House Of Commons
Monday, 7th April, 1941.
Emergency Powers (Defence) Acts, 1939 And 1940
The VICE-CHAMBERLAIN OF THE HOUSEHOLD (Major Sir JAMES EDMONDSON) reported His Majesty's Answer to the Address, as followeth:
I have received your Address praying that the Order-in-Council dated 28th February, 1941, made under the Emergency Powers (Defence) Acts, 1939 and 1940, amending Regulation 42B of, and adding Regulation 42Ba to the Defence (General) Regulations, 1939. be annulled.
I shall give directions in accordance with your Address.
Great Western Railway (Superannuation Fund) Bill
Southern Railway (Superannuation Fund) Bill
As amended, considered; to be read the Third time.
Business Of The House
''That the Proceedings on Government Business be exempted at this day's Sitting from the provisions of the Standing Order (Sittings of the House)." —[Mr Attle.]
Orders Of The Day
Ways And Means
Considered in Committee.
[SIR DENNIS HERBERT in the Chair]
It has been the practice for many years for the Chancellor of the Exchequer, in introducing his Budget, first to make to the Committee a careful and detailed statement and examination of the expenditure and revenue of the past year. I propose in these days, when there are so many more important material matters to be discussed, to refer a little later only to some of the more salient features of the year. All the details will be found, as usual, in the White Paper.But I think it will be of greater service first to take a wider survey of our financial and economic policy in relation to the war and to indicate some of the major problems with which we have to continue to deal. Later I shall make certain proposals which, I believe, will not only enable us to surmount our immediate difficulties but also, I hope, ensure that we continue to maintain our national finances on sound lines and that we are able, when the time comes, to pursue post-war measures of reconstruction and social advance which we all desire to see achieved. The financial front since the beginning of the war has stood firm and strong. A very important section of that front is what I would call its international section. At the outset of the war we took immediate steps to mobilise our resources of international purchasing power. United States and other foreign securities held by British residents were registered and thereafter gradually requisitioned. Foreign exchange dealings were controlled, and an effective system of exchange control was gradually evolved. At the same time steps were taken to maintain and stimulate our exports in face of the difficulties arising from war conditions, while non-essential imports were drastically cut down. The object of these various measures was to husband our reserves of international purchasing power and to ensure that they were only used for essential war purposes, and they have certainly been successful. In this vital section we have gone far beyond anything that we attempted in the last war, and events have shown how necessary it was to take these measures. The greater mechanisation of modern warfare made it necessary for us to import war materials and supplies on a large scale from overseas, a scale which was greatly increased by the events of last summer, culminating in the collapse of France. This has meant a very heavy drain upon our resources of gold and dollars, but our system of exchange control and the mobilisation of dollar securities have enabled us to meet that drain, and we now have the assurance, by reason of the great contribution that America is making through the Lease and Lend Act, that no difficulty in financing purchases from the United States will hamper the full development of our fighting strength. These measures of exchange control in the international sphere have been accompanied on the home section of the financial front by the control of capital issues in the domestic market so designed as to secure that funds available for investment should be directed in general into the various Government issues. This control, administered by the Treasury, acting on the advice of the Capital Issues Committee, which has worked efficiently and unsparingly under the chairmanship of Lord Kennet, has been of great value in securing the best possible conditions for the success of Government loans. These measures have combined to make it possible for us to borrow at what, by the standards of any previous war, is a very low rate of interest. In 1916 we were paying 5 per cent. as a general minimum, and by July of that year even Treasury bills reached 6 per cent. What is the position to-day? Since our short-term borrowing is costing 1⅛per cent. or less, the average rate payable is below 2 per cent. All this means that the gross cost to the taxpayer of borrowing a given sum has been about a third of what it was in the last war. We have no intention of borrowing on worse terms as the war proceeds; we shall hope to improve upon them. By all these means it is evident that the aggravation of our post-war financial problems by the burden of war debt, though it is bound to be grievous, will be correspondingly less. We should also avoid the evils incurred after 1918 of starting the period of post-war expansion and recovery with a rate of interest which in the long run was so embarrassing and even crushing to the borrower. For instance, our housing problem after the last war was intensified by the burdensome cost of interest when even local authorities had to pay 6 per cent. Some are only now escaping from it, and it is a testimony to our sound finance that I have recently been able to give our authorities with repayable loans the opportunity to convert on very favourable terms. In rebuilding our cities after the war the maintenance of a low rate of interest will do much to ease the financial problem. There is one other matter to which I would refer. It is one that is particularly apparent to everyone who remembers the conditions of the last war. One of the most unfortunate features of that war was the exorbitant level of profit that prevailed in many industries. It gave rise to the term "profiteer," and it was an ugly paradox that many individuals then succeeded in making large fortunes from conditions which meant death and injury and suffering to millions of their fellow countrymen. There is nothing like such conditions to-day. In this war we have taken many steps to eliminate war fortunes, with the approval of every section of the community. I have given an indication of some of the satisfactory features of the present financial situation, but it is plain that we have many difficulties and problems inherent in the most expensive war in history. Many of them cannot be solved by purely financial means. There can be no single approach to the problems of a total war economy. We must attack them, as we are doing, on many other fronts; for example, by rationing, by price control, by raw materials control, by the Prices of Goods Act, by the direction of labour, by the requisitioning of factories and warehouses, by the Limitation of Supplies Orders and by the concentration of industry. The financial front has its vital part to play, too. It would be a great mistake to suppose that the only object of paying taxes during the war is to hold in check the increase of debt with an eye to easier Budgets in future years. Behind that purely financial purpose lie wider economic purposes that are directly relevant to the conduct of the war. We have to concentrate upon the war effort as large a part as possible of our productive resources and, at the same time, satisfy the essential needs of the civilian population and maintain an adequate export trade. We have to avoid a vicious spiral of rising costs and prices affecting most gravely the least fortunate members of the community which, if it went far enough, would undermine our stability and seriously impair our strength for war. The huge sums which the Government is expending at home on the conduct of the war have generated a corresponding amount of purchasing power in the hands of the public to which we cannot be indifferent. If it were all to be used to purchase whatever goods are obtainable in the shops, it would overcome and sweep away all the obstacles set up and the precautions taken against a rise in prices, just as a torrent will sweep away a dam if it develops sufficient force. The danger which we have to control, and which we intend to control, is that of being flooded out by the torrent of an excess of purchasing power fed by the springs of war-time Government expenditure. To avert that menace, it is vital for us to possess a stout and well-constructed dam. That is the object of our system of food and industrial controls, of our systems of price control, rationing and the like. But we also have to abate the force of the torrent. That is the function of finance. Because we cannot expect to defray the whole of our war-time expenditure by current taxation, we must not for a moment imagine that it does not matter whether that part we defray is large or small or that the actual raising of taxation itself has for its sole object the raising of a certain sum of money. The solution of the problem to which I have referred would be impossible unless it was eased by the withholding of a substantial part of the surplus purchasing power through the instrument of taxation.
Review Of 1940–41
With that general background in our minds, the Committee will perhaps allow me to pass fairly rapidly in review certain features of expenditure and revenue in the past financial year. On the expenditure side, the important point to note is that expenditure out of the Vote of Credit much exceeded the figure of £2,800,000,000, assumed in my Budget of July, 1940. It amounted to £3,220,000,000, against the £3,300,000,000 ultimately voted. The total expenditure for the year amounted to £3,884,000,000.
On the revenue side, it will be remembered that the original total estimate of £1,234,000,000 was increased in the July Budget to £1,360,000,000. In the result, that increased figure was exceeded by some £49,000,000. The Inland Revenue Duties at £792,000,000 provided £22,000,000 of the excess. Of the total sum collected, Income Tax accounted for £524,000,000, which was £13,000,000 in excess of the estimate. In making his Financial Statement last year, my predecessor drew attention to the fact that the amount of Income Tax collected in 1939–40, £390,000,000, constituted a record. That record figure has now been dwarfed by the amount of Income Tax collected last year, and this magnificent result was achieved notwithstanding postponement until the present year of a part of the tax which is now being deducted from salaries and wages. My thanks, and the thanks of the whole nation, are due to those taxpayers who, notwithstanding the many other pressing calls upon their purses, have responded so readily to my appeal for prompt payment of tax.
I should like at this point to refer briefly to the scheme for deducting Income Tax from salaries and wages which was introduced last year. That scheme is now working smoothly, and instead of having to find a large sum of money every six months the great majority of taxpayers, over 4,000,000, now have their tax deducted from their pay week by week or month by month. The successful launching of this scheme is due in a large measure to the readiness with which employers, both large and small, have co-operated with the Income Tax authorities. I am glad to take this opportunity of thanking them for their invaluable assistance in carrying through this important reform.
So far as the taxpayer is concerned, the deductions have been made with few complaints. In recent weeks an unofficial inquiry was made in a certain area as to how this new scheme was working. Four-fifths of those concerned definitely favoured the new method. I should like to quote some of the actual comments made on the new system, some from the men and some from the wives: "Well, you are sort of paying for the war as you go"; "A very good idea"; "What you don't have, you don't miss"; "He doesn't mind it"; "He did mind at first, but he has got used to it"; "It isn't what you feel, but what you have got to do." This shows how the Englishman has a genius for co-operating with the tax collector. In fact, a first-class revolution in our fiscal system has happened, though silently, in the past year.
The yield of National Defence Contribution and Excess Profits Tax exceeded the estimate of £70,000,000 by no less than £26,000,000. The collection of the newly-imposed Excess Profits Tax had hardly begun a year ago, the amount collected in 1939–40 being only £40,000, and the amount collected in 1940–41 depended very largely upon the speed at which the assessments were agreed and the tax paid over. The large surplus is due mainly to the public-spirited manner in which many firms and companies have paid over the estimated tax due from them without waiting for the figures to be finally agreed. On the other hand, Estate Duties and Stamps each yielded £5,000,000 less than the estimate.
Customs and Excise exceeded the July estimate by £6,000,000, although the final yield was the result of large surpluses and deficits. Despite the further increases of duty on beer and tobacco last July those twin pillars of the Budget yielded £25,500,000 and £15,500,000 more than their respective estimates. On the other hand, the course of the war on the Continent during the year lost much revenue which depends upon trade. Thus, the duties under the Import Duties Act and Ottawa Agreements Act were £20,500,000 short of the estimate, and there were deficiencies of £3,000,000 and £2,000,000 on matches and silk respectively.
The Purchase Tax yielded some £26,000,000. The tax was three weeks late in coming into operation, there have been certain restrictions on supplies, and the original estimate has also been affected by enemy operations. Its administration has worked quite smoothly. The registration of 40,000 traders was completed quickly, and the machinery of accounts has worked well. Nearly 60 per cent. of all returns due on 10th March were received within 10 days of that date. The fact that this scheme has been successfully established in this way has been largely due to the traders. I would not pretend that they like this tax, any more than any of us like taxation, but they took the common-sense view that as the money was wanted for the war, and as they were expected to administer and collect the tax, they should do it to the best of their ability, which they have done to the advantage of the revenue and the country.
Other sources of revenue produced £88,000,000, against an estimate of £68,000,000, £3,000,000 of the excess being attributable to the Motor Vehicle Duties and £13,000,000 to the very large number of free gifts to the Exchequer. This total excludes generous contributions sent direct to my right hon. Friend the Minister of Aircraft Production towards the cost of aircraft. The steady flow of such gifts, both large and small, is a constant source of pride and gratification, and I am sure the nation will wish me to express its thanks again to all those at home and overseas who have helped us in such a spirit of patriotic self-denial.
It will be seen that towards the total expenditure of £3,884,000,000 we have received a total revenueof£1,409,000,000, which left a deficiency of £2,475,000,000 which had to be met by other means.
The last figure brings me to the changes in the National Debt during the year. In addition to covering the deficit, we also had to borrow, among other purposes, to provide £104,000,000 to pay off in July last those holders of the 4½per cent. Conversion Loan who did not convert their holdings, and £100,000,000 to repay the 1 per cent. Treasury bonds, which fell due on 1st February, 1941. The sum of £17,000,000 was issued for Sinking Funds; and, striking a balance between all borrowings and repayments, a net sum of £2,462,000,000 was borrowed during the year.
Our borrowings took a variety of forms: £203,000,000 was received from the remaining instalment of the 3 per cent. War Loan, 1955–59; £360,000,000 was raised by National Savings Certificates and Defence Bonds; £592,000,000 was raised by National War Bonds, £89,000,000 by Savings Bonds, £430,000,000 by Treasury deposits by the banks, £894,000,000 by Treasury Bills, and Ways and Means advances; £75,000,000 of National Defence Loan, 1954–58, was issued to the National Debt Commissioners as an investment for Savings Bank funds. The balance of our borrowings included £28,500,000 in loans free of interest and £2,750,000 from the proceeds of Ulster Savings Certificates.
The New Financial White Paper
All this does not, I feel, give a complete picture to enable Parliament to form a constructive judgment of our position and of our financial policy. I would prefer to examine in broad outline the whole financial problem which we have been meeting during the first 18 months of the war. This necessarily takes me to a discussion of what has begun to be called the "gap," though that is a portmanteau expression which bears a variety of interpretations, some mutually contradictory and many not more than partially true. There is, I think, another ambiguity also. In the public discussion of this question, some people would say that there is a gap to-day, and others would say only that there is a gap yawning ahead of us in the future. It is the first of these questions with which I am dealing now; I shall come to the second later in my speech. What is of the first importance is the avoidance of any inflationary gap, by which I mean any inedaquacy in our financial measures below what is required to enable us to avoid serious and continuing inflation.
The very fact of war means some rise in costs, through the difficulties in transport and the handicaps which war imposes upon the ordinary functioning of trade and industry. The Budgetary task is to control and to limit any upward movement, due not to those unavoidable causes, but to the pressure of purchasing power on available supplies, and to effect this by measures which, in themselves, may seem hard and severe but which do, in fact, bring benefit, because they avoid for the mass of our people the evil effects, the indiscriminate injustices and the catastrophic burdens imposed by unchecked inflation. To establish the character of the inflationary gap is a necessary preliminary to the determination of the extent to which financial policy, when coupled with the action which has already been taken in financial and other spheres, has helped and can help to deal with the problem. The first step must be to disabuse our minds of any misconceptions there may be about the size of the gap.
In their crudest form such misconceptions relate the gap to the difference between the revenue and the Budgetary total of expenditure, foreign as well as domestic. Without denying that this gap between revenue and expenditure is of importance, if only because it increases the National Debt, it is desirable to remove any lingering doubts that may still exist in any minds on the exact relationship between this gap and the danger of inflation. First of all, I would make two observations of a general character. To begin with, let me emphasise the vital distinction, in relation to inflation, between expenditure at home and expenditure overseas. Even if one leaves on one side at the moment the new factor introduced by American assistance in the form afforded by the Lease and Lend Act, I think the Committee will readily appreciate the distinction which must be made.
When we buy munitions of war or other goods in the United States and pay for them in gold and securities, it is true, in general, to say that such transactions do not affect the likelihood or unlikelihood of inflation here at home. In war, even more than in time of peace, we are bound to have a heavy adverse balance of trade with the United States. But for the new form of assistance now to be given, the normal expectation must be that the adverse balance will be met by drawings on our national capital, either by sale of gold or by sale of American securities and investments owned by British subjects or by British companies. The sale of gold, followed by its translation, first into dollars and subsequently into American goods for our war effort, involves on this side of the Atlantic entries in the accounts which are countervailing in character and are not inflationary. Where the dollars are produced by the sale of investments, the process is not quite so simple. In so far as the former British owners of the investments receive payment from the British Exchequer in sterling, it might be suggested that here, at any rate, there was some theoretical danger that such an increase of domestic purchasing power would be of an inflationary character. In practice, however, it will no doubt be agreed that such payments are normally treated as being of a capital nature, available in this country for investment. With our war-time controls that means, in effect, that they mainly return in one form or another to the Exchequer.
Expenditure abroad has been financed hitherto, in the last resort, either by the sale of capital assets in one form or another in the way I have explained, or by the accumulation of sterling balances, held in London by the Dominions and India and mainly available to be lent back to the Exchequer. It must be excluded from the debit side of the national accounts when one is assessing the size of the inflationary gap. It is the balance, that has to be financed by domestic loans or taxation, which counts and, despite a slight inaccuracy of phrasing, I shall, for brevity, call this balance domestic expenditure. It is a travesty of the truth to take for such purposes the ordinary total of Budgetary expenditure, foreign and domestic, and set against such a gigantic total the much smaller contributions derived from purely domestic loans and taxation.
That brings me to my second general observation. The inflationary gap is not to be measured by the difference between the total even of domestic expenditure and the produce of taxation. Borrowing as such is neither necessarily nor normally inflationary. In the first 18 months of war Government expenditure was roughly £4,650,000,000. Taxation met roughly £2,000,000,000, and overseas resources met roughly £1,000,000,000. This left a balance of roughly £1,650,000,000. To cover this balance, we had the benefit of substantial current receipts of certain extra-Budgetary funds, mainly the accumulation of the Unemployment Fund and of the Government Insurance Schemes. Secondly, we had the advantage of certain very material sums becoming available for investment because the sums normally set aside by firms and companies to make good depreciation, repairs and renewals of buildings and plant much exceeded the actual making good which was possible at the time. Finally, and most important of all, we have had the new savings obtained by the National Savings Movement, and by other opportunities for investment afforded by the Government. All these are contribu- tions towards the solution of the real inflationary problem and genuine savings of the kind which I have described are just as properly inscribed on the credit side of the account as the proceeds of taxation itself. The national accounts will always balance, and it is only in so far as they are balanced otherwise than by the results of taxation, plus other Exchequer aids and resources, plus genuine savings, that the danger of inflation will arise.
