretary, were accepted by the Zionist Organization—the first one with expressions of warm gratitude which were published at the time. The second was met by a formal declaration of the Zionist Organization saying that they accepted the policy of the White Paper and that
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  their own policy would be made to conform with it. The country was at peace for some years afterwards. It is untrue to say that it is impossible for Jews and Arabs to live together. There was a disturbance in Jaffa in 1921, when I was High Commissioner, but after that, although there was political tension during the remainder of my term until 1925, for eight years the country was at peace. There were no disturbances, no assassinations, not a blow struck between the two sections. And all that time the question of a, Jewish State was never brought into the foreground. It was never mentioned. No claim was pressed.
  Unhappily, during the war, the American Zionists thought it desirable to bring it to the front. By a resolution called the Biltmore Resolution, from the place where it was passed, they demanded that Palestine as a whole should be declared to be a Jewish Commonwealth or State—either word was used on different occasions. They declared also that all the inhabitants should have equal political rights from the outset. These resolutions were endorsed by the world Zionist Organization in May, 1945. I have always regarded that as a disastrous political blunder. It was an aim quite impossible of fulfilment, and indeed was meaningless as propounded, for in Palestine to-day Arabs are two to one, compared to the Jews. And if you were to make a declaration that it is a Jewish State, it would not in fact be a Jewish State. If the Jews were equal in numbers to the Arabs it would not be a Jewish State—it would be half Jewish and half Arab. Even if the Jews were twice as many as the Arabs in the future, it would still not be a Jewish State. You might declare that it was, but, as a matter of fact, it would be a mixed state. Therefore, this declaration of the American Zionists, endorsed by the World Zionist organization, merely had the effect of arousing the maximum of opposition from the Arabs and everyone else and achieving the minimum of results.
  An Arab State in Palestine, in my view, is also impracticable in view of the Balfour Declaration. As the noble Lord, Lord Altrincham, has quite frankly pointed out, what this country has said it must stand to. Therefore there must be a Jewish National Home in Palestine and an Arab State would very gravely shake the stability of anything that could

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  really be called a Jewish National Home. The good faith of this country must be maintained. On the strength of the Balfour Decimation 500,000 people have gone there, and they have started to build up a marvellous community. Putting it on a merely monetary basis, hundreds of millions of pounds have been invested and spent there. In recent years, since the war of 1914–1918, the Arabs have enjoyed advantages far in excess of any possible expectations of theirs at that time. An immense stretch of the world's surface has now, in a single generation, been erected into a series of independent Arab states—Saudi Arabia, a kingdom; Transjordan, an independent kingdom; Iraq, a third kingdom; Syria, an independent republic; Lebanon, an independent republic. All these, together with Egypt also, have formed themselves into a powerful league. It would surely be no very great hardship if this one little bit in Palestine were declared to be a mixed State, and not purely a State under an Arab sovereign or republic.
  To my mind that is the right solution. I do not support partition, because knowing the country as I do it seems to me to be geographically impossible. It would create as many problems as it would solve. Instead of one minority problem, as there is now, we should have two. Mr. Bevin said in another place in February that the best scheme of partition which he had seen would create a Jewish State which would have a population of 450,000 Jews and 360,000 Arabs. That would be nearly half and half. That was to be called a Jewish State. There would be a minority there in that community, and there would be about 150,000 Jews left outside. You would have to impose a frontier between the two without any natural boundaries, and this would give rise to all sorts of difficulties. Criminals could step with ease from one side of the boundary to the other. You could never have anything in the nature of a tariff.
  Immigration could not be confined to one part. It could easily seep through into the other part. When the Peel Commission reported in favour of partition, an expert Commission was appointed to draw up a boundary and declared that it was not possible to do so. The problem which presents itself is unique in the world.
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  We are so accustomed, in this country and in the United States, to look upon democracy as government by a representative body which is elected by geographical constituencies that we always think there must be some areas which will elect members by a majority, and that the minority will acquiesce in the decisions of the majority. A democracy of this kind cannot be maintained in countries where you have—as there are in Palestine—two communities, each imbued with a passionate feeling of the justice of their several causes. You must provide not on a basis of geography but on a basis of communities, unless (as in Ireland) you can draw a line a ad make two sides of a frontier between them. In any case, that gives rise to all sorts of difficulties, and it cannot be done in Palestine.
  When I was High Commissioner I tried to build up two organizations on a communal basis. The present representative Council of the Jewish community—the Va'ad Leumi—was set up by ordinance, looking after their own finances, their schools, and their own concerns in general, while keeping in direct touch with the Executive. I was intending to do the same for the Arabs, but they were too divided. However, we passed an ordinance and established a Moslem Council, elected by Moslems to look after their endowments and their ecclesiastical courts. We should have been ready to do the same for the Christian community if they had wished it, but they were politically identified with the Moslem Arabs.
  The Constitution which I envisage—this is not new for I have been saying this for years, in this House and elsewhere—is the kind of Constitution that the Anglo-American Committee unanimously recommended. Their recommendation has been ignored. The British Mandate should remain for a series of years, until the country is more settled. It should be accountable to the Trusteeship Committee of the United Nations. There should not be a British Dominion. I do not agree with the noble Lord, Lord Strabolgi, in advocating a British Dominion. We have declared loudly, again and again, that there are to be no annexations by any of the Great Powers. To attach Palestine to the British Empire under the name of a Dominion would give rise to the strongest protests in various directions. We should be accused of Imperialism, in addition to which, so far

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  as I can see, the Dominion policy would dispose of none of our present problems—immigration, the tension between the two communities, and majorities and minorities.
  All these would remain equally if it were called a British Dominion as if it were called a British Mandate. Therefore, in my view, there ought to be constituted two communities—a Jewish community as it now exists, with its own representative body, and an Arab community, with a third Christian community if it were desired, though I do not think it would be. They would manage their own schools, hospitals and social services. They would have their own finances, and would be in direct and constant touch with the Executive. It might be hoped that in course of time these two would grow together. At first, no doubt, they would be separate, and would communicate separately with the British Administration. But after a time they might grow more together. Their first joint effort under the pressure of practical need might be to form joint committees dealing with particular subjects; and then they might gradually combine, until perhaps in a few years time they could form a joint Council, which, in turn, would be; come a proper system of government for the country as a whole, regardless of majorities, regardless of minorities, and regardless of geographical distribution, based upon the system of communities.
  Local government, dealing with the question of roads, drains, lighting, and the like, would be effected, as now, by local government bodies which in Tel-Aviv is Jewish, in Nablus is mostly Moslem, while as in Haifa, they now have mixed municipalities working happily together, except that in Jerusalem it has been temporarily suspended. Immigration must be decided on the authority of the United Nations before the new Constitution has been brought into being, and numbers should be decided which would hold good over a series of years, subject to modification by the executive only on grounds of economic conditions. That is the plan that I have previously advanced in this House and in my evidence before the Anglo-American Commission. Doctor Magnes in Palestine has formed a Party advocating much the same proposals.
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  The Anglo-American Commission's Report has been very much on the same lines—no Jewish State, no Arab State, and no partition.
  We all knew that the Conference in London would be perfectly futile. Everybody knew from the beginning that to bring Jews and Arabs together in London to decide these matters would lead to no result whatsoever. It was merely regarded as an effort by the British Government to effect delay because it did not know what to do. This very solution could properly be accepted by the Arab League. They have all this vast territory under their own control. It would be an act of magnaminity and of good grace to consent to a mixed Constitution of this kind, and it would be greatly to the advantage of the Arab population of Palestine, who have flourished under the Mandate. They have not been oppressed they have not been driven out, their population has increased by as many as the Jewish population has increased, and they have reached a state of economic prosperity greater than they have ever known.
  People say "Well, they all want a final settlement—to have something settled now which will last in perpetuity." It cannot be done. They must consent to have a mixed Constitution for the time being that will grow into something better, and a system of immigration that may be subject to review in later years as conditions alter. Both this Government and the United States Government might accept a scheme of that kind if it could be based upon a unanimous report of the Joint Committee appointed by both of them.
  VISCOUNT HALL: The British Government did accept that scheme and endeavoured to get the Jews, the Arabs, and the Government of the United States of America to agree.
  VISCOUNT SAMUEL: I am delighted to hear it, but what has been suggested is still on a geographical basis, with provincial governments. Drawing lines on maps to form provinces which should have quasi-governmental powers is not the same thing. You must get away froth that idea of drawing lines on a map; it will not do. The provincial lines that were drawn in these proposals are exactly the matters that gave rise to the intense controversy, and it is not a similar

