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Finance Bill

Volume 389: debated on Tuesday 18 May 1943

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Order for Second Reading read.

On a point of Order. There are two Amendments down to this Motion, and I think it would be for the convenience of the House if you could give us an indication, Sir, as to whether either of the Amendments is to be called, or if you could give us any other guidance as to the course of the Debate

I am obliged to the hon. Member. It will not be possible for me to call either of the Amendments, but I would suggest that, in order to deal with the subjects which hon. Members want to raise, we should start by having a general discussion for the next two hours or so, and then hon. Members wanting to speak particularly on the Amendment of the hon. Member for Chesterfield (Mr. Benson) would be more likely to catch my eye for the next hour and a half or so. Then hon. Members who want to address themselves to the Amendment in the name of the hon. Member for Ipswich (Mr. Stokes), might be able to do so. I make that suggestion to the House.

I beg to move, "That the Bill be now read a Second time."

This Bill, of course, gives effect, so far as legislation is necessary, to the Budget which I opened last month. On the provisions of the Bill which affect the finances of the year—the rate of Income Tax, the duties on liquor, tobacco, and entertainments, and the Purchase Tax—I feel I need say nothing further to-day. We have already had some detailed Debates on them, and if necessary there will be further opportunities for discussion on the Committee stage. I think I can say, with the assent of the House, that there has been general acceptance of those proposals.

I should, however, like to remind the House again that the proposals in this Bill—and, indeed, the whole financial policy of taxation and borrowing followed in my Budget speech—are part and parcel of the wider policy of the Government on the economic problems raised by the war. Our financial policy has been not merely co-ordinated with that wider policy, but it has been made an integral part of it. I take, as a useful example, the implications of rationing.The shipping situation and the need for devoting as much of our physical resources as possible to the war effort made necessary the rationing of food and clothing and the restriction of the supplies of practically everything else that entered into normal private consumption. In such circumstances the policy of high taxation, coupled with the Savings Campaign, was clearly necessary. The volume of purchasing power which would otherwise have been left in the hands of the public might have endangered the success of the rationing scheme and placed too great a strain on the various measures of price control. Similarly, in regard to such matters as the Purchase Tax and other indirect taxation, the House is well aware that I have endeavoured to pursue a policy which has paid regard to the general economic position rather than to purely revenue considerations. In that policy, taxation and saving, as I have said, play an essential part. Just as all sections of the community have submitted themselves willingly to restrictions and controls like those on food and clothing, so they have all readily borne their share of the burden of taxation, and large numbers have responded to the appeals for saving and lending.

One of the two objects of our high war taxation has been to keep as low as possible the post-war burden of the service of the National Debt. We shall not, I hope, be led away by any easygoing suggestions that, because the payment of interest on all but a fraction of the Debt represents a transfer of income within the country, the post-war cost of the Debt is something we need not take too seriously. The cost will have to be raised by taxation in one form or another; and the more revenue we have to earmark for the service of the Debt, the less easy will it be to find revenue to meet, among other things, many of those very desirable developments of our national life, upon many of which we are now working. The inconvenient final result of a dental extraction is not averted by an anesthetic or by the dentist's dexterity in using a variety of instruments. Neither is the total burden of taxation generally made more congenial to the individual taxpayer by telling him that it is merely a means of redistributing the national income or by levying it in some new form which is claimed to be theoretically less repressive or discouraging. One of our post-war aims must certainly be to keep the total burden of taxation as low and reasonable as is consistent with proper provision for, among other things, all those national services and projects which have a just claim upon the Exchequer.

Great as have been the burdens which the country has borne in war taxation, the war will still leave us an inevitable legacy in the shape of a greatly increased National Debt. We have had to borrow so far during the war more than the whole of the Debt outstanding at the beginning of the war—yet the total cost of the Debt has only gone up by some 75 per cent. Before the war the average rate of interest on our internal Debt was 3 per cent., and now it is 2½ per cent.—that is, on the aggregate of the internal Debt existing before the war plus the new internal Debt contracted since. Our war borrowings have been borrowed at an average rate of only 2 per cent., and this, after allowing for Income Tax, represents a net cost of just over 1 per cent. Not a little of the country's steady support of our loans —and through them of our general financial policy—has been due to the general satisfaction that we should have been able to borrow on terms which are so much more favourable than those during the last war and which are generally regarded as fair and proper to-day. In this, as in other things, nothing succeeds like success.

I now desire to turn briefly to some of the Clauses in the Bill on which the House may wish to have some explanation. Most of them, however, I do not think need any comment, as they deal with matters arising out of the Budget with which the House is familiar and which has been generally approved. Clause 6 gives effect to the increase of Entertainments Duty which I announced in my Budget speech, and I do not think I need say any more on the general aspects of this proposal; they have not been objected to. I should, however, like to deal with the point raised by my hon. Friend the Member for Gravesend (Sir I. Albery) in the course of the general Debate on the Budget Resolutions. He referred to the administration of the provision in the Act of 1916 which first established the Entertainments Duty, and under which performances are exempt from the duty if the entertainment is provided for partly educational purposes by a society not conducted for profit. With the further increases in the rates of duty now proposed, the value of the privilege of exemption from duty is necessarily enhanced. Accordingly, the never very easy task of interpreting the exemption provision fairly and reasonably requires all the more care, and I am considering whether there might not be some advantage in having a small advisory committee to assist the Board of Customs in this work. I would, however, like to say to my hon. Friend and to the House that I am not aware of any deliberate attempts to abuse the exemption privilege, but I am taking steps to ensure that the position is closely examined in order to ascertain whether any further action is required.