I myself do not believe that it has been sufficiently realised how great a part of total Government expenditure not met by taxation is covered by overseas resources and by Exchequer aids, which may almost be described as automatic in the unusual conditions of war. Judging, as I think a man must judge, by the general signs around me, I do not believe that up to this point the increases of taxation, which all will admit have been very severe, have fallen short of the necessities of the case. I perhaps might mention that, excluding Excess Profits Tax and Excess Profits Duty, the increases in the taxation imposed since 3rd September, 1939, alone equal the total produce of all taxes in 1918, the last year of the last war.
Nor do I believe that the difference between total expenditure and Budget revenue has so far introduced inflationary dangers into our system. As I have said, I am coming to the future in a few moments, but, so far as concerns the past and the present, my judgment seems to be fortified by the results of a number of difficult and complicated statistical calculations which have been made available for my consideration. This material consists in part of an attempt made by the Treasury to analyse statistically the sources of war finance and in part of tables of national income and expenditure, which are the very valuable first fruits of our new Central Statistical Office set up by the Prime Minister, an office which now assembles for the information of the War Cabinet and Government Departments regular series of statistics which, though many of them are of necessity secret, are more conclusive than those which we have hitherto possessed. I have decided, after a good deal of consideration, to present to the Committee the statistical analysis to which I have just referred, and it will be available at the end of my speech as a White Paper additional to the ordinary Financial Statement which is published at this moment every year, and I hope that the Committee will welcome this new departure. It may seem strange that we should publish in time of war fuller information than in time of peace, but for one thing our tasks require a more comprehensive knowledge, and secondly we do know more because a much larger part of the national economic life falls within the purview of Government Departments. In this connection I must guard myself on two points. First, my hon. Friends will understand that an estimate of this character is very technical and presents an unfamiliar appearance. Secondly, while I have thought it right to publish this paper as an additional source of study for those in particular who make a special study of national finance, the publication must not be looked upon as one of a new annual series. Successive publications of similar material would raise questions of high national importance which would have to be carefully weighed before publication could be decided upon.
Prospect For 1941–42
Now it is time for me to turn to the future. In estimating total expenditure, not only am I faced with the difficulties of looking so far ahead as 12 months, but also there is this year the most important factor introduced by the United States Lease and Lend Act. The estimate which I put forward at this juncture will exclude the values of supplies to be received under the Lease and Lend Act and also payments to be made in the United States of America under existing orders there. As the Committee knows, the Budget is always framed on a strictly cash basis, and it follows that I need make no provision for goods received without payment under the Lease and Lend Act. Payments in the United States under existing commitments will not, as I have already explained, affect the main question of the moment, that of the potential inflationary gap. But in case there should be any misconception about the magnitude of our war effort, I should like to emphasise at the outset that the figures which I shall quote are not comparable with those figures of total expenditure which have previously appeared in Budget statements and in the national accounts. They must not be compared, for example, with the total expenditure of £3,884,000,000 in 1940–41.
The Committee will, I am sure, appreciate that I cannot to-day give an estimate of the value of supplies to be received from the United States in the coming year. I will, however, say that the figures which I shall give to the Committee are comparable with a total of Government expenditure under all heads, that is, including for this purpose the value of any supplies that may be provided by Lease and Lend assistance and the amount of payments in the United States under existing orders, which before the end of the financial year will be far beyond the figure of £5,000,000,000 which I have seen mentioned in various quarters.
The principal item in my calculation must be the total to be adopted for the Vote of Credit. This is always a difficult question, but with the exclusion of the items which I have mentioned I propose to assume, for the purposes of this Budget, that the Vote of Credit expenditure during the year will amount to £3,500,000,000. The estimate to which I have referred, I may say, is on the assumption that there will be no further increase in domestic costs, for reasons which I will give later.
The total of the Civil Supply Services is already known at £435,000,000. As regards the Fixed Debt Charge, I propose to put the charge for the current year at £255,000,000. I think that will cover all the interest we shall have to pay, and may provide a margin for the Contractual Sinking Funds, but as in previous years 1 propose to take power to borrow for those Funds such sums as may be necessary. With £17,000,000 for other Consolidated Fund services, I arrive at the total of £4,207,000,000, which will be found in the White Paper.
I have already explained that the estimate for the Vote of Credit excludes supplies from, and payments in, the United States. To arrive at the true figure for domestic expenditure, further deductions must be made from the total of £4,207,000,000 which I have given; in particular the expenditure total includes expenditure covered by the growing balances of the Dominions and other countries. After careful examination of all the relevant factors I have come to the conclusion that the figure for domestic expenditure should be put at about £3,700,000,000, as compared with the corresponding figure of £2,055,000,000 for such expenditure in the first year of the war, and an annual rate of £3,190,000,000 in the first half of the second year of the war. This further increase, excluding as it does expenditure covered by external resources, is of a striking character, and is tangible evidence of the continued expansion of our war effort.
I would venture here again to repeat what I have so often said in this House as to how imperative it is that the huge sums we are raising, and others we shall have to raise, should be wisely spent, and that everyone should combine to prevent extravagance and waste. The importance of getting proper value for money was never so vital, and when so many heavy burdens have to be borne, it would be little less than criminal that they should be increased by extravagance and waste. I would like once more to pay tribute to the invaluable work of the Select Committee under the chairmanship of my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) and to assure the Committee that the Treasury is ever mindful of the need for unremitting vigilance in this matter.
Estimated Revenue, 1941–42
Let me now turn to the revenue side of the accounts. As regards Inland Revenue Duties, on the basis of the existing rates of tax I assume that the yield of Income Tax will be £605,000,000 in the current year. This is an increase of £81,000,000 over the past year, and is due mainly to the effect in a full year of the increased taxation imposed by the second Finance Act of last year. Some part of of the increase, however, is due to the increased wages being earned by workers in war industries since the national call for longer hours and special efforts after the fall of France last year. In computing the estimate, I had the advantage of receiving from traders forecasts of their profits for assessment in the coming year. As in past years, these forecasts have been very useful, and I am very grateful for this valuable assistance.
The effect in a full year of the increased rates of Surtax brought into force last year should result in an increase in the Surtax payable in the current year, and I accordingly put the estimate at £80,000,000. I place the estimate for Death Duties at £82,000,000, and that for Stamp Duties at the same figure as for last year, namely, £14,000,000. The assessment and collection of Excess Profits Tax at the 100 per cent. rate are now in full operation, and I estimate the yield of this tax, together with that of the National Defence Contribution, at £210,000,000. Other Inland Revenue Duties are put at £1,000,000. Thus the total estimate for the Inland Revenue Duties on the existing basis of taxation is £992,000,000.
For Customs and Excise, I am putting the estimate for 1941–42 at current rates of duty at £578,000,000, which is £49,000,000 more than the actual revenue of 1940–41, though considerably less than I should have expected if I could simply take last year's duties on a full year's basis. The Committee will appreciate, however, that Customs and Excise Duties are especially affected by the various controls and restrictions on public demand.
I do not want to spend time discussing each item in detail, but perhaps I may illustrate my point about the damping effect of these controls on my revenue by reminding the Committee that in consequence of the Government restriction on distillation the supply of whisky to the home trade has been cut by the distillers to 65 per cent. of pre-war, as against 80 per cent. last year; that tea and sugar are strictly rationed; that the supply of un-manufactured tobacco for use in the home trade has been curtailed; and that imports of matches have practically ceased and that the home supply is controlled. For these and similar reasons, the detailed estimates of revenue for Customs and Excise for 1941–42 are either lower than the revenue actually received last year, or show smaller rises than a full year's operation at current duties would otherwise have indicated.
The only other detailed estimate that I propose to mention is that for Purchase Tax. During the opening phase of the tax the shops were more or less stocked with pre-tax goods, and no doubt consumers likewise had anticipated the tax in many directions; so last year's revenue could not be regarded as adequately representing the flow of revenue after the tax had become fully productive. A full year's revenue would, therefore, in normal conditions, be expected substantially to exceed three times last year's receipts of £26,000,000. But conditions are not by any means normal. Apart from such disturbing effects as war has had on retail trade, the revenue here, too, is affected by yet another control, the Board of Trade Limitation of Supplies. In the circumstances, I think that this year's estimate for Purchase Tax should be put at £70,000,000. The Committee will find further details of the Estimates in the White Paper.
For the rest of the Revenue I put Motor Vehicle Duties at £39,000,000, Post Office net receipts at £3,250,000, and other items at £23,750,000, making £66,000,000 in all. The total estimated revenue for 1941, on the existing basis, is, therefore, £1,636,000,000.
In the estimates of revenue that I have just given, I have not included anything from the contributions and premiums payable under the War Damage Act. I propose, for this year at any rate, that out of receipts from those sources an amount equal to the expenditure on war damage during the year shall be taken in as revenue, and any balance, whilst still taken into the Exchequer, will be accounted for outside the Budget. The expenditure will be met out of the Vote of Credit, and in view of the difficulty of estimating the amount, as well as that of some of the receipts under the Act, I think the arrangement I have suggested would be most convenient.
Before I deal with the major financial problems of the year, there are certain miscellaneous matters of which it would be convenient for me to dispose at this stage. The £4 per cwt. duty on hops has been in existence since the control introduced during the last war ended in 1925. It expires in August next. It has had a valuable effect in stabilising the home market, and those concerned are in agreement that it should be renewed. After consultation with my right hon. Friend the Minister of Agriculture, I propose, therefore, to renew it for a further four years, subject in all respects to the same conditions as before.
The Committee will also remember that when the Finance Bill of July was being debated, the question was raised of the application of the Purchase Tax to medicines subject to Medicine Stamp Duty. It was pointed out that this involved a tax upon a tax, and comments were made upon the Medicine Stamp Duties themselves, which, as my predecessor told the House in 1939, had become administratively unworkable, and which it is highly desirable to repeal on that ground. I undertook, before the introduction of the next Finance Bill, to see whether the parties could be got together to hammer out some reasonable solution of the position. I am glad to be able to inform the Committee that the various interests concerned with the Medicine Stamp Duties, assisted by my hon. and gallant Friend the Member for the Lonsdale Division of Lancashire (Sir I. Fraser), have come together and have reached an agreement. I have consulted my right hon. Friend the Minister of Health on the matter, and, as a result, I am in a position to announce that the Medicine Stamp Duties will be repealed, and that my right hon. Friend, in accordance with the understanding which has been reached, will as soon as possible introduce legislation, the object of which will be to maintain a fair balance between the interests of the pharmacists and those of other vendors. The repeal will come into operation from 2nd September, so as to allow reasonable time for disposal of stamped stocks. We shall part, therefore, with the Act of 1802 and other Acts on this matter, which in process of time have become a museum-piece of administrative complexity. The cost of this repeal will be £640,000 this year, and £840,000 in a full year.
There are three matters in connection with Income Tax to which I should refer. The first concerns the taxation of farming profits. The Committee will recall that last August, in answer to a question put by my hon. and gallant Friend the Member for Epsom (Sir A. Southby), I stated that provision would be included in this year's Finance Bill to modify the present system, under which farmers are taxed on the conventional Schedule B basis, by-reference to the annual values of their farms, which often fall very far short of their actual profits. I propose that individual farmers whose lands exceed £300 in annual value should in future be assessed under Schedule D, like traders generally, by reference to their actual profits.
The second matter is one with which I dealt in February in reply to a question by my hon. Friend the Member for Eccles (Mr. Cary), when I undertook to propose, for the purposes of Income Tax and National Defence Contribution, a similar allowance to that provided for the purposes of Excess Profits Tax in respect of loss incurred in providing additional buildings, plant and machinery for the war effort. A Clause to that effect will be included in the Finance Bill.
The third matter is in connection with relief, granted originally under the second Finance Act of 1939, to individuals whose earned incomes have been substantially reduced by war conditions. I propose to continue this relief for the coming year.
Other Amendments of the taxation law which I propose to make in the Finance Bill include a provision that no deduction shall be allowed in the computation of profits for taxation purposes in respect of any payments made by a trading concern, by way of insurance or otherwise, in respect of death or injury of employés from enemy action. The Committee will remember that when I announced last December the scale of compensation that the State proposed to give in respect of personal injuries, I made it clear that the Government was opposed in principle to systems of group insurance against war risks; and the provision in the Finance Bill is directed to ensuring that such schemes shall not be financed at the expense of the Revenue. Provision will also be made in the Finance Bill for adjusting the taxation law to meet the case of businesses that may be subject to a scheme on the lines outlined in the recent Command Paper, for the concentration of production in the hands of nucleus concerns. This will generally be directed to relieving the nucleus concern from any liability to tax in respect of any part of its profits which may be paid to the displaced concern but it is necessary also to provide that the displaced concern will be chargeable on the profits that it receives and, for that reason, a Resolution is necessary.
In regard to Estate Duty, I have a provision to propose as to the: position of war gifts. Under the existing law, any gift made for public or charitable purposes within a year preceding the death of the donor, has to be added back to the estate, in computing the rate of Estate Duty payable and this provision would operate to increase the charge to Estate Duty, where gifts have been made to the Exchequer by the deceased within the year preceding his death. As the Committee is aware, the Exchequer has received many contributions towards the cost of the war from people of all sections of the population and I think it will be readily agreed that benefactions of this kind in the present national emergency, should be left out of account in determining the Estate Duty payable on the death of the benefactor.
Excess Profits Tax
I now come to the Excess Profits Tax. The general principle of the tax commends itself to all sections of opinion but there have been many representations regarding the ill-effects of the 100 per cent. rate. It has been represented with much force that the taking away of the whole of the excess profit endangers production and that a greater war effort would be ensured by a lower rate of charge, which left some of the excess profit as a reward for the extension of business activity and the risks necessarily involved. It has also been urged that the 100 per cent. does not allow a trading concern to make those reserves, out of current profits, which are essential to the efficient carrying-on of its business.
From the standpoint of the revenue which it yields me, I cannot afford now to make any considerable changes. The charging of the Excess Profits Tax at the rate of 100 per cent. is dictated, moreover, by wider issues of policy than purely fiscal considerations. It is directed primarily to taking the profit out of war and ensuring that in war-time, when the whole nation has to bear sacrifices, the increased production which the war requires will not become the means of enrichment that it did in the last war. Nevertheless, anomalies and hard cases which would have to be borne, with the tax at a lower level, often become inequitable at the 100 per cent. level. I have, therefore, given very careful examination to the question whether amendments are called for with the object of ensuring, with more accuracy than at present, that the profit we are taxing really is an excess profit. It is one thing to "take the profit out of war"; it is quite another to tax a business in such a way as to leave it worse off at the end of the war than it was at the beginning. It certainly seems that there are provisions in the tax which did rough justice when it was at the 60 per cent. level, but are not easily defensible at the 100 per cent. level.
Where increased profit arises from the extension and development of a business, involving the introduction of fresh capital, the existing allowance for new capital calls, I consider, for review. In the case of the ordinary trading company which employs increased capital of its own in developing and extending its business, an addition is made to the basic standard of 8 per cent. on the increase of the capital, but there is no analogous allowance in respect of borrowed capital. Interest on the borrowed capital is allowed as a deduction in computing the profits, but there is no allowance for the business risk involved in the extension or development.
I propose to meet this by providing that for the purposes of the tax, increases of capital and the capital of new businesses shall be computed by reference to the total capital employed, whether owned or borrowed. The interest paid on the borrowed capital will no longer be allowed as a deduction in computing the profits, so that the trading company which extends or develops by means of borrowed capital will gain to the extent that the rate allowed on increase of capital, which is 8 per cent., exceeds the rate of interest paid on the capital. A similar principle will be followed in computing the substituted standard.
These proposals regarding borrowed capital are directed to encouraging industry to undertake such development and extension as the war effort requires and I propose to confine them to the general field of industry. The same considerations do not apply to the case of financial concerns where borrowed money is in a very different position. I, accordingly, propose to exclude such financial concerns as banks, assurance businesses, investment businesses and building societies.
I have one further proposal to make which is directed to removing an inequity arising from the 100 per cent. rate. It relates to one special field of industry, namely, those concerns that are engaged in developing wasting assets. The concerns I particularly have in mind are those engaged in producing metals and oils urgently required for munitions of war. These concerns are called on to provide a much greater output than in peace-time and this increase in output represents an anticipation of the future output and profit of the industry. The copper, tin or oil that would normally be produced some years hence, and would then yield a profit that would not be subject to Excess Profits Tax, is being produced to-day solely in order to meet the war-time demand, with the result that the whole of the profit is taken away by the Excess Profits Tax, for the profits standard which determines liability to the tax is a profit corresponding to the prewar output. I propose to give an allowance by way of recompense for the loss of future profit entailed in the using up of the assets in the present national emergency. I will ask the Committee to await the introduction of the Finance Bill for the detailed scale of allowances, but I may say that it will be given only in the case of those industries which are engaged in producing metals and oils specially required for providing munitions of war. These proposals will operate as from the date on which the 100 per cent. rate was imposed, namely, 1st April, 1940. There are other matters in regard to which certain amendments of the Excess Profits Tax law will be proposed, all of which are covered by the general Resolution relating to Excess Profits Tax, but they are minor in character and their explanation and consideration can best be undertaken when the Finance Bill is available.
These two proposals, however, do no more than remedy the particular grievances that the 100 per cent. rate allows no margin of profit either on business extension carried out with borrowed capital, or on largely increased output of metals and oils required by the war effort. Industry, in general, will still be subject to the 100 per cent. rate of tax and the whole of the excess profit will continue to be paid over to the Exchequer. This means that industry will not be in a position to set aside any of the excess to provide for the post-war problem of adjustment to meet peacetime conditions.