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  plan to the one I have suggested. It is a geographical plan, and the frontiers of the provinces, and the powers within the provinces which are to be Arab or Jewish, is partition in a different form. You should abandon that and get a really admirable scheme. The Government came closer than ever before to a wise scheme, but must cling on to the idea of constituencies and of separate authorities, each having quasi-governmental powers. If such a plan as I suggest were now to be adopted, frankly and definitely, by the Government, if it were backed by the American Government and, above all, if it came forward with the immense authority of the United Nations, representing the opinion of the vast majority of mankind, then it might well be accepted by the Arab League and by the Jewish Community in Palestine. The people of Palestine want peace. They want peace now. It is only a minority of extremists on each side that keep the country in turmoil. Put forward a comprehensive and definite scheme of that kind and then the controversy might, perhaps, be ended; and at last the warfare of Zion would be accomplished and Jerusalem be comforted.
  4.35 p.m.
  LORD STRABOLGI: My Lords, I believe your Lordships will agree with me that the noble Lord, Lord Altrincham, has performed a great service to the House in bringing forward this Motion to-day. It was obviously rather overdue, as he himself admitted. The events in Palestine, and what has led up to them, had to be discussed, and it was high time we had this debate, I do not stand here to criticize His Majesty's Government in their policy of referring this dire and difficult problem to the United Nations, and if, in a few moments, I venture to make certain suggestions to my noble friend the First Lord of the Admiralty, I wish him to understand that I quite appreciate the difficulties of the Government, and I give them credit for trying to do their best in a very complicated situation.
  I think the, noble Viscount who has just addressed your Lordships from the Liberal Benches would agree that the picture of Palestine as presented to the British public through the Press, and so on, is an incorrect one. It is a propaganda picture. For example, while these
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  events that were described by the noble Lord who moved the Motion were going on; while this tragic stream of hapless fugitives are trying to enter the Holy Land, as Viscount Samuel has described, the work of reconstruction in Palestine, the rehabilitation of the country by the colonists and settlers, continues. In fact, as soon as the curfew is lifted the busy life begins again. There have been some most remarkable achievements already in soil reclamation, in land settlement, and in the scientific use of the rich soil of Palestine which has suffered so much from centuries of neglect.
  Take, for example, the brilliant work of reconstruction in the area of the Dead Sea, to which, I think, my noble friend Lord Morrison has had his attention drawn and about which the noble Viscount, Lord Samuel, certainly knows; the remarkable work in the colony of Beth Haaa Rava— I apologize for my bad Hebrew pronunciation, but the translation is "The House in the Wilderness." There land has been for centuries so impregnated with salt from the Dead Sea that it was considered useless; but by tapping the sweet waters of the Jordan before they entered the Dead Sea, by piping water to this salt-saturated area and by washing the soil in sections for nine months but still leaving enough salt to act as a fertilizer, the most wonderful crops are now being grown. That is as remarkable a piece of reclammation of land that was considered hopeless as modern agricultural science can offer. That work has been going on through all these grim events—the acts of terrorism, reprisals, and so on, that have horrified everyone in your Lordships' House.
  The work of settlement proceeds elsewhere in Palestine, and with tremendous energy the land is being prepared and recovered. Manufacturing activities continue and the ordinary work of development goes on, despite the disorders. I am not pessimistic of the future of the Jewish National Home and I hope the noble Viscount, Lord Samuel, is not pessimistic either. I hope he is not despairing. He knows the facts also about the people who, as settlers, do these things in that country of Palestine. They can claim the attributes of nationhood. There will be a National Home in Palestine. Nothing can delay it and nothing can destroy it. And I am not pessimistic about the future. That is why I

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  have supported His Majesty's Government in referring this whole matter to the United Nations Organization.
  Then there is another entirely false picture that is drawn for the British public. The suggestion is that there are 100,000 or 120,000 troops, including the Air Forces, in the country for the purpose of preventing the Arabs from slaughtering the Jews. That is an entirely false picture. There is no danger whatever of an Arab attack on the Jews. In the Arab rising before the Second World War, when Arab gunmen came over the border from Syria more Arabs than Jews were killed. It was much more a matter of civil war between the Arabs and action against the British than against the Jews. As the noble Viscount, Lord Samuel, and the noble Lord who moved the Motion have pointed out, Jews and Arabs, if given the chance, can work together and will work together perfectly well. I have in my mind a picture of the vast procession of Jews and Arabs who were being evicted from those areas of Jersualem which are being made into a British Ghetto, where we are concentrating the business men and civil servants who are allowed to remain, jointly marching in protest against eviction from their homes. I have a picture of the Arab and Jewish trade unionists acting together in advancement of their economic position. I have a picture—a slightly more humorous one perhaps—of Jewish and Arab citrus growers trying to squeeze Mr. John Strachey for a higher price for next season's crop of oranges. The truth of the matter is that in the last twenty-five years in particular there has grown up a younger generation of Palestinian Arabs with a Western outlook. The noble Viscount, Lord Samuel, reminded your Lordships that to-day they have a higher standard of living than they have ever known before. They have a higher standard of living—as a result of the events of the last twenty-five years in Palestine—than any Arabs in any other part of the Middle East.
  The one thing those modern young Arabs, who have Westernized ideas as a result of their contact with the Jews and from seeing what the Jews are doing, do not desire is ever to come back under Arab rule. I can assure your Lordships—and those of your Lordships who have served in the country who know the
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  Arabs well will know that this is so; I am certain that my noble friend Lord Morrison from his experience knows it perfectly well—that the one thing the Arabs in Palestine do not want is to come once more under the control of feudal Arab landlords and the Arab tax-gatherers of the Turkish Empire, with the corruption and inefficiency and general misery that was entailed.
  LORD LLOYD: I wonder if the noble Lord will forgive my making this one interruption? The Arabs do not wish to come back under Turkish rule, which is a very different thing from being under Arab rule, which they never really had.
  LORD STRABOLGI: The instruments of government were exercised by Arab feudal landlords who held positions under the Turks. They were the tax gatherers under the Turks. I was in Palestine for the first time in 1910, when it was the most impoverished and backward province of the Turkish Empire. The government was controlled then and exercised by Arab officials. The Turks were there as soldiers. Their job was to keep order and, incidentally, to prevent the various Christians sects from flying at each other's throats in the holy places of Jerusalem. That was the job of the Turks. The actual administration and the extortion and tyranny that went with it was exercised by Arab officials. That is well known by the Arabs to-day, and they do not wish to return to that state of affairs. I am convinced from what I have seen, and evidence which has reached me, that if they are encouraged and given the chance, the masses of Arabs and Jews—and by those I mean the farmers, merchants and people generally who are doing an honest job of work—will co-operate and work together. As the noble Viscount, Lord Samuel, has just reminded your Lordships, the bulk of the people in Palestine of both religions are heartily sick of the chaos and disorder that is going on in the country. Above all things, they desire peace, and the chance of being able to go ahead with the reconstruction of that beautiful country that can be so prosperous and rich once more, and to do it without interruption.
  There is one piece of evidence which I will bring to your Lordships' attention and which I think will not be denied by the noble Lord, Lord Lloyd, or by any

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  others who know the military situation in Palestine during the past few years. That is the example set by the late General Wingate and his achievement in Palestine. He was the most successful soldier we ever had in Palestine in welding together into a most efficient fighting force a mixed Jewish and Arab Brigade. He was so successful in getting the Jews and Arabs to collaborate and to resist the then Arab terrorists, that the War Office became alarmed, cleared him out of Palestine, and gave orders that he was never to be allowed back into the country. It did not suit the book of certain people. I hope that they are not in any position to influence His Majesty's present advisers. It did not suit certain people that there should be Jewish and Arab collaboration at that time. Under Wingate, there was Jewish arid Arab collaboration under the most testing conditions of all—in the field of battle.
  What General Wingate did was this. He trained Jewish and Arab villagers—who only wanted encouragement and were only too glad to put an end to the terrorism which was then going on, in this case by the Arabs—to fight at night. In those days the British Army used to control the whole country in the day time; then the soldiers went to bed and the control of the country passed to the hands of the terrorists, mostly Syrians. He taught his brigade of mixed Jewish and Arab villagers to fight at night. They beat the terrorists at their own game, and in a matter of six to eight weeks the back of the revolt was broken by Wingate's mixed Arab and Jewish brigade. That is a most important example of what may be done by way of collaboration between the Jews and the Arabs. I am glad to say that the memory of Wingate is very fresh in Palestine to-day, and has been a great encouragement to those who are working for Arab and Jewish friendship and co-operation.
  But those people are not exactly encouraged when the sort of thing to which I will now refer happens. I know it is not the fault of my noble friend Lord Morrison and his colleagues, but the only witnesses seen and heard by the mixed Anglo-American Commission were those nominated by the Arab Higher Committee. That meant that, in effect, they heard only Arab witnesses who were nominated by the mouthpiece of the
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  Mufti, the inveterate enemy of Britain. I do not blame them. They probably were advised that if any other Arabs came to put a different point of view, those Arabs would be in danger of assassination. I am afraid that is perfectly true. Unless we are prepared to protect Arabs who take a different line from the Mufti, they will keep very quiet. Some of them have been massacred and assassinated in recent years, in recent months and in recent weeks, as my noble friend knows. Some have been assassinated by their own Arab opponents—the supporters of the Mufti.
  LORD MORRISON: An open invitation was issued by the Anglo-American Commission that they were prepared to hear evidence from anyone who desired to give evidence in Washington, London, Cairo, or Jerusalem, and, so far as I know, no one who offered to give evidence was turned away.
  LORD STRABOLGI:I was careful to say that I did not in any way blame my noble friend and his colleagues; but, in effect, the only witnesses they saw were those nominated by the Arab Higher Committee, which was very unfortunate. I will give another example. I do not know what the explanation is—it was certainly extremely faulty intelligence work of the kind that has been complained about by the noble Lord, Lord Altrincham—but some explanation is needed of the episode at Lydda Airport the other day when one of the most notorious of the Arab gunmen and fanatics—Fanze el Din Kawji, Raschid Ali's Lieutenant in the Iraq revolt and one of the leaders of the insurrection among the Arabs of Palestine prior to the Second World War—landed at Lydda Aerodrome in Palestine on his way from Egypt. He walked about for an hour or two, and then took off in the plane and continued journey. And he has been on the wanted list of the Palestine Police for years!Surely, with the tight control and the intelligence operations that go on in Palestine, some explanation is required other than the fact that he was travelling under a different name.
  I am afraid that there has not been enough active encouragement for the sort of solution that has been canvassed to-day by the noble Viscount, Lord Samuel, and which I am trying to advocate along somewhat different lines in your Lords-hips House this afternoon. The noble