Clause 8 gives legislative effect to a concession which I have already announced in the House in anticipation of Parliamentary sanction. It represents a considerable extension of the conditions under which farm tractors may be used on roads while still paying only the reduced licence of 5s. At present the reduced rate is limited, broadly speaking, to tractors owned by farmers hauling the produce of the farm or articles required for the farm from one part of the farm to another or to or from a railway station. The new Clause removes the limitation to journeys to or from a railway station or from one part of the farm to another; it will allow the hauling of agricultural produce or articles required for the farm without any limit of starting point or destination. It will also allow such haulage to be undertaken for any farm or market garden instead of only for the land belonging to the owner of the tractor; and it will apply to agricultural contractors as well as to farmers who themselves occupy land. The concession is proposed as a temporary wartime measure, and I feel sure that the House will welcome it as a contribution to the vitally important work of doing all we can to assist home food production during the war.

Clause it gives the courts power to inflict both a fine and imprisonment for serious Customs and Excise offences, and it raises the maximum period of imprisonment in default of payment of the fine from six to nine months where it exceeds £100, and to a year where it exceeds £250, provided always that the aggregate period of imprisonment shall not exceed two years. The existing position in the matter has been the subject of comment in the courts, and it has been suggested that where a sentence of imprisonment has been awarded on one charge and fines have been awarded on others, the fines were merely paper penalties, as imprisonment in default of payment would run concurrently with the sentence on the first charge. The principle of a combined penalty of imprisonment plus a fine has already been recognised in the case of black-market offences, and I think the House will not dissent from the view that the same principle should apply in those cases in which illegal profits have been made by evading the present rates of Customs and Excise Duties.

I am again making provision in Clause 16 for the relief which has been provided in each successive Finance Act since the war by which individuals whose earned income has been substantially reduced owing to circumstances connected with the war may SUbStitute a current-year basis of assessment for the usual preceding-year basis. Even though we are in the fourth year of the war, cases may still occur in which, owing to war circumstances, the earnings of an individual may fall substantially below his assessment. In such cases the Clause will continue the measure of relief which has been given in previous years.

Will that apply also to the workers in regard to their Income Tax?

I think it is a general Clause, but I will ascertain that definitely. Clause 18 gives legislative effect to the undertaking which I have already given that the Post-War Credits of the Armed Forces shall not be liable to Income Tax. The Clause also extends the same provision to the Post-War Credits which are accumulated at similar rates and on the same general conditions for members of the full-time Civil Defence and other Services. The House will remember that one of the reasons for the institution of these post-war credits was to provide a post-war nest egg corresponding broadly to that provided for civilians by the Income Tax Post-War Credits, and since the Income Tax Post-War Credits, being refunds of tax, will not be taxable, it is clearly right that the same provision should apply to the Post-War Credits of the Fighting Services and of the Civil Defence Services.

Clauses 20 and 21 carry out the new concessions relating to the E.P.T. charge on concerns working certain classes of wasting assets which I mentioned briefly in my Budget speech. With regard to Clause 20, hon. Members may remember that the question of extending the relief given by Section 31 of the Finance Act, 1941, was raised in the Debates on the Finance Bill last year. Since then further discussions have taken place with the Supply Departments concerned and with representatives of the industries, and I am satisfied that there is a good case for extending the relief to concerns working sand or gravel pits, and also to those working asbestos and mica, all of which are vital war materials. The general principle of the relief given by Section 31 of the Finance Act, 1941, is that a concern should not be penalised by a charge to E.P.T. on the normal rate of profit earned by an acceleration of output made in the interests of the war effort when this has the effect of shortening the life of the mine or the oil well concerned. In such cases the additional output represents an anticipation of output which would not normally have been produced until the closing years of the life of the mine or the oil well; that is, at a time when presumably the profits on the additional output would not be subject to E.P.T. I am satisfied from the representations which have been made to me that there are many cases of sand and gravel pits with five, 10, 15 or 20 years of expected normal life, in which output has been accelerated in the national interest, sometimes to three or more times the normal output, and this increase has been made to meet vital war needs such as the construction of aerodromes and war factories.

I do not know whether they are included in the definition, but I will ascertain that. Concerns working sand and gravel pits are in a similar position to concerns working metals or oil, and similar considerations apply to concerns working asbestos and mica. The new Clause will provide for all these classes of concerns the same relief as has already been given to businesses working metals or oil. Clause 21 provides relief in the case of "picking out the eyes" of a mine or other deposit or concerns working certain metals, oil, asbestos or mica which have been the subject of discussion in the House on previous occasions.