This is perhaps the most serious effect of the 100 per cent. rate on the economic wellbeing of industry. I, therefore, propose to treat part of the produce of the 100 per cent. rate as a reserve to be made available to industry at the end of the war for the purposes of reconstruction. My proposal is that at the end of the war, subject to such conditions as Parliament may then determine, 20 per cent. of the net 100 per cent. tax paid should then be refunded. The conditions would be intended to assist industry to undertake the essential task of reconstruction and readjustment, and to reabsorb the mass of the nation as quickly as possible into profitable peace-time employment. The conditions I have in mind would be somewhat as follow: —The ban upon bonus shares would be continued, and any necessary steps would be taken to prevent the money from being dissipated in dividends, and generally it must be assumed that the money would require to be expended for suitable purposes, among which I may mention the replacement of obsolete or unsatisfactory machinery by up-to-date machinery; the scrapping or adaptation to new uses of redundant installations; the extension of the export market; and, in the case of farmers, the improvement of the fertility of the land; and the promotion of good business. The amount of the 20 per cent. Excess Profits Tax repaid will, of course, fall to be treated as a trading receipt and thus come under the charge to Income Tax, so that the fund actually available to industry on this concession will be the 20 per cent., less whatever Income Tax is due.
Under this proposal the 100 per cent. tax will continue to be paid in full in the ordinary course as and when it is due. Owing to the scheme of Excess Profits Tax under which repayment of tax paid for one accounting period is made, where there is a deficiency below the standard of profits in another accounting period, it will not be possible to determine the net amount payable under the 100 per cent. rate until after the war and the settlement of Excess Profits Tax liability. Therefore, the matter is essentially a postwar one, but I propose to include in the Finance Bill a provision requiring the Inland Revenue after the war to make the necessary calculations in order that the amount repayable in any case, provided that the necessary conditions are fulfilled, may be accurately computed and paid.
Is the Income Tax to be postponed?
I am sure that the Committee will agree that the granting of this credit to Excess Profits Tax is in the national interest, for it will provide industry with a valuable reserve at the end of the war, forming a useful and an-important contribution towards meeting post-war problems and conditions.
THE "GAP" In 1941–42.
I must now return to the problems of the new financial year. I have already explained earlier in my speech that, in relation to our handling of the problem of inflation, we must concentrate upon what I have called domestic expenditure, and the estimate which I have given for that is a figure of about £3,700,000,000. Against this formidable total I expect that revenue, on the existing basis of taxation, will amount to £1,636,000,000. In addition, we have the receipts and savings which will accrue from the miscellaneous sources that I have previously described —extra-Budgetary funds, the investment of business depreciation, renewal and sinking funds, the other savings of companies and institutions, and the private savings of individuals. It is difficult enough in the strange times through which we are passing to estimate with confidence the total of domestic expenditure and total revenue for the whole period of the year. It is certainly not less difficult—it is indeed more difficult— to estimate with confidence the monetary resources which will come to the Exchequer from the various sources of savings and receipts which I have just named, but I have applied my judgment to that matter with all the care that I can command.
For the moment I assume, for the purpose of the calculation, that private savings will not exceed the rate at which they are now running, and upon that basis—which is a basis for calculation only—I think it would be unwise to assume that the Exchequer will receive from these sources as a whole more than £1,600,000,000, towards which private savings of individuals, if continued at their present rate, would contribute rather less than one-half. In any such calculation there is, and must be, a margin of error. Yet it is essential not only that we should act on sound principles, but also, for Budget purposes, that we should evaluate their results in terms of money to the best of our ability on the facts available at the time. Accordingly, I draw the general conclusion that the potentially dangerous gap, to the closing of which we must bend all our energies, is of the order of £500,000,000. I do not, of course, mean that a failure to cover the whole of that gap exactly would necessarily have serious consequences of an inflationary character, but, if Budgetary policy is to play its proper part in the closing of that gap and in the stemming of any torrent of inflation, we must deal promptly and adequately with the situation, not only in order to enable us to make our full war effort, but to ensure reasonable conditions and prospects after the war.
Control Of Prices
Before I develop my proposal for dealing with that gap, there is another very important matter to which I must now refer—a matter which is very relevant to any consideration of the question of inflation. The higher cost of imports and other increased costs unavoidable in time of war have exercised a strong tendency from the very outset of the war to raise the prices of essential foodstuffs quite apart from any effect of higher wages. For some time past it has been our policy to check any excessive rise in prices due to such higher costs by means of the centralised purchasing of imported foodstuffs through the Ministry of Food and the control of the margins and selling prices of distributors, but after a time it became apparent that these measures by themselves would not be sufficient to prevent food prices from rising, if the Ministry of Food were to run, as was first intended, on a self-supporting financial basis. It was, therefore, decided to allow the Ministry of Food to incur substantial trading losses which we have carried upon the Exchequer. In this way we have borne upon the Exchequer a considerable and increasing burden, now ranging at about £100,000,000 a year, in order to keep down the cost of living, but for the most part it has been articles of food only that we have attempted to subsidise in this way. Similar causes are, however, increasing the costs of other goods and services. There is this prospect of a continuing further rise in the cost of living unless the Exchequer is prepared to undertake a much greater burden. If this rise were to occur, it might lead to further rises in wages and other repercussions. In these circumstances I have included in my estimated expenditure a margin to provide for important extensions of the principle of subsidising essential goods and services. In other words, I am prepared to carry a considerably increased burden on the Exchequer in order to prevent or minimise the impact of increased costs, particularly of imports and of transport, on the prices of essential goods and services, apart from any increases in their prices rendered inevitable by further increases in wage rates.
As regards the Cost-of-Living Index itself, while, for practical reasons alone, it would be impossible for me to promise that there should be no increase in price in any single item figuring in that index, I propose to continue and extend the policy of stabilisation in an endeavour to prevent any further rise of the Cost-of-Living Index number, apart from minor seasonal changes, above the present range of 125–130 in terms of the pre-war level.
Transport costs, which affect prices generally, are an important factor in determining the general price level, and I propose to take upon the Exchequer increases that would otherwise become inevitable and, indeed, are already overdue, in shipping charges, including both freight rates and insurance premiums. I am also examining the question of how far the Exchequer may help in averting further increases in railway rates and fares. This is part, but only a part, of a very large, complicated and important question which is now under close consideration. It would not be right that I should say any more on that matter today, than that I recognise that large increases in fares and charges would give rise to upward movements of prices—a movement which I wish, as far as possible, to avoid. I hope it will be possible to make a further statement shortly.
This general policy of restricting increases in prices to a minimum will apply to the prices of coal and gas and also to electricity charges, which, although they do not actually figure in the calculation of the Cost-of-Living Index, ought, ob- viously, to be treated in the same way as other fuel and light charges. It will also be my aim, in conjunction with my right hon. Friends the President of the Board of Trade and the Minister of Food, to try to prevent substantial increases in the prices of other articles in common use.
I put this forward as a most important development of policy, and I hope we may thus create conditions which will enable the wages situation to be held about where it now is. It is clear that persistence of the tendency towards rising wage rates, which necessarily increase costs of production at every stage of the productive process, would compel abandonment of the stabilisation policy. But I trust and believe that this substantial contribution which the Exchequer is making in keeping the cost of living stabilised will ensure greater benefits, particularly to the poorest section of the workers, than could in fact be obtained by any other measure. The important announcement which I have just made shows, I think, that without doubt the Government are determined to create the most favourable conditions for the waging of the battle against inflation as well as to make a substantial contribution to the alleviation of the burdens of great sections of the community.
Savings And Taxation In 1941–42
Now I must return to the actual problem presented to me by the potential inflationary gap which, as the Committee will remember, I place in the neighbourhood of £500,000,000. I must first consider to what extent it would be reasonable to expect an increase in genuine new private savings. I cannot expect large increases in undistributed profits of companies, for some are faring ill and others are severely restricted by Excess Profits Tax. I have to look mainly to the savings of individuals. In my estimate of the gap I expressly included for the moment the increase to be anticipated from this source. Obviously it would be over-sanguine of me to imagine that increased private savings alone would fill the gap, but experience up to date would certainly justify me in expecting the National Savings Campaign to show still further improvement, despite any additional taxation. The growth of private savings, through the stimulus provided by the National Savings movement, has been remarkable. It is, however, no greater than one would ex- pect when one reflects on the wonderful work which has been done by Lord Kindersley and his helpers, and I do not regard any part of the increase as due to inflationary causes. I judge that private savings are now accumulating at a rate nearly double the rate in the first year of the war, which was in itself an enormous increase on peace-time standards. This is a remarkable and welcome contrast to what was raised in a similar period during the last Great War, but we shall need still greater efforts.
Domestic expenditure in the next 12 months is likely to exceed the total of such expenditure in the first 18 months of the war. While personal savings, leaving out companies and the like, are now running at a very gratifying rate, I will need from this source in the coming year a still greater sum, and I need it in genuine new savings. I am sure that a further increase is within the powers of the Savings Campaign. War Weapons Weeks have played an important part in the War Savings Campaign lately, and I am grateful to all those throughout the country who have helped to make them a success. These Weeks have been the means, not only of raising large sums of money for the Government from all sections of the community, but also of permanently strengthening the whole of the War Savings organisation, thus rendering it better able to discharge its great responsibilities and inducing everyone to spend as little as possible and lend as much as possible. I know that heavy taxation makes things difficult and that we cannot all, having regard to our circumstances, do equally well, but there are factors on the other side. My right hon. Friends the Minister of Food and the President of the Board of Trade have removed, and are removing, many temptations in our way and keeping us on the straight and narrow path.
I might at this stage quote a few figures which will serve to indicate that I have good reason for my belief that the Savings Campaign is capable of producing an even higher rate of savings. In the first 52 weeks of the present campaign the average weekly figure of the smaller savings was £8,900,000 and that for the larger securities £12,700,000, a total of £21,600,000 a week. For the 19 weeks since then the smaller savings have risen to £11,700,000 a week, while the larger investors have found £18,700,000 a week, a total of £30,400,000 a week. While I recognise that the figures for the larger securities include reinvestment and other transactions as well as new savings, the total increase is striking, all the more so because the earlier figures must have, I think, contained considerable sums representing investment of savings of the past. I have little doubt in particular that the amount drawn from the smaller investors to-day represents almost entirely genuine new savings.
There is a further figure which is, I think, very significant. During the first three months of the Campaign the sale of single unit savings certificates averaged weekly 261,000 units. In the first two months of 1941 this figure had risen to no less than 1,129,000 units. This is indeed firm evidence of the penetration of the Campaign to the wage earner. None the less with the expansion of production and of the wages bill, I think it is still capable of considerable improvement. The formation of Savings Groups in industry and elsewhere goes on apace, but there is a need both for increasing the active membership and the weekly sums set aside. I know of a case, typical I believe of many, in which less than a year ago the average weekly contribution to the group was 1s. 0£d. for each employé whether saving or not. To-day that figure has increased to 12s. 10d. That is an example which I commend to others. It shows what can be done by energy and by bringing home to every employéthe great need of adequate financial support for the war effort. Taxation, I know, must bear heavily, but I am confident that much more can be done so as to reduce the demand on our supplies and to increase the genuine savings coming to the Government.
The effect of the various schemes which are now being put into force to limit the quantity of supplies of various kinds available for purchase should in itself be favourable to genuine increased saving by every recipient of income. Therefore, the Committee will see that I have solid ground for my anticipation that the figures of new savings by both large and small investors will continue to grow. It would be rash of me to attempt to estimate that probable growth with any high degree of accuracy, but for the reasons which I have already stated, I feel there is good foundation for my anticipation that, even with higher taxation, it is possible to raise in the year a further sum of between £200,000,000 and £300,000,000. It follows that I must base my further proposals on the assumption that a considerable gap remains; it cannot wisely be put at less than a sum of between £200,000,000 and £300,000,000.
In my survey I have attempted to take into account all the resources ready to my hand. To find further resources I must, therefore, obviously obtain new taxation, and, in the light of the calculation which I have given, the Committee will see that if I am to deal squarely and adequately with the financial situation, and particularly with the problem of inflation and all that it involves, I must raise new taxation, which, when it is in full operation, will amount to not less than £200,000,000. To allow some margin of safety, I regard it as essential to raise by new taxation something in the neighbourhood of £250,000,000 in a full year.
Taxation Proposals Examined But Rejected
I need hardly assure the Committee that I have given anxious consideration as to how this additional taxation should be fairly imposed and how the burdens can best be borne. In July last I told the House how, for practical reasons, and apart from other considerations, it was impossible in war-time to set up machinery and obtain revenue from either a capital levy or a land valuation tax. There are, however, two proposals that have recently been canvassed on which I would like to make a few observations.
A suggestion which at first sight has many attractions is for a tax analogous to the Excess Profits Tax but applicable to increases in personal incomes. The proposals would involve the imposition of a percentage charge on all excesses of earned income amounting, say, to more than 20 per cent. over earnings assessed for a standard year with some minimum standard of, say, £150. In the first place, the tax would have to be confined to earned income as distinct from total income, because, owing to the tendency of investment income to decline during the war, the inclusion of such income would reduce the total yield of the tax. In the second place, it would be most difficult to find a fair and reasonable standard. I need only recall the trouble which we have had in this connection in regard to the Excess Profits Tax. No such general criteria as those used in Excess Profits Tax cases exist for fixing a fair standard in the field of employment or of professional earnings.
The capital of the worker is his skill and his energy, and this cannot be appraised in monetary terms. For very many reasons, of which unemployment is the most obvious, the income of any basic year may be a very unfair standard, and it does not appear practicable to find any alternative measures. The effect of such a tax might well be that in innumerable cases of two persons working or living side by side and enjoying identical incomes, one of them would pay a much greater sum in direct taxation than the other. The man liable to the heavier tax would be able to see no better justification for his burden than the fact that he happened to have been unfortunate enough, perhaps through unemployment or through belonging to a depressed industry, to have enjoyed his current income for a short time only instead of for a number of years. If the tax continued to be charged for the duration of a long war, this position would become more and more repugnant to the ordinary man's sense of justice. In many cases also the reward of the wage earner for increased work and special effort would largely be taken away from him. At the best there would have to be so many exemptions and exceptions that the yield of the tax would in fact be on a disappointing level. Finally, it can be said that such a tax would bring no assistance until 10,42–43 because a yield from such a tax could only flow into the Exchequer in the year after the year in which the tax was imposed. Excess earnings could only be computed after the close of that year.
The other proposal is for a tax on what are called services, and it has been suggested that it would not be a difficult task to raise an annual revenue of £150,000,000 from a stiff turnover tax on services expenditure. The word "service" rather connotes something which is accepted but which could possibly be forgone, or at any rate be subject to a special levy in war time; but a services tax includes taxes on essentials, such as rent and rates, railway, bus and tram fares, on the consumption of gas, elec- tricity, and water, on warmth and cooking, as well as on entertainments, hotels, restaurants, and the like. It seems clear that again you have here a tax in respect of which you must obviously make very many exemptions and the yield from which, even if it were desirable to impose it, would not be anything of the order that is necessary for our purposes to-day.
Income Tax Changes
I have come to the conclusion that in the circumstances and needs of to-day I must look to direct taxation, covering all sections of the community, to raise the necessary revenue. The burden which I am compelled to impose will, I recognise, involve the heaviest sacrifices by all classes of the community other than those with the smallest incomes. They are, however, vital and necessary, not only to meet our existing financial situation, but, what is equally vital and necessary, for the reasons I have already given, to secure reduction in consumption. I shall be obliged not only to ask for a larger contribution from existing Income Taxpayers, but to extend the Income Tax to many persons whose incomes have hitherto not been the subject of direct taxation. I must, therefore, increase the standard rate of Income Tax, and I propose to do so by 1s. 6d., making the new standard rate 10s. in the £. I propose to make the same increase in the reduced rate which applies to the first £165 of taxable income. This rate will thus become 6s. 6d. in the £, instead of 5s. as at present.
As a result of these increases, the rates of Income Tax and Surtax will reach a maximum of 19s. 6d. in the £on the highest slice of income—a figure indeed approaching in that sphere the limit of taxation. In order to enjoy a tax-free income of £5,000 a year it would be necessary to have a gross income of £66,000 a year—and very few to-day have an income approaching that sum. These changes in the rates of tax will provide me with £125,000,000 in a full year, and £96,000,000 in the current year.
I would wish that I could stop there, for these increases are substantial and will affect in greater or lesser degree Income Taxpayers all down the scale; but it is obvious that the total revenue, and the effect upon civilian consumption to be expected from these changes fall a long way short of the needs of the situation. It is therefore necessary to add to these proposals reductions in the allowance for earned income and in the personal allowances. The importance of the children's allowances need no emphasis, and I do not propose to touch them. I propose that the earned income allowance which is at present one-sixth of earned income, subject to a maximum allowance of £250, should be reduced to one-tenth, subject to a maximum allowance of £150. The existing personal allowances are £170 for a married taxpayer, and £100 for a single taxpayer, and these I am proposing to reduce to £140 and £80 respectively. With the allowance for a single person at £100 and with earned income relief of one-sixth, liability to pay Income Tax began at £120 a year, and this point was made the exemption limit for both earned and investment incomes. While I do not propose to reduce that exemption limit as drastically as a strict arithmetical proportion might require, there must be some reduction, and I propose to make the new exemption limit £110 instead of £120. The reduction in the allowances and in the exemption limit will increase by over 2,000,000 the number of persons liable to pay Income Tax.
While the increase in the standard rate will fall mainly upon those with larger incomes and upon companies, these cuts in the allowances will principally affect the small taxpayer. The present allowances from many points of view are not unduly generous, and many I know will feel that only the necessities of the time could possibly justify their reduction. While I am compelled to call for these sacrifices, I have considered whether some means could be found to reconcile my present objectives with the reluctance which will be generally shared to make any permanent inroad upon the existing level of the Income Tax allowances.
The Committee will appreciate that the primary object of these proposals is not to obtain taxation for taxation sake, nor to raise Revenue for the sake of Revenue, but to make a considerable cut in purchasing power during the war, and thus to avoid the ever present dangers of inflation which would affect most of all those with lower incomes. There are means by which that object can be achieved without necessarily sponsoring permanent reductions in those allowances. I am proposing, therefore, that the extra tax which any individual will pay by reason of the reduction in the personal allowances and earned income allowance will be offset after the war by a credit which will then be given in his favour in the Post Office Savings Bank. In other words, the individual citizen will have to pay the tax in full, but that part of the extra tax to which I have referred, while complying with our vital war-time necessities will constitute some provision for post-war difficulties and will, I hope, form an additional fund of post-war savings for himself and his dependants.