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  Viscount, Lord Samuel, said that he would have to reject the idea of a Dominion solution for Palestine, because that would mean annexation by Britain. I suggest that that is not the case at all. A Dominion of Palestine would have to be asked for by the people of Palestine, and by a large majority. But if it were known that that solution would be acceptable to His Majesty's Government (or, now, that it would be put before the United Nations Organization at the right moment by His Majesty's Government), then I believe there would be a surprising response in Palestine itself from the moderate Jews and the moderate Arabs, who are tired of this disorder, and who wish to work for the future benefit of the whole country. But it must be made known; and here is where I have to say, with great diffidence, that I think His Majesty's Government are taking up an untenable position.
  I do not think we can for long maintain our position of not saying what our proposals are, when this matter of Palestine comes before the United Nations Organization. We have got to come forward with something, with some considered proposal. This could be the plan which I am trying to advocate, and which I believe is perfectly feasible. The question of immigration will have to be settled. That is crucial, as the noble Viscount who has just addressed your Lordships has indicated, and as I think the noble Lord, Lord Altrincham, admits. But, after all, Mr. Ernest Bevin, in his diligent search for a solution, did put forward the proposal of 4,000 legal immigrants a month. That adds up to 48,000 a year, and in two years it will not be far short of President Truman's 100,000. But the time is slipping away; we are getting to the end of our second year as a Government. I do not think this position of making no proposals can be maintained for very long, once the whole matter comes officially before the United Nations. I very much hope that the advisers and officials at the Colonial Office, which my noble friend the First Lord of the Admiralty knows so well, and which lie adorned for nearly two years, are not closing their minds to this solution.
  In the debate in another place my right honourable friend Mr. Ernest Bevin indicated that there was something in the Dominion solution, but that it was now
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  too late. It is not too late. I submit that the same might have been said about Canada, at the time of Canada's terrible agony, which has already been referred to in this debate. The same could have been said, before it became a Dominion, about the Dominion that is now the Dominion of South Africa. There you have two examples (the Irish case is not nearly so analogous) of bitter racial strife. In the case of South Africa, terrible bitterness was felt in this country and between the two races of what is now a very prosperous and efficient Dominion. In Canada there was bitter strife also between the two communities. They were both solved quite satisfactorily by the assumption of Dominion status. It is not for us to grant Dominion status, but for us to suggest it and to explore its possibilities.
  The demand or the request for Dominion status must come from the Palestinians themselves, and it would be a unique example, I believe, of a community voluntarily joining an Empire. I ask my noble friend the First Lord of the Admiralty who has done so much to try to find a solution, and those who advise him, to look again at this solution. I believe that it can be done, but it needs a lead; it needs authoritative support from His Majesty's Government here, and, above all, in Palestine itself. So far (I am sorry to have to say this) those Arabs who have received favour and patronage have been the extremists. The men who have preached anti-Semitism, and who have resisted any co-operation, have been the ones to receive favour in the past, and those who are prepared to co-operate with their Jewish neighbours and fellow settlers, and who support some such solution as that suggested by the noble Viscount, Lord Samuel, or proposed by the Anglo-American Commission, or suggested now (with great diffidence) by myself, have not been encouraged or helped. All the evidence which reaches me shows a vast middle body of both Jews and Arabs who are prepared to co-operate in some form of unified government for the benefit of all the inhabitants of this historic and holy land, to which all of us owe so much and whose destiny will mean so much in the future.
  I again thank the noble Lord, Lord Altrincham, for bringing this matter forward. It has to be discussed, and your

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  Lordships' House is a suitable arena in which to discuss this vitally important and terrible problem. Palestine to-day is absorbing the energies of a vast British force, which we can ill spare; and, however well our soldiers behave there—and I know they do—and however hard His Majesty's Government try to find a solution, inevitably tee lack of a solution is holding this country up to criticism throughout the world. It is a situation that cannot be allowed to go on. I support His Majesty's Government in the latest step—they have referred the matter to the United Nations—but I do beg of them to have their plan ready when the time inevitably comes when the other nations will say: "After all, you have had the Mandate for twenty-five years: what is your solution? You are a great Colonial Power, with vast experience. What do you propose? We know little enough about and we are diffident about entangling ourselves."
  I do hope, whatever else happens, that we shall not have the eighteenth Commission of Inquiry. My noble friend and his colleagues know the facts, and they have known them for a long time. No further Commission of Inquiry is necessary, but a plan is needed, similar to my proposal, which should be put forward with all the authority of the British Government, and I believe it would be supported by the vast majority of the law-abiding and peace-loving people of Palestine.
  4.59 p.m.
  LORD HANKEY: My Lords, I had not intended to take part in this debate, but my noble friend Viscount Samuel has called in question the view which the minority of the Mandates Commission took in 1939. I think I ought to do my best to offer some account of what happened. I speak at a great disadvantage, because I have been away and have had no notice that this question was to be raised. I have not like my noble friend refreshed my memory on the 400 or so pages on those proceedings (and there were at least half a dozen other equally contentious documents before us at that short meeting); neither have I re-read the Mandate or, what is really almost as important, the resolution of the Peace Conference which established the mandatory position. I have, therefore, to rely on what I always feel to be an unreliable thing—my memory.
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  I confirm what the noble Viscount said, that the whole of the Commission, including myself, agreed that the White Paper interpretations differ from the previous interpretations of the Mandate Commission. But I myself, and my French and Portuguese colleagues, did not consider that interpretation to be correct and we challenged it. From oar point of view it was unfortunate that the Commission was a very small one. I forget what the total membership was, and I have not been able to refresh my memory on it. It must have been about ten, aid there were only seven members present on that occasion. Of those seven, if my memory serves me correctly, three had been members for a long time, and they would naturally be reluctant to change their view. There was actually one other member of the Commission present in Geneva, but we could not get him to the meetings because, unfortunately, he was at loggerheads with his Government, which was a different one from that which had appointed him, and he would not take any part. That is the sort of thing which affects history. I have every reason to believe that if he had been there he would have supported our point of view and that there would have been a "dead heat." That was what was reported to me at the time. However, we were beaten by four votes to three. I am not a lawyer and I cannot charge my memory with the legal arguments that were adduced in favour of the minority view.
  I can remember, however, that the view which I took was that the Mandate was a document intended to guide and help the Mandatory Power, and that it could not possibly lay down exactly what the Mandatory Power, was to do in every sort and kind of circumstance that might arise. It might be that sticking strictly to the letter of the Mandate in a matter such as immigration might ruin the intention of the Mandate; that was quite a possibility. So far as my recollection goes—and I will stand corrected if anyone says I am wrong—the Mandate did not lay down anything about the time within which the policies were to be carried out; so it seemed to me that, if the circumstances demanded it, the Mandatory Power was entitled to take such action as was prescribed in the White Paper, upon which I have not been able to refresh my memory, as slowing down or limiting for a time the extent and the