Section 31 of the Finance Act, 1941, gives relief as I have just explained, in respect of an acceleration of production in the interests of the war effort which involves bringing into the E.P.T. period profits which would not normally have been earned until near the end of the life of the deposit. This new Clause deals with cases where not merely has output been increased, but the management has departed from normal practice in order to accelerate output, for example, by concentrating on high-grade ores or, in the case of oil wells, on the most productive drills, with the result that current costs are reduced but future costs will be increased. This Clause will provide relief on the principle of allowing as a deduction those higher costs which would have been incurred had the output been obtained by normal methods in place of the costs which have actually been incurred. There are many concerns of the kind to which the Clause will apply which have been pressed by the Production Departments to accelerate output by adopting production methods which are contrary to the normal practice. For example, a concern which possesses both rich and poor seams of ore and which in the normal way would have worked both seams together, may, in order to accelerate output, concentrate on the richer seams alone, leaving the poorer seams to be worked after the war. A similar situation arises in other cases of mining and oil getting, and in these I am satisfied that it is right to take account of the increased post-war costs which will result from the abnormal methods of working now being adopted in the interests of the war effort, regarding them as part of the true cost of obtaining the present output. The Clause will, therefore, allow these increased post-war costs as a deduction for purposes of computing the E.P.T. liability.

Finally, I would like to make one or two observations on the taxation of profits which are not distributed but which are ploughed back into the business and used for its development and extension. This matter will be referred to in the course of the Debate by those Members who have an Amendment on the Order Paper dealing with the subject. I indicated in my Budget speech that I had commissioned the Board of Inland Revenue to carry out a detailed investigation of this subject in consultation with industrial bodies. The investigation is now in hand, and the Board are taking steps to bring the whole question under close review. It is, of course, essentially a matter of postwar policy and, therefore, one that cannot be dealt with in the present finance year. The House will be aware that in our war-time legislation very important provision has been made to help industry in its task of facing the expenditure that may be involved in the return to peacetime conditions and the improvement of capital equipment. The annual produce of 100 per cent. E.P.T. is now of the order of £4,00,000,000, so that the postwar credit of 20 per cent., even after allowing for the incidence of Income Tax, is at present accruing to industry at the rate of £40,000,000 per annum. The fund thereby created, which is intended to be used for the modernisation and development of business, represents an important contribution from national resources towards the problem of post-war reconstruction. Moreover, the existing law contains special war-time provisions in regard to depreciation and obsolescence which are, I think, recognised by the industry as giving very considerable relief. Under these provisions any loss due to depreciation or obsolescence of buildings, plant or machinery provided as part of our war effort is allowed for taxation purposes for both Income Tax and E.P.T. I think the House will recognise that as far as war-time provisions are concerned the case has been very fully met indeed. As for the post-war position, I have already indicated that when the examination now in hand has been completed the various matters which have been raised will then have to receive the full consideration of the House, and there will then be a further opportunity for discussion of the whole subject.

That is all I desire to say in moving the Second Reading of this Bill. I have trespassed so long on the patience of the House recently that I do not think it necessary to say anything further to-day, especially having regard to the general acceptance of the Budget proposals both from this House and the country generally. In conclusion, I would like to thank the House and the country once again for the acceptance which they gave to those proposals, and I ask them, as a necessary consequence of that, to accord a Second Reading to this Bill.

We are to-day returning from our excursion last week into post-war international exchange to the quieter fields of domestic finance. We do that with the Second Reading of this Bill, which may be regarded as the middle stage of our Budgetary investigation and decisions. I am sure the Chancellor will forgive me if I do not follow him in the important but meticulous discussion of some of the Clauses to which he very properly made reference just now. The question to which I want to address myself is this: How does it come about that at the present time the country is not wildly excited about Budgetary matters? We are having a larger sum extracted in the form of taxation than ever before in the history of the country, but from the interest which has been taken in the matter we might almost regard it as a humdrum affair. I think there are two answers to that question. The first is one which I think does great credit to the British people. They have made up their minds that the next job is to win the war and that the price has to be paid, whatever it is. So long as the burden is placed substantially fairly on the different shoulders, they do not intend to boggle as to how precisely it is to be done. I will, however, examine that point a little more meticulously in a few minutes.

I come to the second reason, which I think is rather a curious one and to which I do not think attention has been specifically called before. In peace-time people buy their necessities, comforts and luxuries with certain tickets which we call pounds, shillings and pence, which they retain after the taxation imposed by the Chancellor in his Budget. Therefore, such taxation as he imposes is of supreme importance to their daily lives. During the war, on the other hand, for most purchases we want two sets of tickets, and for a great many people the new tickets are at least equal in importance, and in some cases are of much greater importance, as the others. These new tickets, which are contained in our ration books, are much more equitably distributed than the old ones. Take, for instance, the question of liquid milk. Many of us were astonished to hear the Minister of Health say the other day that the amount of liquid milk consumed per head of the population is greater than ever. That caused great surprise to people who have been used to having as much milk as they cared to have in days gene by. What in fact they were doing by means of their extra purchasing power, was taking their milk from those who most needed it—expectant mothers, mothers of young children and the like. That is one illustration of the way this second kind of ticket is more equitably distributed than the first, and why the bulk of our people are as much worried about their being able to obtain the second kind of ticket as they are the first. It helps to account for the fact that the Chancellor's Budget has not made the devastating impression that it otherwise would have made. But I make this addendum. That is not true of the poorest section of our population, for whom I have often expressed concern. Their position is such that they are not interested in the second type of ticket because they have not enough of the first type to be able to purchase what they want, however many of the second they may have.