The Budget White Paper will contain examples showing for a number of selected incomes, the total extra tax payable and the amount which will be treated as credit after the war; but if I quote a few examples now the Committee will have a clearer idea of how the scheme will work, and particularly the post-war credits which will follow. A single man with 45s. a. week paid no Income Tax last year. Under the present proposals he will pay 2s. a week, the whole of which will be treated as a post-war credit. The tax bill of a married man who has two children and an earned income of £350 was last year £5 8s. 4d. and will be £24 7s. 6d. under the present proposals, but of the increase of approximately £19, £17 6s. 8d. will be credited to him after the war. As one moves up the Income Tax scale, and as the effect of the allowances on the total tax bill becomes less marked, so the proportion to be dealt with in the form of credit obviously declines. For example, the tax bill of a married man with two children with earned income of £1,000 a year was £211 last year, and will be £301 under the new proposals. Of the increase of £90, rather more than £48 will be treated as a credit. In the case of.a similar person with earned income of £2,000, the amount of tax payable last year was £600; the amount payable under the present proposals will be £776, and of the increase of £176, £65 will be treated as a credit. The maximum amount which under these proposals can be treated as credit in respect of tax paid for the year 1941–42 will be £65. These alterations in the allowances will produce £125,000,000 in the full year, and £54,000,000 in the current year.
The total effect of the Income Tax changes which I have just mentioned will thus be an addition of £250,000,000 in a full year, of which one-half will fall to be treated as a credit. In the current year these proposals will produce £150,000,000. My hon. Friends will appreciate that the main part of the collection, which begins in January, continues for a substantial period. If I took a period from July of this year to June of next, the figure, while not reaching £250,000,000, would approach it.
It will only be as from the date at which a credit becomes available after the war that any payment of interest will arise. I propose to include in the Finance Bill provision for the computation of the credit to which each individual taxpayer will be entitled after the war and for the recording by the Inland Revenue of that credit. A notification will be sent in due course to each taxpayer showing the amount of tax which will in his case fall to be treated as a credit after the war. As the amount will depend upon the final ascertainment of the liability to tax and upon the full payment of that tax, it will not be possible to send those notices until after the collection for the year of assessment is completed. It must be remembered in this connection that our system allows the direct taxpayer a long period in which to complete the payment of what he owes. My hon. Friends can work out approximately the amount in any individual case, either directly from their knowledge of Income Tax rates and allowances or by reference to the examples in the White Paper. It is most necessary for me to emphasise, however, that the whole tax must be paid at the proper time, and that the taxpayer cannot claim or use his credit while the war continues.
While I am aware that this extra taxation will cut down income available for consumption—and it is necessarily and deliberately intended to do this—it is most important that it should not be allowed to, nor do I think it should, interfere with War Savings. The post-war credit is, of course, intended to be in addition to and not in substitution of voluntary savings, and not only should existing contributions to War Savings be maintained, but every effort should be made to increase those contributions, as I think it is quite within our capacity to do. Indeed, by providing the small saver with the promise of a substantial nest-egg, we may well increase rather than diminish his desire for adding to it, so that he may have a sum sufficient to enable him to face with further confidence the difficulties of the post-war world.
My immediate task is finished. In time of war the various Departments associated with the war effort take, and ought to take, all that is required to enable us successfully to prosecute the war. The task of the Chancellor of the Exchequer is, therefore, determined by circumstances largely outside his control. What he must strive to do is, first, to deal adequately with the financial problem presented to him and, secondly, to distribute with all possible justice the weight of the resulting burden. That I have endeavoured to do. The increases in taxation are indeed heavy, but a weak and insufficient Budget would not lighten the burdens of our citizens. On the contrary, it would increase them. With the enhanced yield of previously existing taxes I shall be raising altogether in a full year £1,860,000,000. That is £500,000,000 more in tax revenue than was collected last year and nearly £1,000,000,000 more than in the last pre-war financial year. Moreover, of the net expenditure to be financed from domestic loans and taxation, I shall be raising this year practicaly half by taxation.
I would claim that here an endeavour has been made, with fairness of purpose and with forethought, to apportion equitably the load we are all willing to carry. Moreover, wherever possible I have tempered the full rigour of my proposals not only to ease present conditions, as with the extension of the policy of restricting increase in prices to a minimum, but also, with the arrangements for postwar repayments to meet the trials and difficulties after the war. Certainly here the whole world will see still further and tangible evidence of our firm resolve to leave nothing undone to achieve victory, whatever the cost. We make these further sacrifices, not on our own account alone, but because of our steadfast belief and hope that out of the evil and misery of war we shall emerge strong and able to join with others in helping to secure freedom and happiness for those who today suffer so hardly and cruelly at the hands of the oppressor.
Hops, Etc, And Beer
"That the period for which the following duties of Customs are chargeable (which expires on the fifteenth day of August, nineteen hundred and forty-one) shall be extended by four years, namely: —
(a)the duties now chargeable by virtue of Sub-section (1) of Section one of the Finance Act, 1937, on hops, hop oil and extracts, essences or other similar preparations made from hops; and (b)the additional duty now chargeable in respect of beer by virtue of that Subsection."
Charge Of Tax
(a)Income Tax for the year 41–42 shall be charged at the standard rate of ten shillings in the pound, and, in the case of an individual whose total income exceeds one thousand five hundred pounds, at such higher rates in respect of the excess over one thousand five hundred pounds as Parliament may hereafter determine; (b)all such enactments as had effect with respect to the income tax charged for the year 1940–41, other than such enactments as by their terms relate only to tax for that year shall have effect with respect to the income Tax charged for the year 1941–42.And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
Higher Rates Of Income Tax For 1940–41
"That Income Tax for the year 1940–41 shall be charged at rates exceeding the standard rate in the case of individuals whose total income exceed two thousand pounds, and those rate shall be rates in the pound, which respectively exceed the standard rate for that year by the amounts specified in the second column of the Table in Sub-section (1) of Section Seven of the Finance (No. 2) Act, 1940.
And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
Reliefs And Exemption From Tax
"That the following enactments relating to reliefs and exemption from tax shall be amended as Parliament may provide by any Act of the present Session relating to Income Tax, namely: —
(a)Sub-section (2) of Section forty of the Finance Act, 1927, as amended by subsequent enactments (which relates to the re-deduction of the tax remaining chargeable after the allowance of other reliefs); (b)Sub-section (1) of Section fifteen of the Finance Act, 1925, as so amended (which relates to relief in respect of earned income) and Sub-section (2) of that Section, as so amended (which relates to persons over sixty-five years of age); (c)Section eighteen of the Finance Act, 1920, as so amended (which relates to the personal allowance); (d)Section nineteen of the Finance Act, 1935, as so amended (which relates to the exemption of incomes not exceeding one hundred and twenty pounds and a reduction of tax in the case of incomes less than one hundred and forty pounds)."
"That farming (including the occupation of lards as nurseries and market gardens) shall be taxed as a trade under Schedule D, in accordance with such provisions as Parliament may determine by any Act of the present Session relating to Income Tax."
Concentration Of Industry
"That the trades of the persons who are parties to arrangements for concentrating industry or business in the hands of fewer persons shall be treated for Income Tax purposes as continuing and sums payable to them under the arrangements shall be treated for those purposes as trading receipts."
Payments In Respect Of War Injuries To Employees
"That in computing profits or gains or total income for any Income Tax purpose, no deduction shall be made for payments to or in respect of employees who sustain war injuries or for premiums or contributions under policies, agreements, schemes or arrangements providing for such payments; and no such payments, premiums or contributions shall be included in computing expenses of management or supervision or the cost of maintenance, repairs or insurance."
Assessments Under Schedule A
(a) assessments made under Rule 8 of No. VII of Schedule A shall be valid although not made on the person who should have been assessed; (b)further provision shall be made as to the persons from whom and the manner in which tax under Schedule A shall be recoverable; (c) this Resolution shall apply to past and future assessments, for whatever year of assessment."
Rents Under Long Leases, Etc, In Scotland
"That any payment made in respect of land in Scotland for a period ending on the fifteenth day of May in any year, being a payment to which Section seventeen of the Finance Act, 1940 (which applies to rents under long leases and other annual payments in respect of land), applies, shall be treated for Income Tax purposes as if it had become due at the commencement of that period.
And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
Excess Profits Tax
"That the extent and incidence of Excess Profits Tax (for past and future chargeable accounting periods) shall be varied so as to give effect: —
(a)to amendments as to standard profits and the computation of capital, the computation of profits and losses, successions and amalgamations, the avoidance of tax, inter connected companies, chargeable accounting periods falling partly before and partly after the end of March, nineteen hundred and forty, the relief to be given for deficiencies of profits and the relief to be given for Excess Profits Tax in parts of His Majesty's dominions outside the United Kingdom; (b)to provisions relating to arrangements for concentrating industry or business in the hands of fewer persons; and (c)to provisions enabling persons liable to the tax to recover tax from persons who have received payments for services which have been disallowed under Section thirty-two of the Finance Act, 1940."
National Defence Contribution
"That the extent and incidence of the National Defence Contribution (for past and future chargeable accounting periods) shall be varied so as to give effect to amendments as to the computation of profits and losses, and to provisions relating to arrangements for concentrating industry or business in the hands of fewer persons."
Power To Borrow For Certain Financial Purposes
"That the whole or any part of the sums required for the current financial year for the purposes mentioned in paragraph (a) or paragraph (b) of Sub-section (4) of Section twenty-three of the Finance Act, 1928, as amended by any subsequent enactment, may be provided out of money borrowed for the purpose under the National Loans Act, 1939, instead of out of the permanent annual charge for the National Debt."
Amendment Of Law
Motion made, and Question proposed,
"That it is expedient to amend the law relating to the National Debt and the public revenue, and to make further provision in connection with finance. —[Sir K. Wood.]
The Chancellor's Budget having been opened, it is usually the pleasant practice of this Committee to enter into a rather general discussion and make certain observations upon it before we get to grips with the proposals in detail. This year the right hon. Gentleman has broken the record. He broke a record with his last Budget, and he has broken it again this year. He has presented a Budget relating to the largest expenditure in the history of the nation and imposing taxation reaching the highest peak that has yet been achieved. The right hon. Gentleman explained his proposals and generally carried through his task in such a disarming manner that it was, at times, difficult to realise the magnitude of the figures with which he was dealing. He is Chancellor of the Exchequer at a time when bold measures are needed, and the present Budget will not be criticised on the ground of timidity as other Budgets have been in the past. The right hon. Gentleman has included in it many novel features which will make our Debates this year of a great deal more than usual interest.As far as the actual figures of expenditure are concerned, the higher they are the more the nation will welcome them, because they mean equipment for carrying on the war. When we have the same equipment as the Germans, so that we can meet them on equal terms, as man to man—on that day the end of the war will be in sight. Undoubtedly, the largest features of the Budget, and in a way the most novel, are those contained in the new scheme of Income Tax which the right hon. Gentleman explained. We shall discuss that scheme in detail and give our views upon it later, but at this stage one may say that the whole world can now see that we in this country, down to those with very small incomes indeed, are making great sacrifices, and that we are willing to bear, not only the physical burden of the war, but its full economic consequences. The other specific large-scale tax in which the right hon. Gentleman is making changes is the Excess Profits Tax. That, again, we shall have to deal with in detail later, but I think that he has been wise in not making an immediate diminution in its scale because it is a tax involving many psychological as well as purely physical considerations. We think it is a good tax, and indeed an inevitable tax, but everyone will agree that it ought to be fair as between one company and another, and that it ought to be levied, not on any surplus which arises but on real excess profits, because many surpluses which arise in ordinary financial transactions are necessary for the extra depreciation due to war circumstances, and for reserves of liquid capital which will be needed when we change over from war to peace. Those who use their surpluses for that purpose ought not to be taxed on the same level as others. The Chancellor made a Budget Speech of a kind which has not been made before, because he dealt with the very intricate subject of inflation, and he made inflation the central problem of his Budget. Indeed, he based the whole of his taxation proposals, not upon the usual considerations but upon the necessity for avoiding inflation. I would, therefore, say something about the Budget from that point of view. I remember when the war began being greatly impressed by the predictions of many financial pundits that we were embarking upon a period of inflation which would get beyond control. Those predictions have all been unfulfilled. One of the reasons why there has been an excessive fear of inflation has been touched on by the Chancellor, namely, the great variety of interpretations of the term "inflation." I have felt for some time that there was no evidence that inflation of a dangerous character was reaching a high level. I agree with the Chancellor that it is not inflation merely because prices rise. If the rise is due to increased freights, increased insurance chargers or increased raw materials, that is a natural phenomenon of an inevitable economic character. There is not inflation merely because there is an increase in the amount of money in circulation, provided that the increase is due to the needs of increased trade. In my view, you reach inflation only in so far as money is deliberately manufactured and newly created for the purposes of meeting a Budget deficit. That is my definition of inflation and, according to that definition, such figures as I have been able to investigate led me to the conclusion, before the Chancellor spoke, that the amount had not been dangerously large. I will put the figures in the ordinary way to which we are accustomed in these Budget estimates, and give my adherence to the view that we have not yet reached any dangerous degree of inflation, in the sense of the creation of credit merely for the purpose of financing the Budget. It is in that area that the predisposing causes of inflation will be found. Calculations show that the gap last year between expenditure and revenue was £2,500,000,000. War savings, taking individuals, companies, etc., amounted to about £1,300,000,000. The sale of American securities, according to Mr. Morgenthau's statement not long ago, came to a good deal over £500,000,000. That gives a figure of £1,800,000,000 towards the gap of £2,500,000,000. That is not inflation. There were various other non-inflationary items mentioned by the Chancellor for which he gave no figure, such as the Dominion balances, the surpluses in the insurance funds, etc., and all these undoubtedly come to something not far short of £400,000,000. If you add all that, you get, from non-inflationary sources, a sum of at least £2,200,000,000 towards a gap which was only £2,500,000,000. I know that the Treasury will not commit itself to estimate within one or two hundred millions, but that left a sum of only £300,000,000, which is certainly very small, when you consider the immensity of the figures with which the Chancellor has been dealing. When I made these calculations for myself I was therefore not surprised to find that the amount of inflation in the real sense of the term has not been in any way excessive. The Chancellor went on to discuss next year, in regard to which, of course, the figures are more problematical still. Looking at the figures for next year, I can see that one non-inflationary source will probably be far smaller. Our American securities, I presume, are becoming exhausted and we shall not be able to draw as much from them as in the past. I am, however, inclined to agree with the Chancellor that in spite of the increase in Income Tax, the immense extra expenditure of the Government in the forthcoming year will mean an extra income in the hands of the community at large, which will leave an extra margin for responding to the appeal of the National Savings Committee. I, therefore, anticipate that next year there will be larger voluntary savings towards covering the gap between expenditure and revenue. Further, there is the immeasurable fact that in the next year our imports from the United States will not have to be paid for immediately. The figures I have read indicate that these alone have lately been at the rate of as much as £800,000,000 a year. They will be more next year, and if we take this enormous saving into account, I do not see any reason why inflation should pass out of our control. There was one feature of the Chancellor's speech to which I gave some attention, because the possibility of limiting inflation will depend upon the determination with which he carries out what he has proposed. In a Budget like this I am willing to regard a certain amount of inflation as almost inevitable, and certainly a small degree of inflation would not alarm me, provided it was kept under control by most determined rationing and price control and by subsidising the necessities of life for the poorer sections of the community. With those controls I think the problem can be reduced to manageable proportions. One remark of the Chancellor's leads me to make some observations on a subject which has been a good deal in my mind in connection with our future Budget problems. He spoke of the aggravation of our post-war financial problem on account of the burden of the Debt. I think we could usefully devote part of our Budget discussions to some kind of preliminiary consideration of what is likely to be our Debt position after the war, because that is the precursor of all reconstruction. The war began with a National Debt of £7,000,000,000. I imagine that should the war last three years, it is a fairly safe estimate that the Debt will be increased each year by an average of £3,000,000,000. That will create a total Debt of £16,000,000,000. But—and this is the fact to which I wish to draw attention—I do not think that that will be the end of the creation of National Debt in this country. When the war is over, unless we are to be faced with the most frightful unemployment, we shall have to finance, by loans comparable to those we are raising during this war, great schemes of rebuilding and reconstruction, in order to make the transition from war to peace. I would say that we must look forward for three years after the war to raising £2,000,000,000 to £3,000,000,000 a year, unless we are to be left with the kind of situation which will face us if we do not solve, this time, the problem of the transition from one stage to the other. If we add that sum to the National Debt created during the war, there will be a National Debt of certainly over £20,000,000,000. At 3 per cent. interest, that will mean £600,000,000 a year, as a first charge on the Budget. With that first charge, I do not think it possible to devise any Budget which will, not merely meet the expectations of the men in the Armed Forces, but will maintain even the elementary apparatus of our civilised life. That is the key to the post-war problem. There would appear to be no road out, except some form of capital levy, by agreement. Any scheme of reconstruction will, I hope, include an agreed capital levy. Let us face the fact that it will have to be a capital levy of a very high level. The most careful calculations that I have seen of what is likely to be the national capital after thewar—by authorities whose views, I see, the Chancellor has taken into consideration in framing this Budget—put the figure at about £25,000,000,000. If you have a national capital of that amount, and a National Debt of certainly over £20,000,000,000, it is clear that if you are to wipe out any large proportion of the National Debt, you must have a capital levy amounting to, on an average, between half and two-thirds of the capital of the average individual.
May I interrupt my right hon. Friend?