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  rate of immigration. I may have been right or I may have been wrong, but it seemed to me that this was a document which was essentially a political document and that its interpretation could not depend entirely and exclusively upon the previous views of a number of men, mostly lawyers, who were members of this Commission; or that it could be totally dissociated from the political circumstances of the day.
  What were the political circumstances of the day? I do not require to refresh my memory about that. It was June, 1939, and we were hurtling to war. I told my colleagues that. Whether I told them in public session or in private, I do not know, but there was no doubt in the minds of any of my colleagues that I was certain of that, and some of them had evidence to confirm it. I had no reason to defend the British Government. I had only three days' notice to go to Geneva. I was entirely independent of them, and I did not take any instructions from them or have any consultations with them on this point. I came to the conclusion, after hearing what Mr. Malcolm Macdonald had to say on the subject, and after hearing what everybody else had to say, including my colleagues, that the fact that we were in a period of tension, or at any rate that we were coming very close to a period of acute tension—we were in it really—must affect the policy of the Government, and that the British Government, as the Mandatory Power, were bound to look at coming events. If they thought war was a possibility—and they were arming as fast as they could—they had to look at what the position would be in the Middle East.
  I asked whether they could afford to adopt a policy which would so affront the Arabs, and so pull the Arabs together, that when the day came they might find the whole of the Middle East in a blaze. The answer was: "This is a purely legal interpretation of a legal document." I maintained that it was not a legal document but a political document, and that it did, in fact, leave a good deal to interpretation. Although we were beaten there, I felt that if the matter went to the League of Nations (which would have been the next step but for the circumstance that war came upon us), there was no doubt that it would there be considered in a very much more political atmosphere. I have
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  never regretted the line I took, and I do not regret it to-day.
  5.9 p.m.
  LORD LLOYD: My Lords, I do not think that many tears will be shed at the funeral of the present Mandate. I have no doubt that the intentions of its authors were good, but unfortunately they are, I think, of that particular brand with which the road to Hell is proverbially paved. It was so vaguely worded that I do not think anybody could quite understand what it meant. I am fortified in that view, if I may say so with all deference to him, by what the noble Viscount, Lord Samuel, said this afternoon. It seems to me quite clear that all the time there were these two things: on the one hand, there was the Jewish National Home, and, on the other hand, there was the necessity for the civil and religious rights of the Arab people to be protected. Those points were always in conflict and the position was never clearly defined. Therefore I feel we shall none of us weep at this particular funeral and that there is an overwhelming case for the abolition of the present Mandate and its replacement by some more realistic scheme in the future. Indeed, I think I must agree with the noble Lord, Lord Altrincham, that the only thing we on these Benches regret is that His Majesty's Government did not take this action earlier. But if we do perhaps regret a certain sense of political unpunctuality on the part of His Majesty's Government, I, for one, most warmly welcome the steps that they have taken. I do not believe that we should delude ourselves into thinking that by recognizing the impractical nature of the existing Mandate, and referring the whole thing to the United Nations, we are going materially to ease our present difficulties in Palestine.
  I must confess that this is my first anxiety in the matter. For many years we have carried out to the best of our ability this very difficult task in Palestine. At times the task has been difficult, and at other times well-nigh impossible. Our difficulties have steadily increased, and each month now increases the problem of physical destruction in Palestine, and the casualties extend to the British taxpayer. I feel very strongly that an early decision is absolutely vital, not only to the people in Palestine who, as the noble Viscount said, so desperately

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  desire peace, but also to the officials and soldiers out there who for all too long have been working in conditions of the most terrible strain and with very little reward.
  I must confess that my hopes were raised about this particular point when I read of the announcement that a special meeting of the United Nations was to take place—in fact, so far as I know, it is taking place at this moment. But it appears to me now—perhaps it was always so, although I did not appreciate it—that this special meeting is only to set up another Commission of Investigation. It was only last May that the Anglo-American Commission made their report, and it seems to me that the facts, only too well known, have not changed. To appoint yet another Commission at this stage seems to me, in the present situation, to be the most incredible folly. Indeed, I would go so far as to say that history will write of us that our sins in Palestine were not so much errors of omission as of Commission after Commission. When the well-known facts are re-discovered, so far as I can see, these is even then a great prospect of further delay. It is possible, I agree, that in September the fifty nations of the United Nations will all, with one voice, agree immediately to the same solution; but if one can go by the form book—which I do on other occasions—I cannot honestly conceive that anything but a miracle can produce such a result. It seems to me much more likely that there will be protracted discussions and that in the end, when a decision is reached, it will be a majority decision over possibly quite a strong minority.
  In the meantime in Palestine we shall be in that same position of responsibility without power as we are in India to-day. It is a position that is as uncomfortable as it is undignified, and it is one which I do not think we should occupy a moment longer than is absolutely necessary. Let us not forget that we pay for the privilege of occupying that position, not only with the lives of British soldiers, but with the money of the British taxpayer. And what do we get in return? I think in the interim the most one can expect to get is possibly a certain amount of rather acid criticism from certain sections of the American Press—poor compensation even by what we on these Benches think are, the rather unorthodox standards of compensation be
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  lieved in by His Majesty's Government. I think a fairly long delay is almost inevitable, and I cannot help having the gravest misgivings about the effect of such a delay on the situation in Palestine.
  I do therefore hope that in his reply the noble Viscount will be able to give us some satisfactory and reassuring answers to the questions which were put by the noble Lord, Lord Altrincham, about the illegal immigration, and about the steps that are being taken to enlist the co-operation of the Jewish Agency in stopping terrorism. Finally, I hope that His Majesty's Government will take perhaps a slightly "tougher" line with the terrorists. I cannot help comparing the present treatment with the treatment which was meted out to the Arabs between 1936 and 1939. in circumstances where I do not think terrorism was anything like as bad as it is to-day. In those days, villages were destroyed, flocks and crops were confiscated, crushing collective fines were imposed and there was almost continuous martial law. What is more, in 1938 no less than fifty Arabs—in fact rather more—were condemned to death. When you compare that with the sentences and action we are taking to-day, there seems to me to be a very great disparity.
  The time factor is a very important thing, but that is not my only anxiety. As I have already said, the existing Mandate is obscure and obsolete. It is obsolete because it was drawn up long before Hitler started to paint the world red; indeed at a time when he was merely painting houses in Vienna. It is essential that the new Trusteeship Agreement should not suffer from the same defects. In my view we must get an absolutely clear decision on this question of the Jewish State. To say, as the noble Viscount, Lord Samuel, his said, that even if you had a large Jewish majority it would not be a Jewish State, seems to me quite honestly, from the Arab point of view, to make no sense at all. At any rate I know a good many Arabs, and that is not their view. They regard themselves as the rightful inhabitants of the country and they consider that any system which will force upon them immigrants, until those immigrant in their turn become a majority, is the very negation of all international morality. Therefore, although I have the

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  greatest sympathy with the Jewish people in all their sufferings—and I am acutely conscious of the urgent need of taking steps to find homes on the lines suggested by the noble Lord, Lord Altrincham, for all these unfortunate people—I do not think that we, as a nation, can stand up for a departure which is, in my opinion, and in the opinion of all Arabs, against all the laws of international morality. The test I apply is: Is it a thing that we would like to happen to us? Would we be quite happy to have Chinamen pumped into this country until they were a majority? I do not believe we would stand it for a minute. If we are not prepared to stand things, I do not think we can inflict them on others.
  There is one other point, and that is the question of immigration. The question of immigration is obviously bound up completely with the Jewish State. If you do not intend to have a Jewish State you cannot continue to have unlimited immigration. But I believe that if this whole question of the Jewish displaced persons in Europe could be tackled on separate lines, and we could show the Arabs that other nations were doing something to deal with this problem, then the Arabs themselves would play a not inconspicuous part in doing their share. A solution based on these principles seems to me to he the only solution that we in this country can carry out with a clear conscience. I hope, as suggested by the noble Viscount, that when the time comes His Majesty's Government will stick to the Bevin plan, which I believe to be the soundest yet put up, and make a clear pronouncement on it. There are obvious difficulties as to when the announcement should be made. I do not feel it is for me to suggest to His Majesty's Government the precise moment when it should be done. But it is true, I think, that the people in this country have a right to know what solution His Majesty's Government are to adopt. For that reason it would perhaps be better to make an announcement before the meeting of the United Nations in September, because, if it is made only in September, the people in this country will be committed before they have had a chance to appreciate the policy that is to be adopted by His Majesty's Government. Equally, I am quite sure that failure to put up a solution will leave the United Nations organization
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  without any basis of discussion. I think, also, it is important that the United Nations should know where we stand, for it is conceivable that in certain circumstances it might be impossible for us to carry on the Mandate. I will come to that in a minute.
  Finally, I would like to ask the noble Viscount a few things about our position after the matter has been discussed by the United Nations. It is conceivable, as I nave said, that some circumstances might arise which would make impossible the continuation of British control in Palestine. I earnestly hope that such a situation will not arise because I agree that on the whole we have tried to do the job well in Palestine, and on the whole—despite apparent failure—I believe no nation could have done half as well. But it is conceivable that circumstances might arise which might make the situation impossible for us. For example, the United Nations might produce no decision. I do not believe that, without world opinion behind us, we can continue. In the second place, the United Nations might produce a decision which would be foreign to our ideas and for that reason we could not implement it. Thirdly, the decision of the United Nations might not be backed by a sufficient weight of world opinion to enable us to carry on with our task. It might well be that there would be a strong minority against the decision arrived at by the United Nations, and it might include one of the great Powers. In that situation I suggest it would be very difficult for us to persuade the communities to accept a solution, and again it might be conceivable that we should no longer be able to carry out our task.
  In these circumstances I would like to ask the noble Viscount for his assurance that, in the first place, we are not bound to carry out any policy, any solution, of the United Nations of which this country cannot approve, and that, secondly, on giving due notice we may surrender our Mandate in Palestine. I have only a few more words to say. I believe the Bevin plan is sound. I hope the United Nations will approve of such a plan and will do so with such unanimity that we can operate it. I hope also—I am sure this is vital—that at the same time as they deal with Palestine the United Nations will produce some world-wide scheme for dealing with the Jewish problem in