The question I would like to ask at this point is: To what extent will the present position continue to prevail after the war? This is all the more important because a third kind of ticket will then come into greater prominence. That ticket is the title deeds to wealth. After the last war this third type of ticket completely dominated the picture. We had the great deflation. The possessors of the title deeds of wealth became comparatively much richer than they had been before and the gross inequality in the standard of life was restored to the prewar position.

In view of these facts, there are two things that the House arid the Chancellor have to consider. The first is during the war. The Chancellor took credit to himself that he had maintained the balance between direct and indirect taxation, but he must remember that, when the point used to be made much of in days gone by, practically all direct taxation was borne by the well-to-do, and the other sections of the population, owing to their great numbers, bore the bulk of indirect taxation That is not the case at present. The large mass of the population are paying both direct and indirect taxation, and therefore the criterion that used to be applied is not applicable to the present day. But we cannot get away from the fact that indirect taxes are inherently regressive. They fall in heavier severity on those with smaller incomes, and therefore two points arise. In the first place they fall with particular severity on the very poor. For them possession of the second type of ticket is no criterion. I agree with the Chancellor when he says that the Government, and he himself, have done a great deal more during this war than was done in the last war. Instead of allowing prices to soar, they have kept them down, they have spent public money in the form of subsidies, and such burdens as he has imposed are in some respects small in comparison with those great benefits that the Government have conferred.

But I suggest that that does not completely fill the bill. The social conscience is more alive to-day than it was 25 years ago. We were satisfied then if the poorest section of the population were able to live, and not absolutely to go down to the very bottom and suffer grave privations. I do not think we are altogether satisfied to permit so low a standard to-day. We have a feeling that men and women who have played an honest and honourable part in the history of their country while they were young and capable must be allowed a real chance of a decent life in their older years. The conscience of the nation has been shocked also by realising what happened in evacuation during the blitz. There came out of the hovels of the people a population who, a great many had supposed, had no longer continued to exist in such degradation, and there is a great determination throughout the country to achieve a higher standard of life for the whole people. When the Chancellor said that in any case what he was imposing in this Budget was only the deprivation of one pipe in six or one glass of beer in seven, I do not think he quite met the public feeling that the standard of life has to be made more equal throughout the whole population. Therefore, though I agree in the commendation that he takes to himself for what he and the Government have done, I believe the people of the country will ask still further that this section of the population be given a better chance and, if he cannot do it by remitting to them particular new indirect taxation, that he will have to make some further addition to the income that they are able to get. In the second place, if the war continues into next year, I shall not be complacent if the whole additional burden continues to be put on indirect taxation, because I think the time will then have come when direct taxation—possibly an alteration in the commencing incidence of Surtax—will have to be made instead of indirect taxation bearing the whole additional burden.

So much for during the war. When the war is over, and what I call the second type of ticket has began to disappear and the third type of ticket, the title deeds to wealth, is becoming more important, then I say emphatically that these regressive indirect taxes must be reduced in priority to, or at any rate pari passu with, direct taxation. I stress this point, because the' e will be a large demand for a preference to be given to direct taxes, and, though I have no wish to see direct taxes continue for any time at a level beyond what is really necessary, the relief of direct taxation must not take precedence of the relief of indirect taxation, which presses and will continue to press more heavily on the backs of the people in inverse proportion to their means Further than that, apart from avoiding deflation this time which caused distress in industry and gave the holders of vested wealth an immense stranglehold on the life of the people, other steps will have to be taken for preventing a new divergence in the standard of life. I have referred to the shock about milk distribution and the fact that those who had the means took the milk away from expectant mothers and their children. That type of thing must not be permitted to happen again. The new approach to equality which has taken place during the war must be continued when the war is over for the betterment of the life of the people as a whole.

Before I sit down there is one question I should like to ask the Chancellor regarding an impost which, if it is not specifically included in this Bill, is nevertheless intimately bound up with the whole machinery of taxation. Does be contemplate any change this year in the incidence of the War Damage Contribution? Perhaps I may be permitted one brief supplement to this question. When buildings were falling down all round us in the blitz, extravagant estimates of the likely total damage prevailed. Later, when the blitz died down, a much smaller estimate was suggested. Now our attention is once more directed to the immense potentiality of destruction by the successful attack delivered yesterday on the dams in Germany. This is a great triumph for British skill, which will, we are confident, accelerate a victorious end to the war. That does not, of course, do away with our natural regret that such devastation should be necessary, but as to that I will sum up my view quite tersely in the words of the well-known French saying, "Tu l'as voulu, Adolf."