I am just finishing. I have merely given those figures because there is a Minister appointed to deal with post-war reconstruction and the House has begun a series of discussions on postwar reconstruction. I think that in our Budget Debates we ought to discuss this problem, because it is the key to postwar reconstruction, and unless a solution is found to the problem of the National Debt, it appears to me that all these schemes of reconstruction will be in danger of ending in smoke and disillusion.
I would like to take this early opportunity of congratulating my right hon. Friend upon carrying through the very difficult ordeal of addressing the Committee for over two hours. Such a physical effort tests the powers of most Members of this House, and I think that he managed to carry through with it without even the modest glass of wafer. There was no embroidery or attempt at oratory. He took the Committee into his confidence and made us a plain, common sense, business statement. It is not an easy or an attractive task for a Chancellor of the Exchequer in war-time. He can offer no hope of lightening the burden of the taxpayer£the hope which is always in the breasts of the public in normal times. He can only give a gloomy foreboding of having to add new and fresh taxes. I think that my right hon. Friend showed courage in following a simple and straightforward method in raising the necessary money.An Income Tax of 10s. in the £is a symbol of our determination to see this war through. It will also give great confidence to our friends in the United States of America—the confidence that we ourselves are ready and willing to bear this very heavy burden. It is the best reply possible that we can make to the sneer of the dictators that we are a mere plutocracy. One of the interesting statements that my right hon. Friend had to make was that where he is going to bring into the privilege of paying Income Tax 2,000,000 extra of our citizens. I do not think there will be much protest, because the nation is determined to see this war through to the bitter end. We as a free Parliament are going freely to vote this tremendous burden, and whether it be the Super-tax payer or the new taxpayer, I am satisfied that there will be no serious opposition to the Budget of 1941. Last year's expenditure was a record one, nearly £4,000,000,000. It was enough to make the orthodox economist rise in his grave, and I wonder what Mr. Gladstone would have said. If such a figure had been estimated a few years ago it would perhaps have been thought impossible. Now we are asked to find, as I understand it, £4,200,000,000 in the coming year. I have seen during the last few days many estimates of what is called our national income. They varied somewhere between £6,000,000,000 and £9,000,000,000. I will take it at only £7,000,000,000. This means that over four-sevenths of our national income is to go directly to the State to be spent by Government Departments for national needs. That is a very large burden. If it had not been for the Lease and Lend Bill, money would have had to have been found on a very much larger scale. Having disposed of our gold and dollar securities, we were nearly down to the knuckle bone, but, as I have said, the fact that we are prepared to put on the shoulders of the public this very heavy burden of taxation will show the United States of America that we are not prepared to take advantage of their generosity. These are colossal figures, and in these days we have to think not only of £s. d. but more in terms of labour and material and productive effort. Much depends during the next 12 months, if we are to weather the storm and carry this burden, on the efforts of the Minister of Labour and his kindred Departments. It is vital that the productive effort of the nation should be increased, and that there should be an addition to its producing power. High taxation is a very effective weapon in decreasing consumption, and in so far as that taxation will achieve that end it will be directly helping our war effort. We must divert the consumption of goods for our own use to purposes connected with the war, but—and I am sure the right hon. Gentleman would be the first to admit it—taxation is not always a fair weapon. It is very difficult, even with all our complicated machinery of family allowances, to distribute that burden fairly. I have become a convert—I might almost say a reluctant convert—of family allowances in wages, but I realise that during the war, when there is so much variety of scales and conditions of work, it would be almost impossible to introduce this system. But by endeavouring to regulate prices the right hon. Gentle- man has made an effort to help those with large families. I assume—and I gathered from my right hon. Friend's remarks—that along with fixation of prices of commodities there will be a genuine attempt to stabilise wages. If wages are to go up in some privileged industry, all this effort of fixing prices will fail unless you have with it an elaborate system of rationing. If you fix the price of such things as clothes and boots and do not have rationing, and you have increased wages, it will mean that the fixed prices will go to those with the highest wages. I do not know how far the Government contemplate any extension of the principle of rationing, but I think that if you are to fix prices, something in the form of rationing staple commodities, other than food, might have to be considered. Before I sit down, I would like to add my tribute to the great work of Lord Kindersley and his colleagues, particularly Lord Mottistone, who has been a most active partner, in their efforts to raise money by War Loan and War Savings. I was one of those who was attracted to the theories of Professor Keynes, who built up an elaborate argument for compulsory savings. Well, what the organisation has done under Lord Kindersley has shown that a free country, even in the midst of difficult circumstances, is willing to lend to the Government. As a result it has not been necessary to apply compulsion. Incidentally, when we come to consider the new proposal for dealing with Excess Profits Tax and the bringing in of this new army of taxpayers, something very much in the form of compulsory savings is being applied. I want to make some reference to the Excess Profits Tax. Obviously, the nation and. the Committee find it repugnant that people should make profits out of war. Therefore, I am glad that the principle of a 100 per cent. Excess Profits Tax has been retained. I do not like to believe that there is truth in the suggestion that the tax of 100 per cent. leads to wastage and extravagance, but I am afraid that all the evidence suggests that there is some justification for it. Unfortunately, humanity being what it is, when Government money is at stake the same care is not taken as when a man's own private pocket is concerned. Nevertheless, whether this be so or not, it is right to retain the principle of a 100 per cent. tax. I believe that the Chancellor's new proposal to give some incentive to save by providing that there will be credits available to the companies after the war is an ingenious idea, and one that will serve the double purpose of encouraging savings and of providing the capital that will be required for reconstruction after the war. We must await the particulars of the scheme which will appear in the Finance Bill, and we shall consider that proposal with sympathy and approval. The nation has shown great courage in facing the perils of the war, and I am satisfied that our people are prepared equally to face these colossal burdens, provided always that everybody shares and shares alike. I understand that that is the object of the Budget. I was glad to hear the right hon. Gentleman the Chancellor pay a tribute to the Select Committee on National Expenditure I hope that that tribute is something more than lip-service. Somehow or other, Government Departments, with these large sums of money at their disposal, are not taking the care which they should to see that the money is always wisely spent. If the taxpayers have to find these immense sums of money, they ought to be assured that the money is carefully spent and not wasted. Whether it is in the Civil Service or in the Fighting Services, Government Departments must be made to remember that they are the trustees of public funds. I am glad that the Chancellor, as on more than one occasion in the past, has shown that he realises the vital importance of economy and safeguards against waste. My hon. Friend the Member for East Birkenhead (Mr. Graham White) will be speaking on the Budget proposals on a later occasion, and he will have had more time to consider the Budget as a whole; but I can undertake, as far as my hon. Friends are concerned, that the Budget will have a smooth passage, and I believe it will have the support of the Committee as a whole and the general approval of the nation.
I should like to add my congratulations to the Chancellor of the Exchequer on the splendid way in which he stood the strain of speaking for over two hours. Speaking in cricket terms, I feel that his Parliamentary Private Secretary must have been giving him some good practice in the nets. I may have some, criticisms to put forward later on, but that will not detract from my admiration for the way in which he has attempted to deal with this very difficult task. The people of these Islands are being asked in this Budget to provide about £13,500,000 a day. I work that out to be £4,775,000,000. That money has to be provided by taxation, loans and gifts, and, I say this advisedly, it is provided in the cause of God and freedom. We are striving for victory, not merely for Great Britain and the British Commonwealth of Nations, but for liberty-loving peoples everywhere, and for what they stand, because we would rather die as free men than live as slaves. But the money will and must be raised, and every sacrifice will be cheerfully made. One of our fellow Members who is a brilliant writer, the hon. Member for Wood Green (Mr. Beverley Baxter), wrote, yesterday, in the "Sunday Graphic'':
The figures produced by the Chancellor of the Exchequer to-day are so colossal and so astronomical that their magnitude cannot easily be grasped. The sacrifices will be made more readily and more easily if those who give and lend the money to the Government are convinced that the expenditure of that money is properly controlled. In times like these there is apt to be a Kind of contagious disease which gets around. I am afraid the Government have a small attack. The symptoms are, "Oh, here is a war on," and "It does not matter." It does matter, because we are all in danger of losing our sense of proportion and forgetting that there is such a word as "Economy" in the English language. It is vital in these days to do nothing which impairs the financial stability of the country, and the confidence of our people in the financial stability of the country is a vital factor in winning the war. The right hon. Gentleman the Member for South-West Bethnal Green (Sir P. Harris) referred to the splendid work of Lord Kindersley and Lord Mottistone, to whom I should like to pay my tribute. The Chancellor of the Exchequer and Lord Kindersley are continually and persistently asking men and women everywhere to give and lend money to the Government. Only last night a long list of the splendid results which have been achieved in towns and cities, small and great, was read out over the wireless. But the Government must remember that they are the trustees of that money which is loaned or given, and that those who give or lend it must be confident that the money is being economically and wisely spent. The strenuous advocacy by Lord Kindersley and the Chancellor of the Exchequer has met with an amazing response, not only from people in this country, but from people all over the world. I want to ask whether the Government are being equally strenuous in ensuring that the money so raised is being wisely and economically spent. The answer of many of us to that question must be, to some extent, in the negative. For a very long time I have been trying to direct the attention of the Government, the House of Commons and the public to instances of waste, extravagance, dishonesty and nepotism, in the carrying-out of Government contracts and the spending of public money. The main duty of the House of Commons is to be the guardian of the national purse; all our procedure is framed for that purpose. However difficult it may be in these times, we must continue with importunity to do our duty in this respect. Quite naturally the action that one has taken has brought a mass of correspondence from responsible people all over the country, and the great difficulty that I and, I am sure, others have had is to get people to come forward and give the facts, names, times, places and details, and, what is more difficult still, to get them, themselves, to come forward and give evidence. Vague allegations carry little weight and achieve small results, but there is great and growing evidence that the public is seriously disturbed at the lack of courageous action by the Government. Three men did come forward; they were Major Evans, late of the Royal Engineers, Major Reid Kellett, D.S.O., M.C., and Mr. Carr, a member of the Civil Institute of Engineers. They all wrote me, and the allegations that they made were similar in character. I asked them to meet me in London. As far as I know, they were unknown to each other until I brought them together. In my opinion, those three sources of independent evidence greatly strengthened the case. Two representatives of the War Office have said that the charges that they preferred were "unfounded" and "frivolous." This, of course, they strenuously deny. The charges may or may not be frivolous and unfounded, but these three men are willing to stand or fall by the charges that they have made and, as they put it, if necessary, go to the Tower. [Interruption] They have not been investigated by a Judge. These three affirm that they make their charges in good faith in the national interest, and they cannot get a judicial hearing. They are suffering and brought to ruin because they have been honest. The fact remains that in England in 1941 three men are suffering under an injustice and are so far refused open trial by an English judge. The right hon. Gentleman who spoke last referred to the work done by the Select Committee on National Expenditure which the Government set up some time ago to examine cases of waste and extravagance. Up to date it has, I believe, issued 11 reports, and they reveal a pitiful story of waste and incompetence. The Committee is an independent body, and even the Government cannot give it orders or instructions. It is a Committee of this House. It is only fair to say that no fault for these charges can be laid at the door of the present Secretary of State for War, but I should like to see one of his predecessors at least examined on this subject. It is interesting to note that under the terms of reference the Select Committee is barred from making that full inquiry which is necessary for justice. In Section 9 of the Fifth Report the Army Sub-Committee report as follows:"Victory and afterwards. It is worth any price the Government ask."
The next paragraph is headed "Penalty of speed." None of us complain about extra expenditure in war-time, because of the speed and urgency of the case, but in our opinion that is no excuse for the last paragraph of the report. At the end of the Appendix, giving figures of five camps, the Committee say:"They have also received information from certain individuals who make allegations of a very serious character against contractors, surveyors and others in official positions in connection with the Militia Camps. They have gone carefully into some of these allegations in so far as they involve charges of waste, but are of the opinion that an exhaustive inquiry into all the charges formulated is not a proper subject for them to pursue, nor do they consider themselves in these cases a suitable tribunal for investigating allegations that those who have brought such charges have been pre- judiced thereby. They consider, however, that the charges should be further investigated."
In reply to many questions, I have always received from the Government the same kind of answer: "We must await the report of the Select Committee." All through the piece it was known that that report, owing to the terms of reference, could not adequately deal with the matter. The Committee recommended further investigation. What we have pressed for, and still press for, is a judicial inquiry where witnesses can be examined and cross-examined on oath, where the parties can be represented by counsel, and where the courts can have some power of punishment, because one or two test cases of this kind would have a salutary effect all over the country. After great pressure the only concession that we have been able to get from the Government is the appointment of a Chancery Judge to see whether there is a prima facie case on, I presume, the evidence submitted to the Select Committee. I should have thought that the report of the Select Committee provided a prima facie case. I am told on high legal authority that the Government, if it is not heresy to say so, have taken a most improper course in appointing a Chancery Judge to inquire into this matter. It should have been left to the Law Officers of the Crown."The final cost at the five camps, which may be taken as typical examples, varied from about two and a half times to nearly five times the estimate."
I think that the hon. Member is now dealing with some matter that has nothing to do with waste and, therefore, nothing to do with the Finance Bill or the Budget.
I am trying to bring before the Committee arguments why the examination of waste should be more vigorously tackled by the Government. I want to ask whether the evidence which has not been before the Select Committee will be put before the Judge. There are big firms of contractors who have been put off the list, who would welcome a judicial inquiry, because, they say, they do not mind so much about the money, but they care about their fair name. Very awkward questions are being asked, and I should have thought that the Treasury would have welcomed with open arms an inquiry of this kind to stop waste. Why is there this delay and unwillingness to grasp the nettle? I beg the Government to do something, in order to maintain national confidence, to settle this matter quickly and drastically.Now I turn to another subject. It is neither the large expenditure of money, nor tanks, nor guns, nor planes, that alone will win this war. President Roosevelt said the other day, when he was speaking on his Lease and Loan credit, "Dollars alone will not win this war," and in the "Observer" of 6th April the reviewer of a book entitled "Lord Halifax, the Man and the Diplomat," said of Lord Halifax:
I do not know whether I am the right person to say these things, but I feel they have got to be said. This war is a total war. It is Armageddon. It is a war between good and evil, between the Cross and the Swastika. Hitler controls not only the bodies of his subjects; he controls their minds and spirits as well. He controls them by a kind of hypnotism. There is pouring out from Germany, as over the wireless, a stream of hate and evil influence. The collapse of France, following that of eight or nine other countries, cannot be accounted for solely in terms of military defeat. The debacle was uncanny in its rapidity and its magnitude. It was diabolical. Hitler's secret weapon is fear through propaganda, and we in these islands, and men and women of good will everywhere, must forge an even stronger weapon in the realm of the mind and the spirit. On 26th May, 1940, which was the Day of National Prayer, a few laymen, of whom I was not one, got together to see what they could do to marshal, vitalise and co-ordinate the spiritual forces of good everywhere, and after months of work and prayer the B.B.C. were persuaded to signal at 9 o'clock each evening—"But now, in his great position in America, his conviction that our cause is the cause of Christianity will surely serve us in good stead."
:I really cannot see that the B.B.C.'s signal has anything to do with the Resolution before the Committee.
With great respect, it is our clock, and we do have to pay for its work and chiming.
I think the hon. Member is getting a little far removed from the subjects which can be legitimately discussed now.
I bow to your ruling, of course, though I am sorry that I cannot speak on that point. I have a difficult case to put forward, but I will not put it forward if it is out of Order, and I have nothing more to say. I will finish with this sentence, that I hope hon. Members, having seen the "Times" of last Sunday, will do all they can to support the Big Ben observation.
The Chancellor of the Exchequer had a very difficult task to-day, made more difficult because in the past we have not faced up to the seriousness of the financial situation. I join with those who have congratulated him on the clear statement which he made during the two hours that he was speaking, but 1 wish to devote my time to one aspect of the financial situation of the Chancellor of the Exchequer this afternoon. It is divided into three points which provide a valuable basis on which I want to state my case. The Chancellor of the Exchequer said, "We must have regard to the post-war reconstruction and social advance which we all desire to achieve." He went on to say, "The housing difficulty of the last post-war period was largely due to interest payments." That was significant, coming from the right hon. Gentleman. I could not help smiling when I sat here and listened to that phrase because my mind went back to 1931, and to all that was then said. In these days, the test of all contributions to Debate is: Will they assist the national effort and will they assist in the post-war reconstruction? With those principles in mind I put a Question to the Chancellor of the Exchequer on 20th February. The Question reads as follows:
I am pleased to notice that the Government have embarked upon a policy of stabilising prices. The reply given to my Question by the Financial Secretary to the Treasury was as follows:"whether he will appoint a committee to inquire into banking, finance and credit, with a view to reporting as soon as possible on how credit can be best utilised for the benefit of the nation, the establishment of a national central financial authority, the stabilising of prices and a long-term policy for planned economy?"
The I put the following Supplementary Question:"No, Sir. My right hon. Friend does not think such an inquiry is either necessary or desirable at the present time."
It is on this subject that I want to furnish the Committee with evidence which I hope hon. Members in all parts of the Committee will read, because I am convinced that we shall have to face in the very near future the situation which I outlined. Within the limited time at my disposal I shall produce evidence to show that if an investigation could be made of the character mentioned in the. Question, it would be in the national interest. During the last war, a committee was set up, and it investigated many aspects of finance. The Government have now, rightly, appointed a noble lord and my right hon. Friend the Member for Wake-field (Mr. Greenwood) to survey and consider the problems of post-war reconstruction. If it is right to take that step, is it not logical to take a similar step with regard to finance? It is on that point that I make a special appeal. Are we again to be faced, after this war, with millions of unemployed and planned scarcity—with millions of people going short while Nature supplies us with everything in abundance? This afternoon the right hon. Gentleman emphasised in the early part of his statement, that, after every war, financial systems were disturbed and strained. I agree with him in paying tribute to the Select Committee that considered national expenditure. They have made a valuable contribution to our war effort, but a similar examination should be made of finance—the effects of speculation, credit, insurance, and banking. With a number of other hon. Members, I pointed out, three or four years ago, that, if the international situation drifted in the direction in which it was then drifting, it would be necessary for this country to re-arm on a big scale. I say the same thing to-day with regard to finance. It is now necessary that we should re-arm financially. Let me quote the Manchester Guardian of 23rd May, 1918—the date is significant. It says:"In view of the fact that industry is now being mobilised in the war effort, does not my right hon. and gallant Friend consider that finance and credit should also be harnessed to the nation's needs, and, if so, are not the suggestions made in the Question essential steps to take with that object in view?"—[OFFICIAL REPORT, 20th February, 1941; col. 291, Vol. 369.]