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  Europe. The two problems cannot be separated. It is no good discussing Palestine if you do not deal with the other problem at the same time. If this is done, and we are enabled with real world backing to adopt the Bevin plan, I shall not be pessimistic. There may be difficult times but in the two years in which I soldiered in Palestine I have seen too much, both in Arab and Jewish villages, not to believe that co-operation in Palestine could happen. I believe in that event we could all look forward to achievement of the object for which this country has been striving so long and at such heavy cost—the establishment of a free and independent Palestinian State. And thus the history of British rule in Palestine, which has had so many stormy chapters, may have the kind of ending we all like.
  5.27 p.m.
  VISCOUNT SWINTON: My Lords, having as Secretary of State been for four years responsible for the administration of Palestine, I should like to add my modest quota to this debate. Those who have had the closest responsibility and first-hand experience are perhaps those who hesitate most to offer a dogmatic solution. I think the debate has been well worth while, and I hope when the Secretary of State comes to reply I shall have no reason to qualify that statement. It has been opportune, informed, worthy of the gravity and the difficulty of the subject; and not least in that comprehensive appreciation, may I say that I include the last speech? I am glad to see that the son of one who commanded so much confidence in the Middle East and whose name was a household word there should be following his father's footsteps.
  Many of us may differ in our view as to what is the right solution. It may well be said that a second-rate solution which the people of Palestine, Jew and Arab, would accept, is better than a first-rate solution which. neither would accept. We are face to face to-day with a situation in which no solution so far propounded has proved-acceptable; and now, rightly, the matter has been put to the United Nations. However much we may differ about what is the right solution, there is one thing in which I think we all agree. It is this: throughout all the years of our Mandate the Civil Service in Pales-
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  tine have rendered disinterested, selfless and loyal service, seeking only to serve the best interest of that country, in both peaceful and troublous times. The noble Lord said he would like to rely on form. The Civil Administration have run true to form and the British Army has run true to form, under every possible provocation. When troops are shot in the back, bombed, assassinated—even by people who have disguised themselves in the uniform of British troops—the hardest call is made upon them to maintain their discipline and morale. The way in which the Army has borne itself under all this provocation, its patience and its understanding prove that it is indeed a model Force, and one of which this country and the world may well be proud.
  To come to the main problem, there are just two or three things which I would like to say. The first is that Palestine itself does not afford a solution of the problem of Jewish immigration. I do not think that that can be made too clear. The worst friends of Jewish immigration into Palestine are the extremists among the Jews who are trying to force the acceptance in Palestine of every Jew, whether he wants to go there or not. Those people are the worst advocates of a Jewish National Home, and so long as the claim is made by those vocal persons that Palestine could and should absorb all the Jewish immigrants (I am sure that it can absorb some more) so long will any immigration tend to be opposed. The Balfour Declaration which is enshrined in the Mandate set out that Palestine should be a home for the Jews, not—as the noble Viscount, Lord Samuel, has very fairly said—a State. It was a very carefully drawn and short document which put the matter in a single sentence. If a State had been meant then the word "State" would have been used. But the Declaration said "home" and meant home. And it meant a home for Jews, not a home for all Jews.
  The test of what immigration may be possible was laid down clearly in the White Paper of 1922 when Mr. Churchill was Colonial Secretary. That test was not challenged at the time, and it was never challenged in all the period that I was Secretary of State, nearly ten years later. It was the test of economic absorptive capacity. I am not saying that Jews and Arabs accepted what successive Secretaries of State and High Commissioners

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  judged to be the possible and right absorptive capacity. They did not; indeed, do not think they ever agreed or accepted. If they had done so the matter would have been made simple. But the Arabs generally said: "You are letting in too many," and the Jews always said:" You are letting in too few." It was always accepted, however, that the High Commissioner—subject to the Secretary of State—was to be the judge of the absorptive capacity, and that necessarily implies that there should be a limitation. It may mean—indeed it must mean—having to stop immigration when the absorptive capacity is exhausted. If I may say so, I think that a mistake was made in the White Paper of 1939. I am not saying that it was not right at that moment to stop, or certainly to limit, immigration. After all, we were always limiting the amount of immigration. The wrong thing was to set a term of finality upon it, because you cannot judge to-day what five or ten years hence may be the absorptive capacity.
  When the mandate first came into operation, people might well have supposed that this barren land could absorb only a few thousands of people. But the immense work done by the Jews there, in the way of irrigation, putting in capital, and, generally developing some of the most remarkable agricultural institutions—including dry farming—in the world, has created an absorptive capacity far in excess of what anybody could have supposed was possible in the early 1920's Therefore, I think it was wrong to set a final figure. I feel that it was wrong because, obviously, it is a matter which might have to be subject to adjustment. That there was a right and a duty to limit immigration in accordance with the absorptive capacity, and a duty to stop it if the absorptive capacity was exhausted, I have no doubt. I have equally no doubt that the test of this absorptive capacity was one that must be applied by the Mandatory Power and could not be subject to the permission or discretion of either Arab or Jew. As I have said, I think it was wrong to say that after a certain time there would not he more immigration. except with Arab consent.
  If he will forgive my saying so, the noble Viscount, Lord Samuel, in his criticism, entirely overlooked the very material facts which the noble Lord, Lord Hankey, introduced into his speech—that
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  you cannot look at this purely as a legal question, and that the situation faced in June, 1939, when the matter came before the Mandates Commission, was one in which, as everybody knew, we were on the verge of war. That terrible fact transcended any purely legal interpretation or conception.
  I am quite sure that the Government have been right to send this matter to the United Nations. Personally, I have an open mind—views do differ in degree and shade in these matters—as to whether they should, in the first instance, have said what they thought to be the right solution. Personally, I think that the arguments in this connexion very nearly balance. I think that the matter should have gone to U.N.O. long ago, and I regret the delay; but, as I say, to my mind, the arguments nearly balance. We all know what these international bodies are. Everybody goes canvassing before the election starts, so to speak, and Party funds are not wanting—particularly if the election takes place in America where funds are very liberally at the disposal of some of the disputants—I should make it clear that I am speaking entirely of this problem, and not of American elections. Had a solution been suggested, there would have been a tremendous amount of canvassing, and by the time delegates met the issue might have been prejudiced.
  On the other hand, after twenty-seven years experience of administering this difficult territory, it would be unworthy of us to present a sort of Bill of Fare with four, five or six dishes upon it, and say to the U.N.O. diners: "Take your choice." I hope that is not the line that the Government are going to take. I think they are entitled to say: "If we have to play this hand we must have some discretion as to the way in which we play it." When it comes to the real hearing, not to some procedural application in chambers, which I gather is what the first meeting is to be—and in this connexion I cannot say how much I agree with those who have said that they sincerely hope we are not going to have set up another commission. of inquiry—I hope that we shall insist on having it decided. And when that meeting does come, His Majesty's Government must go forward and say what they believe is the best solution, the right solution, and the fairest solution. Let me just add this. No solution has been accepted,