Times indeed have changed. In past years the most important subjects before the House, except on very rare occasions, were always the Budget and the Finance Bill, and we all recall yearly scenes palpitating with excitement, the lobbies and galleries all full and the House packed, and yet when the Chancellor of the Exchequer introduced the greatest Budget of all times, providing for the greatest expenditure and therefore having to provide the greatest amount of revenue, he made it to a House only about three-quarters full, and there was plenty of room in the galleries.

Because they have such complete confidence in my right hon. Friend Sir Kingsley Wood: Yes, because they have confidence.

But that is due to two or three matters. It is due to the fact that the people of the country are determined to prosecute the war to a successful issue, cost what it may, and therefore the mere details do not really interest them. In the second place, it is probably due to the spread of taxation. In the old days direct taxation was confined probably to the very few; hence their anxiety to know what was their fate. It had also quite a lot to do with the well-known custom of the Chancellor in opening his Budget not to state what the new taxation was going to be until past a certain hour when monetary transactions could no longer be carried out. But now there is a general spread, and there are something over 7,000,000 direct Income Tax payers. Thirdly, it is due to a matter which I think the Chancellor rather relegated behind taxation—the fact that consumption has been cut down. It is due to rationing, to the fact that production is still going up, and continues to go up, but consumption is kept within bounds, and therefore they know that there is a limit upon their expenditure, and I do not think the Chancellor has paid sufficient tribute to that fact. Some of us were asking for complete rationing—that production should go on increasing, and that consumption should be confined to what was directly or indirectly contributing towards the war effort, and that the difference between what was consumed and the extra consumption could be said to be directed completely to the war effort. Fortunately, as time has gone, on, we have had better and better rationing. However, it is not sufficiently complete, and I am hoping that the right hon. Gentleman will bring pressure to bear upon his colleagues in asking for as complete rationing as it is possible to devise.

That brings one to this—the amount Of the war effort which can be measured by the war Budget. In fact, it' is about the only form, of measurement that we have. What was the kind of effort that was being made in 1939 when war was obviously very imminent? Czechoslovakia had already been invaded before the 1939 Budget was introduced and the total amount that was being provided by The Government was about £650,000,000. Even after the war had started the amount of our war effort was limited to£750,000,000—less than £2,000,000 a day —and there were some of us who had to stand here and receive nothing but approbium for daring to say that it was not enough. Even when we went on to 1940 and we were now standing alone, Norway, Denmark, Belgium, Holland, even France having fallen, the amount of the war effort as then measured by the Chancellor of the Exchequer was £5,000,000 a day. Again some of us said that it was not enough—not enough when we were standing alone. To-day, when we have those strong Allies, Russia and the United States, our war effort is measured at £15,000,000 a day. Even now I do not believe we have reached the peak of the effort that we should put forward. I wonder what the position would have been to-day if on 3rd September, 1939, we had accelerated the pace of our war effort by stricter rationing, cutting off all those things that did not directly or indirectly contribute to the war effort, and confining our production to what was necessary to the war effort.

There is another matter that is very significant. The Budget as such, not only now, but I think in future, will become less and less important. There will not be that tremendous expectation —palpitation almost—as the Chancellor walks into the House and sits there for a few moments before he opens his red box and discloses his secrets. Why? Because all that has happened in the past is that we have considered what the Executive propose to expend and how the expenditure is to be met; the Chancellor as the executive then tells us what the expenditure is and asks the House to agree to the necessary Resolutions which will provide him with the revenue. Now people are much more interested in the national position than in the position as it is in the minds of the Executive. The White Paper, "An analysis of sources of war finance and an estimate of the national income and expenditure," will become yearly of more and more importance. It will show the state of the nation as a whole, the amount of production, the amount of wealth and the form of expenditure, quite apart from the expenditure that has been decided upon by the Government. I think that there is occurring one of those subtle revolutions which cannot be followed from day to day or even from month to month because the movement is so slow, until it is seen that after a while the wheel has been completely turned round. Most of the time of the Chancellor in future when the war is over will be spent on an explanation of the national position rather than the purely executive position and the Debates will take an entirely different line.

There are two or three smaller matters to which I would like to refer. The Chancellor told us that he is making a further inquiry with regard to the collection of Income Tax and said that he has asked the Treasury to see whether they cannot devise some scheme so that Income Tax can be paid upon income as it is earned. I notice that this matter has been raised in the United States and Canada and that they have taken action. So far the only objection that has been made to it has been an objection by the officials of the Treasury that there are difficulties in the way. Difficulties, however, are there to be overcome. I can see not only a considerable loss to the Treasury in future but, what is much more important, terrible distress among individuals and families when they are called upon nine or 12 months after the income has been earned to find the tax when no income is available. This is not a matter for which we can wait until the end of the war; it is of pressing importance now. At the present moment the tendency is for wages and incomes to rise, and the taxpayer is able to meet the tax because of the increase. Soon, however, the process will perhaps be reversed. Incomes, profits and wages will go down, and there will not be sufficient income to meet the taxation, the incidence of which should have been made nine or 12 months before. I press not so much upon the Chancellor as upon the Treasury to produce a plan certainly before next year, and hope that the Government will face this matter with the same strength with which the Senate and the Canadian Government have faced it.