Is that democracy? The last 20 years have proved the accuracy of that statement. It was for that reason that I put the Question which I have just quoted to my right hon. Friend and I am now backing it up with evidence. The last post-war policy of the City of London had a disastrous effect upon export trade, which is a serious matter for a highly industrialised country like ours. They lent long and they borrowed short, with the result that capital was paid back in manufactured goods. We in industry lost the orders; many of us went to the Employment Exchange; we could not afford to buy the food that we required, and the result was that the largest potential market for food in the world began to contract. Europe became a suicide centre. We are now fighting to avoid a servile State. This Budget is framed to enable us successfully to prosecute that struggle. Are we taking steps to avoid servility to finance? The orthodox financiers and economists have been proved wrong by Germany since 1933; they have been proved wrong by this country since 1938. What an indictment this Budget is of the Geddes Axe ideals, the May Committee and the 1931 conceptions of finance. What an indictment this Budget is of the Snowdenian orthodox conceptions of finance and all those who supported them during that period. The financial position depends upon the economic resources of a country, on its productive capacity, the people's energy, and the state of organisation of that country. Our splendid young men in the Armed Forces in all parts of the world, are bearing the brunt of the war. Our workers are working harder than ever and our women are now being registered for war work. When are we going to register finance in order that we can harness it to our war effort? The Budget is going a long way towards dealing with the immediate needs, but it is not comprehensive enough to deal with the financial situation in which we are involved. We have had crisis after crisis. We have had our Morgans, Rockefellers, Belmonts, Rothschilds, Kreugers, Hatrys, Kylsants, Hooleys and others who have held—and some of whom are still holding—the people in their grip. Is that democracy? In order to increase our war production we are, rightly, obtaining more and more supplies from other English-speaking countries. Canada, Australia, New Zealand, South Africa and India are making a great effort and ought to be mentioned in this Committee for the effort that they are making in supporting us. At the same time, they are becoming more and more industrialised. What problems will be created by this development? In a few weeks time Canada will have reached a state of productive capacity in which her output per person will be as great as that of any other country. We should consider now the effect of the industrialisation of the countries I have mentioned. The alternative is a repetition, in a more intensified form, of the 1920 to 1936 period. What a problem will face us on the cessation of hostilities. The growing overhead charges which are being more and more imposed on production are very serious. We cannot stand them. The people will be bled white, or there will have to be a radical change. The Chancellor said this afternoon that war taxation is bound to be grievous. In 1800 the National Debt was £504,000,000; in 1914 it was £716,000,000; in 1938 it was £7,111,000,000, in which we paid in interest alone £224,000,000. The Chancellor has said this afternoon that in 1941 we shall be paying on the war debt £255,000,000, which is £25,000,000 more than in the previous year. The interest charges alone will soon reach a staggering figure, and it is because of this that I am pleading with the Chancellor and with the Financial Secretary to reconsider the question. If we make an analysis of this White Paper, we find that we are also suffering because of the growing imposition of local burdens. For example, in 1936 the total rates paid were approximately £154,000,000, while at the same time we paid £100,000,000 in loan charges. The loan debt of the local authorities of England and Wales in 1922 was £803,000,000; in 1936 it had gone up to £1,481,000,000, and although I have not had an opportunity of making a further analysis, I venture to prophesy that it will have gone up by millions since 1936. No one will doubt that there is a need for a drastic revision of our national and local finances, and it is for this that I am asking. We cannot afford these crushing and intolerable Debt charges. Since 1918, we have paid in interest on the National Debt alone nearly £6,000,000,000, and that debt remains. My right hon. Friend the Secretary of State for Scotland wrote a book a few years ago, entitled "The Financiers and the Nation." It is a devastating indictment of our financial system, and ought to be read by every hon. Member of this House. Mention of that book reminds me of a statement made during the last war by the late Bonar Law, who said, "Never let it be said that you willingly gave your sons and withheld your money." Sir Henry Strakosch estimated that the fall in prices in the period 1925 to 1928 added £1,300,000,000 to the capital value of the National Debt. This is further evidence of the seriousness, which is not realised by many people, of the financial situation and of the Debt charges with which we are faced. The banking arrangements need rationalising; they need democratising. For example, to be a director of the Bank of England you must have at least £2,000 stock in the Bank. Is that democracy? The Midland Bank has 34 directors, with £26 a week each; Barclay's has 34 directors, with £36 a week each; Lloyd's has 34 directors, with £30 a week each; the National Provincial has 23 directors, with £36 a week each; the Westminster has 26 directors, with £33 a week each. That means that 151 men control £66,000,000 of paid-up capital and at least £2,000,000,000 of deposits; and many of them are directors of a number of from six to 20 other concerns. Can we afford, at a time when this nation is making a great effort to carry through such a war as this, to maintain the old stage-coach idea in finance? Can we afford to let our financial system be handled by men with the old tall-hat, frock-coat attitude and the old stage-coach speed of considering questions? After considering these facts, and after reading a number of books in the library, I am convinced that if one were to present the available evidence before an impartial committee, that committee would be bound to agree that the financial system should be investigated in the way I am advocating. It has long been admitted by all public-spirited people that deposits and assets should be at the service of the State. It is true that, as the Chancellor said, we have gone a long way towards achieving that. When the Chancellor made that comment at the beginning of his speech, I thought of one or two orthodox bankers sitting in the Gallery. He said that our system of exchange control, the mobilisation of our resources, and the method of dealing with our capital issues were so designed that they should be directed to the war needs. That is a great step in the right direction, but it does not go far enough. If it is right to go so far, then, logically, it is right to go as far as I am proposing. The 1931 Macmillan Report provides valuable evidence in support of this view. On page 16, paragraph 31, it said:''He who controls capital controls the economic life of a country. The influence of the master of capital extends beyond individuals and classes; it reaches to the state, to society as an organised whole. The master of capital possesses the immense power to impose his will upon the state, implied in his power to withhold help when it is urgently needed, or to derange the economic machinery of the country. In a very important sense the mastery of a country's capital is the mastery of that country."
I say then, that the realisation of profit becomes the dominant factor. Mr. Gladstone, when making a Budget statement, said:"The object of a commercial bank is to make a profit."
That is many years ago, but it is still the position to a certain extent. Because of that, I am placing these facts on record. Just as this House has been forced to face up to other questions in the last year or two, it is only a matter of time before we shall have to face up to this question. But I do not want it to be too late. My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) wrote:"From the time I took office as Chancellor I began to learn that in the face of the Bank and the City, the State had an essentially false position as to finance. …The hinge of the whole situation was this. The Government itself was not to be a substantive power in matters of finance, but was to leave the money powers supreme and unquestioned. In the conditions of that situation, I was reluctant to acquiesce, and I began to fight against it, by financial self-assertion, from the first. I was tenaciously opposed by the Governor and the Deputy of the Bank, and I had the City for an antagonist on almost every occasion."
and his statement was based on well-documented evidence. That statement was confirmed by the Financial Secretary to the Treasury on 7th February, 14)33, when he said:"Mr. Norman pursued a policy of his own,"
Later Mr. Norman persuaded the Government to transfer the liability from his Bank to the British taxpayer. I think of that and other loans and all that it means, and of the way we suffered in industry from 1920 to 1932, of the thousands of highly skilled men in this country who were forced to sign on at the Employment Exchanges, and also of certain financial people who were responsible for preventing certain governments from doing what they themselves did. I think of the whole of that background. At present the war is being financed by borrowing from the banks. This would be a Gilbertian situation if it were not so tragic. Why should not we have a register of capital? We are having a register of men who are being forced out of certain industries, and we are having a register of women, and surely the time has arrived when we ought to have a similar register of capital and wealth. On that basis the State ought to take control of credit and cut out altogether the unnecessary burden of interest. I am asking for the democratisation of credit. The Chancellor of the Exchequer said this afternoon that he wanted to emphasise the need for more genuine new savings. It is upon that that I want to ask the Financial Secretary a few questions. The "Economist" stated on 22nd March, 1941, in page 369:"The Bank of England made the loan on its own initiative."
that is, of the War Weapons Week. Is that true? May we have an unequivocal answer to that question? If it is true, how is it being worked? Is it by anticipation by local banks of the week's result, or in what way? Does the new created credit represent the banks contribution to the local week's effort? There is no justification for the payment of interest on war-created credit of that description. It is unfair to 90 per cent. of our people. The public are entitled to an answer to the questions which I have raised. The Committee should demand nationally-created credit and the control of credit at once. I intend to raise this matter again on the Finance Bill, but I hope the Chancellor of the Exchequer will take action before then. May we be told the total amount of credit created by the banks since August 1039? The Chancellor of the Exchequer introduced some improvements in the postal service when he was Postmaster-General and he knows that the postal service is carried on as efficiently as a service can be. The Export Credits Department is a State managed service on strictly commercial lines. It has earned substantial profits and secured orders which would not otherwise have been obtained, and at the same time, provided employment for thousands of people. This is an example of what can be done by credit under State machinery, managed as efficiently as possible. I suggest that this ought to be done at once. Steps should be taken in the Finance Bill to set up a State investment trust and at the same time, to provide interest-free national credit. I venture to prophesy that if this were done, it would be a huge success and form the basis for a scheme of State-managed credit and cut out the million snow paid in interest. The trade unions and other public-spirited men and women have lent thousands and thousands of pounds free of interest. This is an example of what can and should be done. It is imperative that an investigation should be made into this matter at once. A great deal of credit for the Empire planning scheme from which we are now getting results, is due to the Chancellor of the Exchequer. It was a long-term move, and now we are getting the benefit, and I want to suggest that it is equally essential that a long-term move should, be made with regard to finance. An intermediate report should be presented to the House in order that it could deal immediately with some of the issues which would be raised. Production is being speeded up, the centralisation of capital is being accelerated and the concentration of industry will lead to monopoly development. The problems of the past will be infinitesimal compared with those of the future, unless this investigation is made and steps are taken to deal with finance in the same way that we are dealing with other problems. It is only by an examination of the past and an appreciation of the present, combined with a facing-up to the resultant situation, that we shall be able to deal with it. In my view the financial situation requires an immediate investigation, which should be carried out expeditiously, and for that reason I repeat the question which I put to the Chancellor of the Exchequer in February this year."War Weapons Weeks are already leading to the subscription of newly-created credit by local branches of the banks. A clear contravention of the principle "—
I shall not attempt to follow the hon. Member who has just sat down in the treatise which he has delivered to the Committee this afternoon, but I would like to point out that, despite all he has said in connection with the finances of this country, it has been demonstrated from year to year and from century to century that we still stand highest in the opinion of the financiers of the world. The Chancellor of the Exchequer has had a very difficult task, but he performed it with his usual businesslike ability. We were particularly struck with his ability when he was Postmaster-General, and for what he did then, and we in Northern Ireland are particularly indebted to him for putting us on the same footing as this country with regard to Post Offices.The figures he dealt with this afternoon are astounding. I have heard 23 Budget speeches, but the figures which the right hon. Gentleman gave us to-day are fearsome as compared with the Budgets of the past. I must agree, however, with something that has fallen from one hon. Member of this House and has been repeated from time to time in the country —that a great deal of this money is wasted. I am quite satisfied that that is true, although in the execution of any long war I fear that this is quite inevitable. We are faced with the fact that we have an enormous sum of money to collect. At a time like this, the Chancellor must consider two things. In the first place, it is inevitable that he must find the money to pay for the war, so that the war can be carried to a successful conclusion. That is essential if this country, and everything that is right and proper, are to survive. The Chancellor has also the secondary consideration to bear in mind that, in find- ing the money, he must be careful not to kill the goose that lays the golden egg. For the first time in my experience of Budget statements, we have not heard anything about tobacco, spirits, or beer. I dare say there are some who think that additional taxation might perhaps have been put on such luxuries, but at all events they are to escape this time. The Chancellor dwelt at length on the subject of the 100 per cent. Excess Profits Tax. No doubt there will be an opportunity of debating that matter by itself. There are those who are of the opinion that an Excess Profits Tax of 100 per cent. leads to extravagance, robs many concerns of the incentive to work, and reduces the turnout for war purposes. They have less incentive to trouble themselves about the increase in wages, and money is, to some extent, extravagantly spent. Last week the hon. Member for Mossley (Mr. Austin Hopkinson) gave us an idea of how money might be wasted in certain circumstances. First, he said that a number of relations could be put into the business and draw salaries, and, secondly, he said that he thought it would be a good idea—and from what he said, I think he is carrying it out—when there was a possibility of making excess profits, simply to make a present to the Government Department of the thing he was manufacturing for them. That is one way of cheating the Treasury, but I do not think it commends itself to right-thinking people, and if I were inclined to do that, I do not think I should like to wear the King's uniform. I mention these points only to show that there will be concerns that will do all they can to reduce the amount of money they will have to pay as Excess Profits Tax. We have a lot of people whom we term as being in the "front line"—those in the Air Force, the Army and the Navy, and those in submarines, in the trenches and all the war workers. After all, I think we must all agree that our business people are also in the front-line trenches of the life of the nation, and that as such they are entitled to every consideration from the Chancellor of the Exchequer. There is the human element which never seems to receive the consideration it deserves in all these things. The same was the case in the last war. The generals did their utmost to make advances into enemy territory, but they seemed to forget all about the human element. I am afraid the Chancellor of the Exchequer has also omitted in his Budget to take into consideration the human element and the weaknesses which will from time to time reduce the payments to the Treasury which ought to be made. I should like to compare what the present Chancellor of the Exchequer has said with regard to the Excess Profits Tax with the remarks made by his predecessor. His predecessor said that the Excess Profits Tax ought to be 60 per cent., which left a certain proportion of the increased profits in the hands of the businesses which made them. He said that the proportionate increased profit which remained available to business concerns would be very valuable and useful for the very difficult period which would follow at the end of the war. That is a very different view from that of the present Chancellor of the Exchequer. We must all agree that at the end of the war this country will be faced with some very phenomenal and abnormal problems. Factories now engaged in war-time production will be endeavouring to return to their own pre-war legitimate business. Millions of men and women now engaged in war work will be thrown out. What is to happen, we do not know, but any Chancellor of the Exchequer in dealing with war expenditure should also think of the future. If there are to be no financial reserves left in these businesses, what will happen? The former Chancellor of the Exchequer gave it as his decided opinion that it is a very useful thing that we should have these reserves for the post-war period. It is almost frightening to consider what may happen at the end of the war, because if we are not giving our business men the incentive to create reserves for that period, I think we are heading for a very dangerous situation. I cannot help congratulating and commiserating with the Chancellor of the Exchequer in the job he has had to perform, and which he has performed so admirably. We all have a great belief in the eventual triumph of this country. I have no doubt about it. In Northern Ireland I believe we are putting every ounce that we can into the winning of the war. It is extraordinary what has been done by our people, though they are a small community. I am quite certain, as has been said by our late Prime Minister, Lord Craigavon, that to a man, in our determination to win this war, we are indeed King's men.