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  and therefore it certainly is up to them to say what they think is best.
  I am quite sure there can be no lasting solution without the co-operation of Arab and Jew. Arabs in the past have underrated the contribution which the Jews have made to the wealth and prosperity of Palestine, and the share which they have had in it. I do not mean merely that they have received liberal compensation for their land—I am not sure that that was a happy business. I know the Jews paid enormous prices for land, sometimes to an absentee landlord and sometimes to an owner occupier, but the purchase price or the compensation money was pretty soon "blued," and there was nothing to show for it, and the Arab was uncertain whether he would get alternative land or alternative occupation. One cannot deal with this on purely legal grounds. I am sure that in a court of law the award would not have been greater. But these people have to live together in that land, as they have been living together in it for hundreds of years. On the other hand, Jews have alienated Arab' sympathy by exclusiveness. Once land had been taken over by the Jewish Agency it could never be occupied again by a non-Jew. They carried it further and tried to insist that only Jews should be employed upon the Jewish estates. That was not wise.
  And the need for this co-operation goes beyond the question of land. One of the things of which the Jews, very rightly, are proud is that they have built up a wonderful and an extraordinarily varied industry in Palestine, a far greater industry than can be absorbed by the local market in Palestine. This industry was enjoying a very considerable export trade, but it was an export trade primarily to the surrounding countries—the Arab countries of the Middle East. Nothing could he more damaging to this industry which the Jews have created in Palestine than Arab hostility and an Arab boycott in the adjoining States. For centuries Jew and Arab have lived together side by side all over the Middle East, the Jews prospering and rendering an accepted and valuable service, and the Arabs co-operating. Is Palestine, where co-operation is most needed, to be the only land where this co-operation is impossible?
  Various speakers Eave drawn on their experiences, and I would like to give your
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  Lordships a personal experience of my own when I was touring Palestine as Secretary of State. Even in those days, back in the early 1930's, co-operation was very difficult. Jews were ready to meet me, Arabs were ready to meet me, but they would not meet me together. The noble Viscount, Lord Samuel, told how he had hoped to see these boards working. I tried to get Jew and Arab to work on different hoards of common interest. It was very difficult, and after a weary day (I had started very early in the morning) hearing Arabs complain about Jews, and Jews complain about Arabs, I came in the early evening to Rosh Pinah, a little Jewish settlement above the Sea of Galilea, one of those colonies founded forty years ago or more by Baron Edmond de Rothschild. As I came to this little place, the Jews and the Arabs came out together to meet me, and together they took me into their little village hall. First of all, the Jewish leader made me a speech and then the Arab Muktah made me a speech and said:
  "We have been together here in good times and bad for thirty years, and we have always stuck together."
  That included the years of the Arab trouble and the time s of the Jewish trouble. Then he said this:
  "If the stones of the wall hold together the wall stands, but if the stones fall apart, the wall falls and much falls with it."
  That night I went down to Tabca on the Sea of Galilea where I was to meet Dr. Weizmann, and Mr Arlosoroff, whose death was a sad loss to the Jewish cause. I said to Dr. Weizmann: "I have learned this evening what must be the solution. You can have more land provided the Arabs are put hack on it and you show by your joint settlements what the Jews really can do for the Arabs." Those were the terms on which I said they could have the Huleh Basin. But then more trouble came, and the Army had to go in. The memory of these colonies of the late Baron Edmond always sticks in my memory. I thoroughly believe that is the solution, and that is the kind of cooperation and union which must appeal to the United Nations, who exist in order to promote unity of that kind. If such unity, such union, such co-operation, be backed by the whole moral force of the United Nations, then I believe it may still succeed.
  5.47 p.m.
  VISCOUNT HALL: My Lords, I am sure that all of you will join me in thanking the noble Lord, Lord Altrincham, for introducing this Motion, and you would also like me to say how pleased we are to see him back with us again. He is certainly very robust, and we trust he has completely recovered from his indisposition. I regret the absence of the Leader of the Opposition, Viscount Cranborne, from this debate, and particularly the circumstances which have caused that absence. After all, in regard to the administration of Colonial affairs, and particularly of Palestine, your Lordships' House is very ripe in experience, in that so many noble Lords have been closely associated with the administration of that not too easy territory. Those of us who have had that experience were brought right up against this very problem, which is not a problem of the last four or five years, but is one of some twenty-seven to thirty years' duration. Indeed, those of us who in that period have had the experience to which I have referred must have wished that the noble Viscount, Lord Samuel, whilst he was charged with the very responsible position of being the first High Commissioner (and he was a very distinguished High Commissioner) had been able to effect a settlement on the lines which he suggested to your Lordships.
  I am not going into the history of the difficulties of Palestine. Indeed, on this point I am not going to enter into any of the controversies about interpreting certain parts of the Mandate. But I should like to mention to your Lordships the experience which I had on taking over the very responsible position of Colonial Secretary—indeed within ten days of doing so—because I was faced at once with this very grave and important problem. I met a very important deputation of the World Jewish Organization, which was then meeting in London, and I was faced with the Biltmore Resolutions which, as the noble Viscount, Lord Samuel, rightly said, had been accepted by the Zionist Organization. I must say that the attitude adopted by the members of the deputation was different from anything which I had ever before experienced. It was not a request for the consideration by His Majesty's Government of the decisions of the Conference, but a demand that His
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  Majesty's Government should do what the Zionist Organization desired them to do.
  When we deal with the Biltmore Resolutions, I think your Lordships should know exactly what they are. In the first place, there was a demand for the immediate admission into Palestine of 100,000 Jews. But that was to be only a first instalment. Indeed, they talked of millions. Let it be said in fairness to the Zionist Organization, which has talked in terms of the entry of millions of Jews into Palestine, that there are other and more responsible people than the World Zionist Organization who have talked in such terms. In addition to the demand for the admission of 100,000 Jews, leading up to millions who were to follow, there was the demand for an immediate declaration by His Majesty's Government that Palestine should become a Jewish State.
  I cannot balance on a tightrope in describing what is to be a Jewish State. The noble Viscount, Lord Samuel, referred to the fact that if there were a majority of Jews in Palestine at any time, that would not make Palestine a Jewish State; nor, indeed, if there were a majority of Arabs—as there are at the present time—would that make it an Arab State. It is a question as to the power to be given into the hands of the persons who will elect the administrative body or organization. We hope—whether Palestine becomes an Arab State or a Jewish State—that whatever system of administration is adopted in Palestine it will be a democratic State. And if adult suffrage is given to the people of that State, then it must mean that the majority of those who are responsible in Palestine, be they Jew or Arab, must have the power to control; and, not only control, but in many cases dominate, the lives of the minority. That is the great problem of Palestine at the present time. The Jews are anxious that immigration shall increase, that there shall be no limit; and the Arabs are equally determined, on the other hand, to ensure that, so far as possible, they will prevent Jewish immigration in any circumstances.
  There is the difficulty. The matter is important, and I am afraid I cannot agree with the noble Viscount, Lord Samuel, in his interpretation of the Mandate. I thought the noble Lord, Lord Hankey, properly dealt with the position. I would like to ask the noble

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  Viscount, because he himself referred to the fact of illegal immigration, although he could not regard it as illegal immigration, whether he means that he supports the method of immigration into Palestine, in the conditions under which immigration is going on at the present time, which is in my opinion a complete violation of the Mandate—and indeed a violation of the laws of Palestine, for which His Majesty's Government have some responsibility? Immigration should be regulated, as the noble Viscount, Lord Swinton, rightly said, in accordance with the absorptive capacity.
  It is true that the Jewish Agency wish to co-operate with the administration in connexion with the degree of immigration. Indeed, if there were any legal flaw in the Mandate, the Jewish Agency would be the body that would be quick to discover it. The Jewish Agency have cooperated with the Mandatory Power in agreeing to the distribution of the certificates under the terms laid down by the Mandate, which is—if I may say so with due respect—an indication that the argument of the noble Viscount, Lord Samuel, is not the true interpretation of what the Mandate means. Indeed it will be remembered that the Peel Commission fixed—or at least recommended—that the number of immigrants should not exceed 1,000 a month or 12,000 a year. That has not been questioned. Indeed, notwithstanding what might be said with regard to the Mandates Commission, to whom the White Paper of 1939 was referred, no member of the Mandates Commission, so far as I know, questioned the legality of the amount of immigration which was fixed even under the White Paper.
  VISCOUNT SAMUEL: If I may interrupt the noble Viscount for a moment, I never suggested that regulation of immigration into Palestine is illegal. Of course it is legal. What I suggested was that to draw a line and say that after a certain date there shall be no immigration might be held to be contrary to the Mandate, its spirit and even its letter.
  VISCOUNT HALL: I understood—and I am within the hearing of your Lordships—that the noble Viscount said he could not describe any immigration into Palestine as illegal.
  VISCOUNT SAMUEL: No, I did not say that. If I said that, I must have made myself badly misunderstood. It must
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  have been my own fault. My whole argument was against the White Paper of 1939—the particular provision that after five years there shall be no more immigration. That, I suggested, could not be regarded as within the Mandate; and therefore, in saying now that they must go to the United Nations to have the future of Palestine determined because they have not got power to decide anything themselves contrary to the Mandate, the Government were thereby condemning not their own present action in fixing this or that number but the action taken by Mr. Malcolm Macdonald and the Government of that day.
  VISCOUNT HALL: I think the noble Viscount himself referred to the numbers which are allowed into Palestine at the present time.
  VISCOUNT SAMUEL: I did not say it was illegal to fix a number; I suggested the number was insufficient.
  VISCOUNT HALL: The noble Viscount did question the number to the extent that he said he could not regard any immigration into Palestine as illegal.
  VISCOUNT SAMUEL: No, I really did not say that. It is impossible for me to say that any restriction of immigration into Palestine is illegal, because for five years I applied that law myself. I am sorry if I misled the noble Viscount, but my observations with regard to illegality were solely directed to the prohibition imposed by the White Paper of 1939, which is the origin of the present trouble.
  VISCOUNT HALL: Does the noble Viscount regard the fixing of the present rate of immigration as being legal?
  VISCOUNT SAMUEL: Yes, it is within rights to fix a figure. I thought myself that the figure was much too low, but I did not say it was illegal to fix that figure. I should like to see a certain number per month, and you, within your discretion, have fixed another number.
  VISCOUNT HALL: If the noble Viscount agrees that the Government, or the administration of Palestine, are quite entitled to fix the numbers which have been fixed, I really cannot understand the noble Viscount's argument with regard to illegal immigration, because the one followed the other. I want to assure the