There should be a distinction drawn in the Budget between capital expenditure and running expenditure. The Chancellor has said that he is making inquiries into this and that it cannot be done during the war. I realise that the figures cannot be published during the war, but that is no reason why the Treasury should not make the distinction or that it would be impossible to assess, say, the value of a shadow factory and say what its present value is and what will be its value later on. May I remind the Chancellor that that is precisely what every firm, individual and company has to do in order to have its financial position fairly put before him? If individuals and firms have to do it I cannot see any reason why the Government should not do it. I do not want to follow what the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) said in regard to direct and indirect taxation except to support it. The Chancellor quoted Mr. Gladstone. I doubt whether that great Chancellor would have adhered in 1943 to statements he was making in the seventies. Changes have taken place, not only in our social outlook but in the reforms we have undertaken and in the incidence and distribution of wealth. Undoubtedly the only fair way of taxation is direct taxation upon income and not the indirect method of collecting taxes.

I should like to make a point with regard to the form of the Budget. It has always been in a form provided from the earliest days of Parliament. Parliament was not summoned for legislative purposes but because the King wanted money in order to meet his expenditure. He told Parliament the amount he required and asked them to vote it and to settle the way in which it should be spread over the country. That has gone on from the time of Henry III until now. The Chancellor comes to the House and says, "That is the amount of expenditure which is required by Executive." Say it is £800,000,000. Then e says, "How do I propose to raise it? On last year's taxation I could raise £750,000,000. I have now another £50,000,000 to find. I will do it by putting 6d. on the Income Tax and so much on beer, tobacco and so on." He is able to balance revenue and expenditure and all is well. When production and the wealth of the nation go up he can meet the expenditure with a smalled incidence of taxation. Suppose he says, "The wealth of the country has gone up so much that this year I estimate that we will get in £850,000,000. What I can do is to lower the Income Tax by is. That will reduce it by £50,000,000,, and the two sides are balanced." Times have changed. Wealth is increasing, people are at work, there is less unemployment, and production is going up by leaps and bounds. There is what is known as a boom, and the Chancellor uses that moment to lower the rates of taxation and to increase the boom. Later there comes the inevitable slump.

Suppose in the following year there is a more progressive Government who want more social reforms, and instead of £800,000,000 they want £900,000,000. The new Chancellor says, as before, "How do I propose to raise it? On the Income Tax as it stands to-day and on my indirect taxation I can raise only £750,000,000. Therefore, I have a gap of £150,000,000 to make up. "He makes it up by increasing indirect and direct taxation. At the very moment when the slump is taking place, unemployment is increasing, factories are closing down and banks are calling in their money, up goes the rate of indirect and direct taxation. If I were telling that story for the first time as something new, I should be told, "What a fairy story. What an Alice-in-Wonderland position. What an absurdity," and I should be asked what country would behave in that foolish way. We have, however, behaved in that way from the beginning of Parliament until today. Is it not time that we altered our methods, so that when times are well, production is going up and wealth is increasing we should maintain our level of taxation, and utilise that then to build up a reserve? The way to do it would be to pay off debt, reduce the debts we have, and then, when times become bad again, there will be a reserve and you can go on borrowing and do not need to raise your direct or indirect taxation. The effect of that would be, among other things, to help to control what would otherwise be a false boom, and keep it within proper limits. It would assist the people at the very moment when they require assistance, and prevent any slump developing to its fullest extent. I commend this to the Chancellor for the future, whether the present Chancellor or some other person occupies that office. Whoever is Chancellor, it is a matter which he will have to take into consideration. I would like to finish on this point: The amount that is being raised by this old country is just a measure of the strength of the country when called upon to meet a danger, and when the people of this country unite there is nothing that is impossible. All I would ask is that when the danger passes they will still keep together in order to provide a better country for all and not for a mere few.

We have just listened, to what we are accustomed to from the hon. and learned Member for Montgomery (Mr. Clement Davies), to a very interesting and attractive speech. He told us that the Budgets of the future will not arouse the amount of interest which Budgets usually created in times of peace. I think there is one point to which he did not refer which perhaps accounts for the lack of interest, and that is that my right hon. Friend the Chancellor has from the very beginning levied direct taxation at such a rate upon the higher incomes that he has brought about a levelling factor. When a man with an income of £100,000 a year is left with only some £5,000 a year after paying Income Tax and Sur Tax, and every £1,000 of income in excess of that sum brings him only £25 of income, it naturally follows that there is not the same interest; there are not the same divergencies of view among the tax payers, because the abnormally high direct taxation has been accepted by all Members in the House and by people in the country generally. I think my hon. and learned Friend will find that when we come to more peaceful times and taxation assumes more normal proportions the interest shown in the Budget will again be equal to the interest which we have seen in Budget statements in the past.