No one envies a Chancellor in these days in facing his Budget task, and I suppose each fresh burden of taxation evokes some sympathy from us, although we do not necessarily like the medicine. This is the first Budget which I think begins to reflect some understanding of the financial consequence of a totalitarian war. There are one or two very interesting aspects of it. In the first place, I believe it is the first introduced during war-time in which there has been no increase in indirect taxation. I was interested to observe, in the right hon. Gentleman's figures and statements, an indication that he is beginning to appreciate that the general policy of the Government affecting commodities is likely to restrict him increasingly in the future from adding to his revenue from the Customs and Excise Department. That is another very interesting and significant feature of the Budget. The Government's policy with regard to control of materials, limitation of supplies, and restrictions in a variety of ways is all tending to destroy that foundation of free commodity sales upon which indirect taxation will be erected in the future. The third point to which I should like to draw attention is that the Chancellor, in seeking new revenue of approximately £250,000,000. has had to resort to direct taxation, and, although there are some aspects of this proposal with which one might disagree in details, I thoroughly approve of the general principle that underlies the Budget, namely, looking to direct taxation to raise revenue. In my view that is the direct complementary policy to that which the Government are exercising in other directions over commodity control.Now may I turn to another aspect of the right hon. Gentleman's statement, which appears to me to raise very far-reaching issues and which I do not think has received adequate consideration so far? That is the definite indication that he gives that the Government now intend to settle down to a policy of endeavouring to control prices, and not only the prices of basic foodstuffs. I hope later we shall get a further elucidation of what is, in my view, a very important aspect of Government policy. As I understand the Chancellor's statement, it was an indication that the Government intend to cover the whole field of commodity prices, and his reference to the Board of Trade, with their powers under the limitation of goods and price control legislation, rather suggested that the Government's policy now is to cover a very wide field. Is not that rather adopting a policy when it is almost too late to be effective? The question upon which I should like to be satisfied is whether the Government are really in earnest in this direction. On the outbreak of the war we had declarations of Government policy from the Treasury Bench, and the Ministers, in introducing emergency legislation, laid it down that the Government's settled policy during the war was to keep prices down so as to avoid any movement in the direction of wages chasing prices. For a period the Government followed that policy. Over the area of basic food supplies they have succeeded, but it was apparent before many months had passed that the Government had withdrawn their policy over the vast range of domestic commodities that eventually influence the demand of wage-earners for increased wages. In that field of prices there has been a tremendous increase during the war. Let me give an example that directly flows from the Government's own taxation policy and for which the Chancellor himself is responsible. When he was introducing the Purchase Tax in his last Finance Bill he was warned by individuals like myself that it would have the effect of steepening-up prices more than any other individual action. Surety the Committee recognises the contradictions of Government policy when a Minister six months ago initiates a policy that deliberately steepens-up prices and now comes forward in this Budget with an admission that Government policy must tackle this problem. This is very important, because the original policy of the Government to control prices during the war was sound; experience has proved it to be practicable, and it is regrettable, to say the least, that one area of price control has been allowed to escape almost completely before the policy could come into operation. Taking the period from 1st September, 1939, to 1st October, 1940, the average price for food supplies increased by 22 per cent. In the period from 1st September, 1939, to 1st February, 1941, that is, since the Purchase Tax, there has been an increase of only a further 2 per cent. On the other hand, since the operation of the Purchase Tax, the following increases have taken place: Men's suits and overcoats, 20 per cent.; woollen materials, 24 per cent.; cotton materials, 23 per cent.; boots and shoes, 11 per cent. Here is a clear indication—because food prices are just as sensitive, in fact, in many respects more sensitive, than dry goods materials—that the Government could control prices of they so desired, but through the Purchase Tax they have been the greatest sinners in this respect, and having acted in that way it is rather ridiculous for them to come forward in this Budget and pretend to adopt the virtuous policy of controlling prices. The price of soap, which is not even subsidised like flour, has remained at the steady level of 15 per cent. increase over that period. Therefore, the Government, working with the trades and following a settled course; could adopt this policy, and I sincerely trust that on this occasion they are serious. Another interesting aspect of the Chancellor's statement is that it reflects a different policy in the relations of the Government to individual citizens. The Chancellor has announced a concession with regard to Excess Profits Tax, but it is to be a postponed payment to industry, with the object of replenishing the reserves of industry after the war. When the Chancellor introduces a modification of the Keynes plan, a rather subtle form of dealing with the lower ranges of Income Taxpayers, again he endeavours to soften the blow by crediting the individual with certain savings which will be repaid to him after the war. Where are we getting to? There is the huge war debt, which will be with us after the war— now calculated at something like £20,000,000,000, and it might easily be more. It depends entirely on the length of the war. Then, leaving out the commodity insurance schemes, compensation under the War Damage Act—and that may amount to a very considerable figure—is postponed and will be met after the war. We are developing a system within our taxation methods whereby we are beginning to collect taxes now to discharge the current requirements of the war and beginning to credit individual citizens with payments to be made to them after the war. The after-war liabilities which the Treasury are beginning to pile up are becoming very considerable. I know there is a case for and against, and that it can be argued that for the great mass of the citizens to have some interest in the financial stability of the State will be a stabilising factor after the war. On the other hand, we ought to take into consideration that any shocks to confidence after the war would have much wider repercussions because of the dependence of the citizens upon repayments by the State. We appear to be sliding into this policy of after-war commitment so easily and with such little thought, consideration and debate that it is about time that some serious consideration were given to the problem of after-war repayment. War damage insurance represents a type of liability that has never yet been incurred by the British form of government to the individual citizen. I am not opposing in this matter. One realises, in dealing with the question of war damage, that the individual wants to feel that he will get something after the war. It is very attractive to the person who has to pay additional taxation to feel that it is a form of compulsory saving, but I hope that the Treasury has given very serious consideration to this matter and has not lightly embarked upon this policy. I should have been more responsive in regard to steeper direct taxation, even though it went lower down in the scale, for the purposes of meeting the expenses of the war, and I should have felt the equity of the position more, if the Chancellor of the Exchequer had accompanied the proposal with a remission of the Purchase Tax. I have indicated that I approve in, principle of the steeper direct taxation, but when the Purchase Tax was introduced I made it plain that I would continue my opposition to it. After six months experience of this tax, I suggest that many of the things I stated have proved to be correct. I ventured to assert that the policy contradicted the larger policy of the Government with regard to the limitation of supplies and the limitation in the consuming power of the community. The Committee should remember that statement, in view of the Chancellor's own figures. He informed us that we should receive an annual income of £110,000,000 from the Purchase Tax, but he has now come forward and admitted that the Purchase Tax will yield only £70,000,000. One can read from his Budget Statement that there will be a need for still further restriction of commodity consumption, which again indicates that that figure of £70,000,000 may not be realised next year. Are we to go on indefinitely with a cumbersome form of taxation that now contradicts the two larger and major legs of Government policy? In the prosecution of the war the Government need the utmost surrender of labour power in the community, for the Armed Services, Civil Defence and munition factories. When the Government are making those demands, they impose at the same time cumbersome methods of taxation for the purpose of raising £70,000,000 a year. There is the greatest dispute in regard to household necessities, which probably represent from £50,000,000 to £60,000,000 of this tax and which enter into the spiral of wages following prices. There is no dispute with regard to the taxation of luxuries, or of commodities the use of which ought to be discouraged at the present time, but when the Government are spending more and more of the national wage bill and meeting more and more of it, it is ridiculous for them to impose an additional burden, the benefit of which they will ultimately lose in increased costs of materials and of wages to themselves. This tax destroys, or helps to destroy, the policy which the Chancellor of the Exchequer has initiated here. I trust therefore that the Chancellor of the Exchequer, now that he has embarked upon this policy, is realising that he must turn more and more to direct taxation, for the purpose of getting his revenue and for reducing commodity consumption. I hope that before this Budget is through he will take his courage in his hand and wipe away this cumbersome, expensive, inequitable and useless Purchase Tax, and will come down to a sound financial basis. If such were adopted, everybody could see exactly what he was paying in proportion to his income, and problems of inflation would be avoided. At the same time, it would be equitable for the whole of the community.
I desire to follow the last speaker in his remarks about the alarming effect of the post-war commitments into which we are entering. I want to consider the matter not in terms of finance, which to me is always rather an unreal subject, but in terms of goods—concrete goods. Month by month we are giving to more and more people the right to expect that as soon as this war is over they will have the power to command goods of one kind or another, because, after all, purchasing power is nothing more or less than the right to command goods. Are we quite sure that at the end of this war we shall have available enough goods—I do not say finance, but goods—to satisfy simultaneously all these claims? Are we quite sure that we shall not have to say to all kinds of people, such as the men who have lost eyes and legs, and women who have lost husbands and sons, "No, there are not sufficient resources in the country to enable us to deal generously with you because of all these other commitments which we have already undertaken"? I do not suppose that anybody will pay any attention to any puny words of mine, but it might be as well to put it on record that it is conceivable that after this war there will be a Government which will impose a very stiff means test upon the larger claims which individuals may make for immediate payments of these commitments into which we are now entering.Again, I would follow the last speaker in expressing my alarm about this 20 per cent. rebate on Excess Profits Tax in reference to money which is spent, as I understand it, on capital improvements which promote and increase production of war goods. I think that that is the correct interpretation of what the Chancellor said. Things are bad enough as it is, in a situation in which a great many companies are—let us be blunt about it— evading Income Tax by having what are called repairs—repairs which, quite frankly, cost nothing. We are now to have a situation in which a company, finding itself liable to make a payment of Excess Profits Tax of, say, £5,000, will be able to wangle that into the form of a capital improvement of its plant which will, incidentally, have the effect of increasing the output of goods needed for war—and, pray, what goods are not now needed for war, for consumption either by the civil population or the Armed Forces, or for export? And if one can do that, one can get 20 per cent. of one's money back at the end of the war. The reason why I am so long about this is that it leads me to ask the question, Who is now controlling property? Is it the Government, as we were told by the Deputy-Leader of the House nearly 12 months ago, or the private employers? Because, if the Government are controlling property for the purposes of war production, one would expect the Government to say, "This is our plan for plant expansion; get on with it."Can anybody say that that would be an unreasonable suggestion for the Government to make in the 21st month of the war? But no, that is not to be done. The individual employers are to be offered this bribe; if they can persuade some authority—presumably they will have to persuade some-body—that the expansion they propose will increase war output, they will get 20 per cent. back. I think this proposal is most vicious, because it will set up another department of our national life which will compete with every other department in deciding priorities for our limited resources. Instead of the Government making a coherent plan as to how, say, steel shall be used, setting aside so much for the factories which need expansion and so much for the making of tanks, they establish throughout the length and breadth of the land a deliberate competition against whatever plan the Government have got, which will be carried on by every single firm finding itself liable to Excess Profits Tax. They will compete and struggle to get somebody to certify that the expansion they propose will increase the output of one form or another of war material. I regard the proposal as vicious. The proposal arises from the Chancellor's statement that the present Excess Profits Tax is not quite fair. I am afraid that all over this House it is regarded as a terrible thing to be unfair to property. I say that at this moment, from the point of view of the national effort through the coming months or, maybe, years of struggle—a struggle which is being carried on as much on the moral plane as on the military plane—it is essential to be as unfair to property as you are to life. It may be said that it is unfair that the legislation which we pass should affect one particular firm adversely. But it is only one sort and size of property for which we are concerned. I have not noticed much sympathy on the other side for the little shopkeeper who is snuffed out on account of the exodus of population from a dangerous area. It is just those large properties to which you have to be fair. Consider how unfair war is to life. What could be more unfair than that one woman should be bombed and killed, while the woman next door is not? Or what can be more unfair than that one man, who in his life up to now has developed a kind of skill for which he was being paid 70s., should now, that particular kind of skill not being needed, be drafted into the Army and receive 14s., while another man who had developed another kind of skill for which in pre-war years he also received 70s., should now find that skill needed and receive 90s.? You have to treat property with an unfairness of that quality. I feel alarmed and perturbed about this Budget, because it shows no appreciation of what the great mass of our people understand by equality of sacrifice in war-time. I am in danger, perhaps, of seeming to endorse a criticism which is often voiced from the other side about the wages of members of the Armed Forces, compared with those of the trade unionist workers. There seems to be almost a kind of propaganda to set the men of the Armed Forces against their brothers in the factories. Let us remember that the arms workers in Birmingham are receiving, on an average, less than £3 a week. I am glad to say that, in my experience, this propaganda is not succeeding. There may be one or two soldiers—or one or two hundreds or thousands of soldiers—who may resent it, but I have not heard a word from any of the men in the ranks to the effect that some of the arms workers are getting more than soldiers. This morning someone said to me, "Isn't the food awful in the Army?" I said, "It is not too bad; you may have to live on a great deal worse before the war is over." He said, "That is impossible." I pointed out that the people of Spain had fought for over a year on breakfasts of hot water and biscuits. He said, "But they knew that they were all in the same boat." That was a significant remark. He was not referring to the fact that some arms workers were getting twice or three times as much as he was; he was thinking about that curious fraternity of directors, brokers and stock and share manipulators. I ask the Chancellor of the Exchequer, not because of any great economic effect it would have, but for the tremendous moral effect, to consider illegalising the tax-free directors' fees. I hope it is not too late for him to consider that. It is worth while looking at a book recently published called "Rats." I do not much like the title, but the material is worth studying. It is surety monstrous that, when directors virtually control shareholders meetings, they should have the power to put the whole of the increase in Income Tax on to the shoulders of the shareholders; and then they come along and say that, somehow or other, they cannot make a profit, and the Government must make it up to them. I would like one of these tax-free fee receivers to consider this Budget. This is a quite typical soldier's expenditure in a day. First, let us take supper. We are not underfed; on the whole, we are quite well fed; but supper is the only meal, except a cup of tea and a bun, that we get during the day between 12.15 and 7.30. On supper, the private soldier spends 4d.; on tea and a bun in the middle of the morning, he spends 3d.; on stamps, an average of 1d. a day; on those recurrent necessities which are needed every two or three weeks, like tooth paste, polish and so on, 2d. a day; on chocolate, 1d.; on beer—representing one pint a week—1d. a day; and on cigarettes, 1s. And do not let anybody who does not know the appalling boredom of the private soldier's life complain about that is. a day on cigarettes. That comes to 13s. 5d. a week—which is more than the soldier is receiving. I can assure hon. Members that there are a great many soldiers drawing upon their reserves, or rather receiving week by week payments from their wives, who, goodness knows, are hard enough put to it to make do on pay and allowances. Sometimes the wife has a job, but in some cases wives who have nothing except their pay and allowances are regularly sending their husbands 2s. 6d. a week because they know how hard hit they are. There is no room for cinemas on an allowance like that. I would like one of those gentlemen whose gross income is £10,000 and whose net income has therefore gone down. to £4,000 a year, which is £80 a week, or to £3,200 a year, which is £64 a week, to consider—one who is not in this House but who perhaps may read what I say —what his life would be like, not in terms of finance, but in real physical suffering, if he had to come to this place at 6.30 every morning and receive a very nourishing portion of porridge, two rashers of bacon and some potatoes, and at midday, more potatoes, vegetables and bully beef, and nothing else at all until he went to bed except two pieces of bread and butter and a bun, and all that he had to spend on food during these hours was 4d. I really do not believe that hon. Members are considering the human sacrifices in terms of this kind at all. Of course, I do not want all directors to come down to the wages of the serving soldier. I agree that it is a very responsible position to direct a company. They require much more training and ability than the average soldier. I am in favour of rewarding ability, but is it really inconceivable that the general run of directors of our companies should receive the same wages as a colonel in the Army, and get on with their job, expand their factories if they need expanding, contract them if they need contracting, and keep them running if they need to be kept running, and do it all with efficiency and enthusiasm and without grumbling? Is that really impossible? If these men can do that, why should they not do it for the moral effect it would create? If these men are not prepared to serve their country in its hour of need, as all the colonels in the Army are doing for a colonel's wage, they are not men who are fit to exercise any authority over any part of our destiny. One last and quite separate point. I suppose the Chancellor of the Exchequer thought about the increase in the railway dividends before he made his observations about the Budget and the cost of transport. He says, rightly, that it would be a bad thing to make the railway travellers pay the extra in increased fares, but it is very nearly as broad as it is long. I agree that it is better to put the burden upon the general taxpayer so that the rich pay rather more. But is he sure that the better solution would not be to revise the Railway Agreement? There is at least anything up to £5,000,000 to be saved there. If it is said that revision would be a breach of the Agreement, I would point out again that there is another type of property to which we are being ruthlessly unfair in these days. It almost seems as if there is only one kind of property to which you must be scrupulously fair and that is the property of the company director, the company promoter and the manipulators of company finance and company script. We have been ruthless with those who owned Government of India bonds and, in the same way, I suggest to the Chancellor that he can produce a substantial moral effect in this country if he revises the Railway Agreement and creates a situation in which railway shareholders will get no more than they had before the war.
I am glad to have the privilege of congratulating the Chancellor upon his brilliant display to-day. He gave the Committee and the country a bird's-eye view of our expenditure and income in such intimate detail that the whole nation will now be fully apprised of the situation which exists in this most parlous hour in its history. I wonder whether in estimating for an expenditure of £4,200,000,000 during the ensuing twelve months he has not been somewhat optimistic. Expenditure for this year is £4,000,000,000, so that the increase he anticipates is only £200,000,000. I should have thought that with the new factories coming into operation and the larger war effort we now see opening this sum would be too modest, but no doubt the right hon. Gentleman has weighed up the matter in a way which we, without the advantage of all the data and figures, cannot do.But the limits of our effort are not only financial. There are the physical limits of our man-power, our material and the organisation of our war effort. I hope that as a result of the revelations of the Select Committee upon National Expenditure we shall not again have any situation such as is there revealed. I am gratified to know that there are no new indirect taxes. Is it the case that the Chancellor saw little or no hope on that horizon? It may be that the maximum burden is already being laid upon those who are bearing indirect taxation. There is, we note, no capital levy. I think we must all agree that there is a most substantial income levy prevalent at the present time but the Chancellor, following the illustration he gave us of certain individuals paying 19s. 6d. in the £, might have taken the other sixpence without hurting anyone too seriously. I have heard it argued that certain individuals are being called upon to pay, in modern taxation, the sum of 22s. in the £and this is done, I am assured, by calling upon financial reserves. I am certain, however, that the Chancellor is not guilty of imposing that burden of taxation. There is no taxation on land values, presumably because it would take too long to secure such taxes, but, at all events, I think the Chancellor might have gone on the safe side and placed a tax on land based upon, say, half the actual value. As to the Purchase Tax, I was very hopeful, knowing the heavy burden on certain sections in my constituency, that this tax would be extinguished. It involves only a relatively small sum. The Chancellor says that he will obtain £26,000,000 this year, and in a full year, not what he predicted formerly, when he said that it would produce £110,000,000,.but only £70,000,000. Perhaps some modification of this tax may be introduced in the Finance Bill. I can assure the Chancellor that I have heard of cases of unemployed people and other relatively poor folk who are quite unable to renew household goods. I moved an Amendment to that Measure asking that bedding should be exempted, but the heavy hand of the Chancellor prevented that from being achieved. It is a pleasure to learn—and no one will share that pleasure more than the agricultural interests—that farmers are now to pay their Income Tax upon their profits. It must have been a source of deep shame to that industry to know that it was paying altogether less than it should have paid, and that it had done so for many years past. It is interesting to know that, with the reduction in allowances and exemption limits, some 2,000,000 more citizens will be brought within the sphere of paying Income Tax. I have discovered everywhere that the patriotism of our people is such that I am sure no objection will be taken in this regard. I am glad that the Chancellor has offered this consolation to these people, that to the extent of some 20 per cent. there will be a nest-egg put aside for use after the war. As the tax begins at the level of —110 per annum, there are few of our citizens who will escape that taxation in one form or another. Probably, the Chancellor has adopted the most equitable manner of raising the —250,000,000 which he requires. With regard to the Excess Profits Tax of 100 per cent., I felt that, considering the general opinion that no undue profits should be made out of the war, there would not be any reduction in the amount. There was, however, no question that the 100 per cent. was inequitable as between firm and firm. The Chancellor has now eliminated that inequality. The provision for reconstruction after the war, by crediting the firms with 20 per cent., will afford a very valuable stimulus to them and to the national economy after the war. After all, if the war lasts some length of time, there will be a substantial amount available for expenditure for various classes of goods arising directly from this grant. The Chancellor of the Exchequer advised the Committee that Income Tax would be payable upon the sum set aside. One would like to know on what year's Income Tax the charge will be made. It may be found at the end of the war that the 20 per cent. has disappeared altogether—we have already seen half of it go from what was said by the Chancellor in indicating that taxation must be raised to 10s. in the £. It is gratifying—and I hope this may be the general progress of Chancellors of the Exchequer in the future—that certain increases due to the war shall be paid by the Government to avoid the possibility of inflation and to give a greater measure of stabilisation. Unquestionably that is a very Socialistic step to take, and it should generally achieve the end the Chancellor is seeking—the avoidance of inflation and subsequent prospective increases in prices to the public. It is a pity it could not be made retrospective. We know how transport charges have risen, and we have seen a rise of £2 per ton in the cost of steel and many other materials required for war purposes. Perhaps the Government may see fit-to pay all increases due to the war. With regard to the future position, which the Chancellor has outlined, I think we may feel satisfied. We can look our nation in the face, and also the European peoples for whom we are lighting, and particularly the American nation. However severe the burden may be, or however arduous the role, the British people are prepared to make the heaviest sacrifices they can make in order to secure an early and successful termination of hostilities.