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  noble Viscount that I would not knowingly endeavour to misconstrue anything he said. I am very pleased he has made the admission which he has made, but I do not know whether he is now of the opinion that immigration into Palestine ought to be continued in the conditions in which it is being continued, because that is the test. I agree with everything the noble Lord, Lord Altrincham, has said in connexion with it. The method adopted by those who are responsible for illegal immigration at the present time is such that it is criminal: three persons to every gross registered ton of shipping; 1,200 persons on a ship of 400 tons gross weight.
  I am pleased the noble Lord, Lord Altrincham, referred to the work which has been done by the Royal Navy. Indeed, had it not been for the work done by the Royal Navy many of the ships which have left various ports—and the ports are not only the French and Italian ports—would never have reached their destination. Had it not been for the fact that they were towed in by the Royal Navy, several ships with thousands of these poor deluded people aboard would have been lost. I do want to utter this warning: that one day, and perhaps soon, one of those ships will be lost at sea. His Majesty's Government will not take any responsibility for the lives which will be sacrificed should such a disaster occur. I think that ought to be made quite clear. I am pleased that the attitude of His Majesty's Government in dealing with this problem has been criticised only to the extent of a slight reference to delay. I think it is agreed that bringing the Government of the United States of America into consultation was the right thing to do.
  I thoroughly enjoyed the speech of the noble Lord, Lord Lloyd. I had the pleasure on a previous occasion of referring to the fact that during my period at the Colonial Office I was very happy in the choice of my chief, the first Lord Lloyd, although I did not regard it as a happy choice when I was offered the appointment. However, I quickly learned to respect his ability, his drive, his vision and his knowledge. I had a very happy nine months. Unfortunately, they were the last nine months of his life, but I shall never forget that association with him. I, too, am pleased that the
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  noble Lord, Lord Lloyd, is following in the footsteps of a very great man.
  The Government's plan for dealing with this matter was the correct one. America was brought in and a Committee of Inquiry was set up. Here I would like to pay a tribute to my noble friend, Lord Morrison, who was a valuable member of that Committee. The Committee's conclusions were not as clear as they might have been, but we were able, after some delay, again to induce the Government of the United States of America to come along and consider the full implications of the Report. What is more important, we reached an agreement, not with the American Government, unfortunately, but with the American representatives who sat upon that Committee, and, indeed, that agreement is the basis of the Bevin Plan with which I am pleased to hear so many of your Lordships agree.
  There is one other point I would like to make in regard to the Conference. That Conference was taken very largely by the Foreign Secretary, and it was taken by him for the reason that it was impossible to induce any of the Jewish representatives to attend, or, indeed, any representatives of the Arabs in Palestine. I do not in any way desire to cast any reflection upon my Jewish friends but the difficulty in dealing with Palestine is to know which of the organizations is the right and proper organization with which to deal. First of all, there is the Jewish Agency, and after the Jewish Agency you have the World Zionist Organization, which itself has a Central Council. You then have several other organizations, but with the exception of the Jewish Agency all the organizations' represent almost the same people. There is the difficulty. I remember the Foreign Secretary and myself coming to an agreement with one of the representatives of two or three of those organizations. We could not get that agreement implemented because it was turned down by another organization.
  I would again like to make this point quite clear, because several suggestions have been made as to plans for the settlement of this dispute. Arabs and Jews were invited to participate in this Conference without in any way committing themselves to the plan which His Majesty's Government said it would support. They were invited to place before the Conference any

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  plan they wished. The Jews could have put forward their plan for partition, for a Jewish State or for anything they liked, in exactly the same way as the Arabs from the Arab States who came along. That was the reason why Mr. Bevin had to spend so much of his time there; the Arab States were outside the administrative functions of the Colonial Office.
  I wish the critics of the Government's policy—and here I am referring to all Governments, I care not of what Party—would give some little thought to what has been done during the time that His Majesty's Government have held the Mandate. Let it be remembered that His Majesty's Government did not ask for the Mandate; they had to take it because no other nation was prepared to receive It was offered to the United States. When the Mandate was taken over by His Majesty's Government, the Jewish population of Palestine was between 80,000 and 90,000, or about one-seventh or one-eighth of the total population.
  What is it at the present time? At the present time it is nearly 700,000, and the major portion or that number—between 400,000 and 450,000—is made up of immigrants. Are any of your Lordships of the opinion that the Arabs themselves would have allowed 450,000 Jewish immigrants into Palestine? I wish those who, not only in this country but in other parts of the world, are criticising the Government would just say a word of appreciation for what has been done. Immigration, after all, is the crux of the problem—and it is the crux of the problem because this is a fight for power. Let there be no mistake about that at all. The Jews know what it means, and so do the Arabs, with the result that the problem has become such that at the moment it seems insoluble. Mr. Bevin, the Foreign Secretary, rightly said that, notwithstanding the fact that it is now agreed that the problem should be submitted to the United Nations, he would not give up any prospect of an earlier settlement if it were possible.
  Several noble Lords have referred to the. fact that we want the closest possible co-operation between Jew and Arab. The noble Lord, Lord Strabolgi, made a very important point in regard to it. We all want that; we all desire it. But we also want those moderate Jews and Arabs to assert themselves—and to assert themselves not only in Palestine. I shall have
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  something to say later about the responsibility of persons outside Palestine, without whose financial assistance Palestine would not be in the condition in which it is the present time. There are open advertisements in the newspapers of the United States of America inviting subscriptions, and indeed t hey are receiving those subscriptions. A report I saw quite recently indicates that already this year a sum between $25,000,000 and $30,000,000 has been received. What for? For the purpose of encouraging illegal immigration, for buying ships and indeed for something more than that—for buying guns. They are openly advocating the supporting of the terrorists who are shooting down British soldiers, who are as innocent as any other peace-loving persons in Palestine.
  The noble Lord, Lord Altrincham, asked if I could indicate what co-operation had been received from the Jewish Agency. I must say that during the last five or six months the Jewish Agency have been much more co-operative than they previously were; they have denounced terrorism and they have taken further steps. It can be said that some of the organizations associated with the Jewish Agency have rendered some assistance, but the trouble is that that assistance is such that it has to he rendered in a way in which they themselves desire. Some co-operation has been received from the Jewish Agency, but it still has a very large armed force which could do very much more.
  LORD STRABOLGI: What does the noble Viscount mean by "armed force"?
  VISCOUNT HALL: The Hagana.
  LORD STRABOLGI: That has been legalized.
  VISCOUNT HALL: I said that they had a very large armed force. I did not suggest it was illegal, although I am not sure that the noble Lord is quite correct about that. Anyhow, I will not question it. But if it has been legalized, then it should be used. It is a very large force, and a force consisting of the Jews themselves, who could, if they so desired, render very valuable service in disclosing who many of the terrorists are, because at one time there was a close association between some members of the Hagana and these terrorist organizations.

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  Then the noble Lord, Lord Altrincham, asked me about the intelligence service. We have an intelligence service which is, in our opinion, doing very useful work, but, as he knows as a result of his long administrative experience, it is impossible to disclose what the work of the organization is. The difficulty in Palestine is that there are people who dress in all kinds of clothes and who seem to be integrated into the population. The Jewish population themselves will not give the information which the population of other civilized countries will give against the law breaker. They do not fully realize the harm the terrorists are doing to their cause, because otherwise they would be very much more forthcoming than they are at the present time.
  The noble Lord also asked about the number of Jews amongst the depressed or dispossessed classes. I am afraid it is almost impossible to give anything like accurate numbers, but from information which I have been able to obtain the number would be from one-sixth to one-seventh of the total—that is, the total number of dispossessed persons. I have seen several figures, and one figure was 142,000 out of about 1,040,000. Other figures I have seen give the number as about 200,000. The difficulty has been not only the dispossessed persons from Germany itself, but the fact that quite a number of persons have been brought from the satellite States into Italy, Austria and Germany. While a certain number have been dealt with, others have come in and have taken their place.
  The noble Lord also asked as to what the position is likely to be when the functions of U.N.R.R.A. cease at the end. of June. His Majesty's Government, together with the Government of the United States of America, have been fully seized of the difficulties which are likely to arise. There are fifteen nations who have come together with a view to undertaking the responsibility of dealing with this problem. I would like to assure the noble Lord that more than two, Great Britain and New Zealand, have paid contributions; but not all have paid their contributions. Indeed, the time has come when I think it has to be recognized that if international organizations are to be set up, nations must realize their full financial responsibility to those organ-
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  izations. I have had some little to do with the setting up of the inter-Governmental Committee on Refugees. Great Britain and the United States of America started off by making a substantial contribution the first year and the second year. No one else paid any contributions for that period, and it is said: "Why does not Britain do this?" Britain can always do it, and while Britain leads in matters of this kind—and we will not take second place to any nation in the world—the responsibility for dealing with these problems must be shared by other nations, not only in attending conferences, but in finding the finance which is necessary for that purpose.
  The noble Lord referred to the scheme in Brazil. Here is a drive by private enterprise, and here is a problem for private enterprise. I would that he, or someone like him, could suggest a person who would undertake to deal with this problem. What a triumph for private enterprise that would be! But I am afraid it will be the British Government who will have more to do with that than any other nation. I was asked as to what Britain has done with regard to the intake of some of those unfortunate persons from Germany. Well, we have taken in 70,000—
  LORD ALTRINCHAM: Since the war?
  VISCOUNT HALL: Not since the war, because of the difficulty of getting them out. I think the 70,000 would cover a period from about 1934.
  LORD ALTRINCHAM: How many since the war?
  VISCOUNT HALL: I could not tell you. I saw a figure contained in a report—and I do not want to be tied too closely to this—which stated that the number of Jews in this country was 350,000, and 50,000 of those are refugees. The latest figures I have had shows the 70,000 and covers the period to which I have referred.
  Then the noble Lord asked what had been done with regard to bringing in relatives of Jews who have already settled in this country. The Home Secretary made an announcement in another place some time ago, in which he referred to the fact that where there were close relatives it would be possible for them to be brought into this country. I understand that a considerable number have already been brought in, and I have no doubt that the noble Lord has seen that we are beginning