In paying my tribute to my right hon. Friend upon his Budget, I do so because the form of the new taxation is such that no one in this House or outside need contribute to any part of the increases unless he so desires. It is, however, not so much what my right hon. Friend said in his speech to-day to which I desire to make special reference, but to three points which I regard as of great importance to which he alluded in his Budget statement. Referring to the rate of interest upon the National Debt and upon the new loans which are issued from time to time, the Chancellor said in his Budget speech:
"The sounder we keep our financial and economic front now, the better fitted shall we be to face our difficulties and to implement our many programmes for advancement then."
He continued by taking two important examples:
"The first is the question of interest rates. During this war we have stabilised the general complex of interest rates at a level so low as would have been thought impossible by anyone who merely based himself on the experience of the last war. We have developed a new technique in these matters"—
I would ask the House specially to note those words:
"and we have revolutionised public opinion as to what are fair rates for Government war borrowing. Thus not merely shall we pass from war to peace with rates on a low level, but the country is, I am sure, also expecting that reconstruction and development after the war shall have the benefit of cheap money. It is the Government's intention to maintain its present policy of cheap money after the war for that purpose as well as in the interests of the Exchequer itself."
[OFFICIAL REPORT, 12th April, 1943; col. 951, Vol. 388.]

I was profoundly disappointed that my right hon. Friend did not make some reference to that important matter in his Second Reading speech to-day. I consider that something much more definite about the Government's post-war policy is vitally necessary. My right hon. Friend will be aware that to-day we are seeing a slightly increased rate of interest. We see—it is an indication, and I do not put it at more than an indication—giltedged securities moving slowly downwards, and my right hon. Friend should not wait until it is too late before any necessary action is taken. He should take the opportunity, while the going is good, to make it abundantly clear to the country that under no circumstances will he permit the rates of interest to increase upon the loans which he will have to make from time to time. But his whole policy and, to use his own words, "the new technique" which the Treasury have found, should be implemented, and every loan which is issued should be on terms which bring increasing advantages to the Exchequer.

I do not desire to trouble the House with statistics, but I would quote three figures. In 1935, before we had this new technique of cheap money. Consols were 94⅜, while only at the beginning of this year 2½ per cent, Consols, which is the measure in the matter of rates of interest for borrowing purposes, were 83¾. To-day Consols are 80¾. There is a fall of £3, which is equivalent to a fraction over 4 per cent, depreciation in Consols during the present year. The Government should make it abundantly clear that they are going to retain cheap money not only during the war but in those years after the war when the Government will require to raise a large amount of money for postwar reconstruction. I think it would be as well if my right hon. Friend pointed out to the country that in the Finance Act, 1941 the Government were restricted to a 3 per cent. interest rate. In other words, as I understand that Act, the Government have no power to borrow money at a rate in excess of 3 per cent. If my right hon. Friend made this abundantly clear to the country I think it would have a steadying influence upon the reactions which have recently taken place and are still taking place. He would cause a steadying influence upon the gilt-edged security market, and possibly, as they should be, on a gradual rising rather than on a declining market.

My right hon. Friend also made reference in his Budget speech to the post-war balance of payments and that is the second point to which I wish to refer. He said:
"I have so often emphasised the problem of our post-war balance of payments. The internal costs of the war in every country, even when they are covered by borrowings, have to be met in the main out of current effort and output. External obligations are altogether another matter. They will bring problems far more difficult to resolve, and we shall have to face a grave deterioration in our external wealth."
[OFFICIAL REPORT, 22nd April, 1943; col. 942, Vol. 388.]

But before developing that statement, I would like to say one word in regard to currency. During the years between the Great War and the present war a new uncertainty was introduced to industry to an extent greater than ever before, namely, the uncertainty of exchange rates between one country and another. It is an element which our Government, with others, should exert every endeavour to eliminate or minimise. It has a detrimental reaction upon industry which is incalculable. It turns the most conservative business man and industrialist inevitably into a speculator. When contracts are entered into with foreign business houses it is necessary to purchase currency forward in order to safeguard themselves against depreciation of the currency which they cannot control, against the sale of goods which they have made for some forward delivery. One wonders whether the proposals of an international clearing union, as outlined in the White Paper, will solve this problem. I believe it will form the basis of a solution which can play an important part in arriving at a permanent solution on which the whole future not only in this country but the civilised world will depend for its welfare and prosperity.

The second portion of the Budget speech to which I made reference is when my right hon. Friend referred to the great difficulty which we shall encounter after the war, due to the depletion of out foreign investments. I hope that the United States of America, now the greatest creditor nation in the world, may be prevailed upon to co-operate in furthering a policy aimed at obtaining a reasonable recovery of the foreign investment income of the United States and of British citizens. It is clear that our maximum exports after the war will not suffice to pay for the goods we shall wish to import, and we cannot, nor do we wish, to live upon credit. The maintenance or the resumption of reasonable payments on foreign investments is therefore a matter of the greatest importance to the Government, no less than to every citizen. In the past the Government have not treated us very kindly when we have raised the question, as I have myself on several occasions, of defaulting countries which have not met their obligations or the interest upon the money which they have borrowed from this country. As I have said the Government have shown little or no disposition to intervene actively on behalf of British holders of foreign bonds. In these days, when there is a tendency to default—the Government should give their full support to see that bondholders' interests are conserved with a view to increasing investment income to help this country to regain its economic equilibrium after the war.