I am always sorry that we do not have a better attendance on Financial Statement days, because it is a grand opportunity for Members to take the time at their disposal in putting forward any proposals they have in mind. Often Members have preconceived ideas of what should be done. I was particularly struck by what was said by the hon. Member for Barnstaple (Sir R. Acland), that if only we could get the idea of equality in the minds of our people, there is no question that this war would be prosecuted to a successful issue. We want our people to realise that they are being dealt with equally. I know the people at the other end of the scale— the poor people who have insufficient means. I was hoping that the Chancellor might have mentioned something about these people—I am referring now to National Health Insurance people and those on disablement benefit who are receiving the meagre allowance of 7s. 6d. per week. I should have thought there might have been some provision to give, them better allowances. I have letters from people who have to go to the Poor Law authorities to get a little more than 7s. 6d. We have tried to remove what is called the family means test, but when these poor people go there they are subject to it. These are points that I want the right hon. Gentleman to have in mind. The more he can devote his attention to giving all classes a fair share of what is going, the more will he be satisfied with himself and get the country behind him. You will never succeed if you have at one end of the scale a lot of people who are suffering, while others are doing fairly well.The Chancellor, talking of the stupendous amount of the Budget, wanted the money to be wisely spent and deplored what he called extravagance and waste. We hear from workers in the munition factories of the colossal amount of waste, and I am invited to go and see waste material lying about and nothing being done about it. You can understand the feelings of people who are called upon to pay Income Tax when they see all this waste. I hope attention will be given to that matter. There is criticism about people being taken to munition factories and not being made proper use of. People are taken, for instance, from the mills, but if the factories are not quite ready for them, I do not regard money spent in training them as being unjustly spent. If they were not trained there, they would have to be sent somewhere else. It is only right that they should be paid a wage while they are getting their hands into proper use. It takes weeks, perhaps months, for mill hands to become efficient. I do not call it extravagance to pay full wages while they are being trained. At the same time I hope the Chancellor will see what can be done about extravagance in other ways. I am pleased with the Chancellor's statement about subsidising essential foods for the people. I am in entire, agreement with what he has done in that direction, and I hope that he will not stop there. We are subsidising bread and other things now, and I want the Treasury to do whatever can be done to stabilise prices, because the payments by the Treasury come from all the people rather than a section. The Chancellor mentioned the conversion of 4£per cent. loans and the money that will be brought into the Treasury as a result. It struck me that the right hon. Gentleman might use his abilities in another direction. I understand that local authorities are to convert some of their holdings and pay 3£ per cent. Whatever percentage is paid, it comes out of the common fund, and seeing that Par- liament has laid down the rate of 3 per cent. for Government loans and the Chancellor is to find the money for the conversion of the local loans, will he not say to them, "If you convert, there must be no higher rate paid than the Government are paying for their loans"? The local authorities are controlled by us and have to be helped out by the Treasury, and why should they pay any more than 3 per cent.? I hope that the Chancellor will gradually but inevitably cut down the rates of interest everywhere. The percentage should be kept as low as possible, and we shall then get something like a fair return for the money. It is hard that we should have to pay any interest on invested money when this is a common fight, and there is no reason why we should not take the money and use it. With regard to the Excess Profits Tax, I am one who stands whole-heartedly for the full 100 per cent. The Chancellor is not doing the right thing in giving way on that matter. I know that a lot of pressure has been brought to bear on him and that there has been a lot of wrong-doing in bringing that pressure to bear. I have heard a lot about companies misusing their profits in various ways that could not be got at, for the purpose of bringing pressure on the Chancellor. It is unpatriotic of these business people to attempt to force the Chancellor's hand in this direction. There will be an outcry in the country about this, and the lower sections of wage earners who are called upon to pay Income Tax will want to know why the Excess Profits Tax is reduced to 80 per cent.
I do not like to interrupt my hon. Friend, because he always speaks with so much common sense, but does he not think that some opportunity should be provided in the public finance of the year to enable people, after this awful conflict is over, to return to their employment? How can that be done unless there is some margin to enable businesses to carry on after the war?
Parliament decided in the light of all that that the duty should be 100 per cent., and the present Chancellor was the man who led the House in that direction. What has happened since? I can give instances if required to show that financial interests, by subterfuge and wrong-doing, have tried to dodge the tax. When news of this Budget goes out to the public it will have a very serious effect upon their minds. The man in the street will say, "Yes, we are called upon to pay Income Tax. What for? For these high financial interests which are getting a reduction of the 100 per cent. Excess Profits Tax." I know that is so, because I was at a miners conference during the week-end, and that was the line of argument followed, and we were urged to do all we could to avoid any reduction of the 100 per cent. Excess Profits Tax. We on these Benches will fight as hard as we can on this particular question and try to defeat the Government.There is another means of getting money which I would urge upon the Chancellor. He knows that we on this side have always stood for the State holding the land of the country. There is a strong feeling among the people that landowners are enjoying the fruits of enhanced values for their land which have been brought about through no ingenuity on their part but are the result of public activities. I urge the Chancellor to consider taking the whole of the land in the country, and I will tell him how to do it. I want him to purchase it at what is called the agricultural value. There is no need to pay for it in hard cash. I am not asking for confiscation—I do not want to urge that—but I do say that the whole of the land ought to be in the possession of the State. If it is bought at its agricultural value, then any increment in its value will flow in to the State, and that will be a great way of finding money for the future. We are getting near the point of exhaustion so far as ordinary taxation is concerned, but the Chancellor of the Exchequer can, if he will, find a new source of wealth. I put this suggestion before him in the hope that he will examine it, because I foresee that there will be an interim Budget before the year is out. Our expenditure is bound to go up, and we do not object to that. Whatever is required to beat Germany—ask us for it, and you will get it. As the Chancellor wants to balance his Budget to stop inflation, he will have to look for fresh revenue. I am giving him a hint, a straight tip if you like, how to get it, and I hope he will take notice of it—this proposal for the State to acquire the land and get the benefit of the increment value which has come about without help from the landowners. On the whole I am satisfied with the Budget. All that I am anxious for is to try to get the ordinary people outside this House to have a feeling that there is a sense of fairness in the House of Commons, that when we are putting on taxation to meet the needs of the country we ought to put the burden equally on everyone's shoulders. If we can do that, there will be no need to fear the result. If we get the whole country feeling that we are doing the right thing here, we shall get a successful conclusion of the war.
I consider that one of the remarks made by the Chancellor when introducing his Budget was very significant, although it might seem quite innocuous. He said that along with the work of prosecuting the war we had to prepare for measures of reconstruction and social advance after the war. That means that after the war there will be the same old Tory conception of the same old system of society. The idea prevalent is that the property-owners will still remain on top and the masses of the people will be down at the bottom. That conception determines the character of the Budget.I do not propose to deal in detail now with the modification of the 100 per cent. Excess Profits Tax, but I will deal with it in the country. I would like to have an opportunity of doing so in the presence of the hon. Member for Moseley (Sir P. Hannon), who interjected during the speech of the hon. Member for Leigh (Mr. Tinker). What is the guiding principle of the Government's attitude towards the 100 per cent. Excess Profits Tax? You can see it as plain as anything. It is that the rights of property must be protected and maintained; its profits must be secured during the war and the property protected after the war. While there is such concern for property, what concern it, shown for the poor? None. All the indirect taxation that bears so heavily on the poorest of the poor remains. I wonder whether any hon. Member on the other side of the House, or even the Chancellor of the Exchequer, would be prepared to spend a week-end at the home of one of the poorer workers, sit down with them and share their scanty rations and contemplate at the same time the amount of taxes that those people have to pay. On tea they pay £12,000,000 a year, on sugar, £30,000,000; cocoa, £1,000,000; beef and veal, £3,000,000; dried fruits, £1,000,000; matches, £9,000,000; silk and art silk, £4,000,000; beer, £106,000,000; tobacco, £151,000,000, and entertainments, £7,000,000, making a total of £324,000,000. These burdens, or most of them, are imposed upon the poorest of the poor. The burden falls upon old age pensions, and there have been continuous resolutions to the Chancellor of the Exchequer, demanding the end of the means test. No provision is made in the Budget on behalf of those people. Added to the indirect taxation that bears so heavily on the people is the Purchase Tax. This tax was adequately described by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), who said, on 24th July last year:
The right hon. Gentleman understood it, and knew what it meant. He explained what it meant, although he supported it. Principle is not very strong with some of the Members on this Front Bench. Worse than any of the taxes is the tax on wages. It is a scandalous tax. The other day I had a letter from the Thorn ton branch of the National Union of Railwaymen, protesting against the tax and asking me to do everything possible to prevent an increase in the tax. The Chancellor says that there has been an unofficial inquiry in a certain area. Whether it is an unofficial or an official inquiry, it is a fraud. Everybody knows that it is a fraud. Supposing the unofficial or official inquirer went to a worker and said to him, "Do you agree with the tax on wages?" and the worker said "It is a damned scandal, that is what it is"—"The Purchase Tax … is generally known in other countries as a sales tax…It has been the name for a tax devised by people who wanted to push on to the poorer classes a large part of the burden of taxation." —[OFFICIAL REPORT, 24th July, 1040; col. 906, Vol. 363.]
I must ask the hon. Member to refrain from using unparliamentary language in discussing this matter.
I am sorry if I have transgressed, but I was trying to describe how a worker would express himself about the tax on wages. If he expressed himself in such a form and said, "It is a scandal; it ought never to have been imposed, and the trade unions ought to take action and put a stop to it," the inquirer would mark down such a man or woman as a "Red'' and report that man or woman to the police. The Financial Secretary to the Treasury shakes his head as if he does not accept that, but there has been so much of it, that when these inquirers go round the people are very careful in what they say because they have heard of such cases, and the police have been known even to raid houses and search for seditious literature and that sort of thing. The inquiry is a fraud. The workers are bitterly opposed to this tax, because they know that the property owners and their profits are being protected. The workers know that they are shouldering a heavy burden thrown on them by the property owners, and that they are guaranteeing the property owners profits. Then the workers are told that on top of that, while the profits of the property owners are to be protected, a certain percentage of the money filched from the workers wages will be credited to them to meet the difficulties which will arise. What difficulties? Unemployment, that is what is meant. At the end of the war, in the sacred name of property and profits, there will be mass unemployment.When talking about taxation and wages there is an idea on the Tory benches that the workers are making enormous fortunes. There are some workers who, by working overtime every night of the week and by working on Sunday, make £7 or £8 a week. But in my constituency there are mostly miners, railwaymen and agricultural workers. What sort of wages are they getting? They are only getting the normal wages which they had before the war, with one or two small cost-of-living additions. It is very difficult for them to make ends meet as things are. The miners are simply desperate to get wages which will give them security, but with this lowering of the limit of taxation many of these men will have to pay taxes, and they will be unable to carry on. It is the same with railwaymen and agricultural workers. It is claimed that because of overtime and Sunday work, workers can make fair wages. Alright. Then the Ministry of Labour goes to the dockers with a scheme which promises them a guaranteed wage of £4 12s. 6d. a week, while they may make much more. I am told that coal-trimmers in Cardiff and Bristol can make from £8 to £10 a week, working coal on the surface, but the men who are working the coal way down at the bottom of the pit—what sort of wages are they getting? And now they have to pay the tax. A wage of £4 12s. 6d. a week is not too much for the dockers; it is not enough, but if you can guarantee a wage of £4 12s. 6d. for the dockers, why cannot a similar wage be guaranteed for the miners? But no, to force them down to the deepest depths of poverty is the idea. That is what is happening, and the workers know it. Nothing has been said about the banks and the bankers. Why are they being allowed to run about all over the country? When you hear about the lend-for-nothing campaign, or lending at a low percentage, you do not find the bankers among the lenders. The Chancellor has praised Lord Kindersley and his appeals. I have heard him appeal myself, but he appealed in vain to the bankers to lend cheap money. Why should not the banks be reorganised and taken out of the hands of the gang who control them? There are so many banks, most of them redundant, but the State could take over the banks and completely reorganise the banking system. Then, as the hon. Member for Leigh (Mr. Tinker) asked, why, in a crisis like this, should the land of the country be in the hands of private owners? Private owners have no right to the land. Reference has been made to a book published about 20 years ago, by the present Secretary of State for Scotland. In that book it describes how the possessors of the land got it. This is what is said:
The last-named is significant. I do not want to use common language to describe what it means or I would be using unparliamentary language again. Why should we leave it in their hands? Why do we not take over the land, and in taking it over take over all the land values? What an amount you would get out of that. The big thing that is wanted in a crisis of this kind is a tax on property. There is no other way to meet the crisis. Mention has been made of the Lease-and-Lend Act. But nobody discusses what the Lease-and-Lend Act will mean to the people of this country when the war is over. Our people are already committed, whether we win or lose the War, to reparations payments to America. I heard the subject mentioned the other day among a group of Members. One or two said, in an easy, happy-go-lucky way, When the war is over we shall do what we did after the last war, we shall not pay. "But it will not work that way this time, because we are being tied up. Then there is the National Debt, of about £11,000,000,000 or £12,000,000,000 at the present time. I have had an estimate made of the effects of a tax on property. The total property in private hands is estimated at £25,000,000,000. Of this, about £14,000,000,000 is owned by 300,000 people each having property of over £10,000. It is these people, numbering less than 1 per cent. of the population, who would have to pay. The number of persons with property of over £100,000 is 14,000. The total value of their property is £4,500,000,000. A tax at the rate of 33⅓ per cent, on that property would yield £1,500,000,000. There are 90,000 other people with property worth over £25,000, to a total value of £5,500,000,000. At 25 per cent., a tax would yield £1,400,000,000. Then, there are 196,000 people owning property of a value from £10,000 to £25,000. The total value of their property is £4,000,000,000, and, at 15 per cent., a tax would yield £600,000,000; making a total yield of £3,500,000,000. It is alleged that there will be a great deal of difficulty in dealing with the property, getting the examinations made, and the estimates worked out, and so on. But the Estate Duty returns show that persons with property of over £10,000 have, on an average, nearly a quarter of their wealth in the form of British Government and municipal securities. This makes it clear that such a tax could be arranged, if the Government had any intention of interfering with property. I listened to the hon. Member for Stoke (Mr. E. Smith) discussing the conscription of men and women and the tenderness that is shown towards property. I was at Queen Street Station, Glasgow, the other day, catching the 9.40 train for Newcastle. There were a lot of lads joining the train after their embarkation leave, and I saw some touching scenes. Most touching of all was a mother with her arms around her son's neck; and their relatives had a most terrible job getting her hands loosened from her boy, as the train whistle was blowing. Tears streamed down her face. Her heart was obviously breaking. Yet such tenderness is shown for profits and property. Speaking on 23rd April last year, the leader of the Labour party, now the Lord Privy Seal, said, from this side of the House:"There can be no progress until the superstition that the old nobility is noble is completely eradicated. Their title deeds for the land they possess are theft, rapine, murder and court harlotry."
The First Lord of the Admiralty, when he sat on this side, asked the Chancellor of the Exchequer to consider the general proposition to mobilise in war time the capital wealth of the country. A decision was taken at the Labour party conference at Bournemouth as follows:"We have always advocated a capital levy." — [OFFICIAL REPORT, 23rd April, 1940; col. 90, Vol. 360.]
The question now is, as all these burdens gather, with property and profit protected, are we to assume that we are going to carry all these great burdens over into the post-war period? There are the reparations to America, the £11,000,000 or £12,000,000 of war debt which is being added to all the time? Where is there any possibility of social progress or of a new social order such as labour leaders are talking about and about which the Tories laugh and jeer? With such burdens there can never be a new world of any kind. There can only be the old world with greater poverty and distress than has ever occurred in the world before. If there is to be any change in the future we must begin by making changes now, and these changes should be registered in the Budget. We should have a Budget freeing the workers from the tax on wages and removing the Purchase Tax and the taxes on the ordinary necessities of life, and taking from the robbers a share at least of their ill-gotten gains. Until we can get such a Budget there will be no guarantee for the future of the people of this country."This conference, recognising the paramount importance of democratic success in the present struggle, declares that any. sacrifices entailed must be apportioned with justice and equity. It urges the vital importance of protecting the workers against schemes of compulsory saving and calls for immediate restriction of profit and the imposition of a levy upon capital."
Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to. —[Mr. James Stuart.]
Committee report Progress; to sit again upon the next Sitting Day.
The remaining Orders were read, and postponed.
It being after the hour appointed for the Adjournment of the House, Mr. DEPUTY-SPEAKER adjourned the House without Question put, pursuant to the Standing Order.