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  to bring in quite a number of persons from Central Europe into this country. A start was made about a fortnight ago, and I understand that that is going to continue for some time.
  I think I can dispose of most of the other questions, or some of them, by referring to the position with regard to the reference to U.N.O. In accordance with the decision to refer the Palestine question to the 'United Nations, His Majesty's Government requested the Secretary-General on April 2, 1947, to place the Palestine issue on the agenda of the General Assembly at the next Regular Session. They would then invite the Assembly to make recommendations, under Article to of the Charter, concerning the future government of Palestine. In the same communication, His Majesty's Government drew the attention of the Secretary-General to the desirability of an early settlement in Palestine; and to the risk that the General Assembly might not be able to decide upon its recommendations at the regular 1947 Session unless some preliminary study of the question had been made under the auspices of the United Nations. They therefore asked that a special session of the Assembly should be convened as soon as possible for the purpose of constituting and instructing a special Committee of the Assembly to prepare the question for the consideration of the regular September Assembly. This proposal for a special session was approved by a majority of the member States, and the Secretary-General has convened it for next Monday, April 28.
  I think it can be said that the Secretary-General has acted with expedition in connexion with this matter. The British representative at the session will be Sir Alexander Cadogan who, since taking up his duty with United Nations, has represented the British case when called upon to do so with the clarity, vigour and courtesy, which was expected of him. He will be assisted by advisers from the Foreign Office and from the Colonial Office. It' is expected that at the special session the General Assembly will confine itself to appointing a fact-finding Committee which can study the problem and make a report to the regular General Assembly in September. His Majesty's Government earnestly hope that some. final solution of the problem in Palestine will be arrived at in the course of the September Assembly.
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  I want to assure noble Lords that His Majesty's Government are quite aware of the need for speed in connexion with this matter. An aspect of the Government's policy which has been criticized in some places is the decision to go before the United Nations without making arty recommendation to them. But, after all, the number of possible solutions for Palestine is limited, and the Assembly will be familiar with them at least in their broad principles. We do not wish to narrow down the Assembly's discussions to arguments for or against particular proposals put forward by His Majesty's Government, nor do we think there is any advantage, from the clearly British point of view, in submitting proposals to the General Assembly. We do not think an attempt should be made to determine the choice between the various possible settlements by a consideration of British interests; and so far as Arab and Jewish interests are concerned we think that the United Nations should be free to choose between them or to frame whatever plans they deem most just and reasonable. Our interest in the matter is that there should be a settlement which will contribute to peace and stability in the Middle East and which will enable the inhabitants in Palestine to look forward to a brighter and less troubled future.
  LORD STRABOLGI: May I ask the noble Viscount a question about the fact-finding Commission? I do not expect him to answer it if it is not convenient. This fact-finding Commission is to report. It is not proposed surely that it should go to Palestine and take evidence. It will surely examine the written evidence which exists in such abundance. Secondly, having done that, is it proposed it should put forward proposals or just generally report?
  VISCOUNT HALL: I should think, having some experience of conferences, that it would be largely for the Conference to decide. First of all, it has to decide whether a fact-finding Committee should be appointed, and, if so, then possibly it could lay down its terms of reference. I cannot imagine a committee of this kind not asking for certain information from His Majesty's Government which I have no doubt His Majesty's Government would readily render if invited to do so. Before I conclude I should like to say something about the present situation in

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  Palestine. The noble Lord, Lord Altrincham, asked what co-operation against the terrorists the Palestine administration has received. We can pass that over. As was expected, there have been further outrages following the execution of four Jewish terrorists on April 15, notwithstanding the most stringent security precautions enforced by the civil and military authorities. These precautions have necessarily reduced the scope of normal Government activity, but in many districts there has been little interference with the activities of Government Departments and at no time has the civilian administration ceased to function. All practical measures will continue to be taken to safeguard life and property.
  In answering a question before the debate took place I have already given the numbers of British Servicemen, Police and civilians killed by terrorists since August, 1945. I would like to express on my own behalf and, I am sure, on behalf of your Lordships' House, our abhorence—shared I know by everyone in this country—at this appalling loss of life of innocent men murdered in the course of duty when carrying out a policy of administration which, after all, has brought considerable benefit to the people of Palestine. But for British help the number of Jews there would be far fewer than they are at present. Indeed I might go so far as to say that there would be little semblance of a Jewish National Home in Palestine to-day had it not been for Britain. There can be few instances in history in which less appreciation of help received has been shown by some branches of Jewry, or indeed in which acts of terrorism have been perpetrated on those very persons whose endeavour has been to hold the balance evenly between conflicting claims and to carry out responsibilities
  under an international instrument approved by the majority of the nations of the world. The terrorists in Palestine are not alone in bearing heavy responsibility for these murders. Those who by their action and finance support the terrorists are equally culpable for the wicked loss of British lives. Only this very morning we read in our newspapers of another outrage as dastardly and criminal as any which has blackened the worst records of terrorism.
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  There can, however, as your Lordships know, be no real solution of the problem of terrorism in Palestine until a political decision has been taken on the future of that country. That decision now rests with the United Nations and, as I have said, the Government are doing everything in their power to expedite consideration of the problem. Pending the political decision it is the duty of the Palestine administration to maintain the status quo, and they are striving to carry out their duty in circumstances of such difficulty as rarely if ever have confronted the administration of any country. It should be made fully clear that any attempt in the meantime to change the status quo by resort to violence is a direct affront to the United Nations. Whatever the outcome of the discussions of the United Nations, I have no hesitation in affirming that this country has already rendered considerable and impartial service to the inhabitants of Palestine, Arab and Jew alike, which deserves the highest praise. In conclusion, I should like to pay a tribute especially to noble Lords of the Opposition for their helpful attitude, not only throughout this debate but during the last eighteen months or two years, in which no consideration of Party advantage has been permitted to intrude into discussions which have at all times been maintained at the high level of statesmanship customarily associated with this House.
  LORD LLOYD: If the noble Lord will forgive me, I have just one question. No statement was made upon it in another place, and I did mention it in my speech this afternoon. It is the question as to whether or not this country will be free to take such action as it chooses, in the event of a decision being taken by the United Nations which we could not carry out because we disapproved of it.
  VISCOUNT HALL: I cannot imagine His Majesty's Government carrying out a policy of which it does not approve. In the terms of a well known Parliamentarian I would advise the noble Lord to "Wait and see."
  LORD ALTRINCHANI: At this late hour I do not propose to offer any comment on the noble Viscount's reply except to thank him for its fullness. We were most grateful for the information he gave us. There is only one point to which I would like to refer. The Home Secretary

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  made a statement about the reception of Jewish relatives into this country. I understand there are still considerable difficulties. I would be grateful if His Majesty's Government would look into that matter and see if certain unnecessary hardships are not still being inflicted. Apart from that, once again I thank him for the fullness of his reply, and I congratulate him and His Majesty's Government on the tone and spirit of that reply. I would also like to express my acknowledgments to the noble Viscount for his kind references to me personally. I now beg leave to withdraw my Motion.
  Motion for Papers, by leave, withdrawn.

  LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [PETI TION FOR ADDITIONAL PROVI SION]:
    LONDON AND NORTH EASTERN RAILWAY BILL [PETITION FOR ADDITIONAL PROVISION].
    Examiners' Certificates of non-compliance with the Standing Orders referred to the Standing Orders Committee on Tuesday next.
  NAZEING WOOD OR PARK BILL. [H.L.]
  The Order made on March 18 last, appointing certain Lords a Select Committee to consider the Bill, discharged.

  SUNDAY ENTERTAINMENTS ACT, 1932.
  Orders made by the Secretary of State for the Home Department extending Section I of the Act to the

  City of Plymouth;

  Urban District of Leighton Buzzard;

  Rural District of Easthampstead;

  Rural District of Midhurst:

  Laid before the House (pursuant to Act) for affirmative Resolution, and ordered to lie on the Table.

  BROADCAST BY MR. HENRY WALLACE.
  THE EARL OF MANSFIELD THE EARL OF MANSFIELD asked His Majesty's Government whether they are
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  aware, that on Sunday, April 13, after the 9 p.m. news, a broadcast was made by a subject of the United States of America, by name Wallace, which contained direct criticisms of the present foreign policy of the United States; and if they will represent to the British Broadcasting Corporation that it is both undesirable and improper that official facilities should be given to a foreign national to launch attacks, while on British soil, upon the Government of his own country, particularly when that country is an Ally, and benefactor, of our own.
  THE SECRETARY or STATE FOR INDIA AND BURMA (THE EARL OF LISTOWEL): His Majesty's Government are aware that Mr. Henry Wallace made a broadcast in the B.B.C.'s Home Programme after the 9 p.m. News on April 13. The B.B.C. invited Mr. Wallace, as a distinguished international figure, to give his views as a private citizen about world affairs, and the question of granting Mr. Wallace official facilities did not arise. It has been the policy of successive Governments to afford the B.B.C. independence in the choice of their programmes and the material which they contain. The present Government are continuing that policy and do not propose to intervene.

  MINERS' HOUSES.
  THE EARL OF MANSFIELD THE EARL OF MANSFIELD asked His Majesty's Government whether the tenancy of dwelling-houses which have passed from the ownership of colliery companies to that of the State, is still dependent upon occupation; and whether a man who ceases to be employed in coal-mining, either through retirement, or change of occupation, is liable to eviction by the Coal Board.
  LORD CHORLEY: Dwelling-houses which have been taken over by the National Coal Board from colliery companies will, no doubt, continue to be occupied by the employees of the Board on the same terms as before. It is usually a condition that a workman who obtains a colliery house must vacate it on termination of colliery employment.
  House adjourned at twenty minutes before seven o'clock.