There is only one other point which I desire to make, and that is to express the view that the Government should consider the whole aspect of our foreign investments and lay down the policy which they propose to pursue for the postwar period, whatever that policy may be. Is it to be the Government's policy to encourage investment abroad again after the war, or is it not? Upon that question a great deal depends for the future of the exports of this country. I think there is cause to believe that Germany has already taken steps to ensure that the occupied countries are economically weakened before their liberation. Their wealth will be reduced by destruction and confiscation, and, as was the case after the last war, their currencies will be wrecked by deliberate, organised inflation with a view to German maintaining her supremacy and economic power in the occupied countries, even after defeat. Unless these important considerations are taken into account, it may well be that Germany economically will be in a more favourable position than the liberated countries and be able to secure full economic control over those countries.

In conclusion, I would specially ask the Financial Secretary to the Treasury—I assume that he is going to wind up the Debate—to make some special reply in regard to the first point which I have raised, about the interest rates upon which the Government propose to finance the war from now onwards after the war. Nobody has any cause to complain about what the right hon. Gentleman has done in the past. One has only to take one figure. We have expended some £13,000,000,000 on the war, up to 3rst March last, and yet the interest upon the National Debt last year was only £33,000,000 more than it was 12 years ago, in 1931. That amount, represented as it is by a mere sixpence in the £ on the Income Tax, is a truly wonderful achievement and reflects the greatest possible credit on the Chancellor of the Exchequer. Yes, it behoves us to appreciate what has been done, but it is necessary that there should be no relaxation of effort I want my hon. Friend to tell the House that, with the new technique which the Treasury have at their command, the Treasury will see to it that rates of interest shall not increase, but shall, on a very gradual basis, decrease.

I propose to detain the House only for a short time, to raise one or two what may seem small points. Clause 11 of the Bill deals with the power of a court to imprison people for offences in connection with Customs, Excise and other duties. I would congratulate the Treasury upon the efficiency of some of the staffs who carry out investigations in very difficult circumstances connected with black marketing. I hope that there is no likelihood of that efficiency being diminished in any way by lessening those staffs or increasing their age to the point at which they are no longer live or full of enthusiasm. I would draw attention to a defect in the penalties connected with these offences. In Edinburgh the other day a trader who committed black-market offences, which the Sheriff said had brought him a profit of £150, was fined £15. According to my calculation, that trader makes a profit of 900 per cent. for every offence he commits. In dealing with offences connected with black marketing there ought to be some reasonable fitness of the penalty to the crime. In the case I have cited the penalty was simply a tax upon the offender's profits.

The hon. Member should remember that the Treasury are not responsible for the sentences imposed.

I agree, but perhaps the mention of these facts in this House will be sufficient to convey a hint.

The question of black marketing has nothing to do with this Finance Bill. I had better say that lest any other hon. Member desires to pursue this line of argument.

Thank you, Sir, but I would point out that Clause II deals with penalties for infringement of the Purchase Tax.

Evasion of the Purchase Tax is what I am referring to, and offences of that kind. The Chancellor of the Exchequer made some reference to the Clause relating to wasting assets. I would ask the Financial Secretary whether supervision will be kept upon the question of giving deductions on account of wasting assets. That is easily a point where considerable evasion can take place. Many of these so-called wasting assets are national assets and sometimes in the past, especially in regard to coal mines, some of the great wealth of this country has been destroyed by firms, for their present profit, picking the plums of the mines and leaving others, perhaps never to be tapped in the future. I hope that some regard is to be paid to this matter to see that, although they may be wasting assets, these assets are not wasted and that there will not be an inducement to people Who are exploiting national assets to use the best of them and destroy the prospect of really benefiting in the future from all the assets that exist.

One other point I wish to touch upon relates to old age pensioners and the penalty upon them in regard to taxes on tobacco and other things. The question has been mentioned before whether the Chancellor could not still consider in his Budget raising enough money to balance the cost of a concession to old age pensioners. It seems to me that he could raise enough money either to increase allowances to old age pensioners in respect of saving or to raise this miserable £25 to £100.

The hon. Member is not in Order. The subject was ruled out of Order earlier in the Debate.

I am sorry, Sir, but I was considering whether we could raise enough money to make these provisions possible. I do not propose to discuss the matter at length, but I think the Chancellor might consider raising the exemption limit.

I think I should make it clear that the hon. Member is perfectly justified in discussing exemptions under the Budget, but not in discussing the increasing of pensions.

Thank you, Sir. It was rather the exemptions I was thinking of. I have mentioned that point, and I am sure that the Chancellor will take it into account. I think that when he is drawing a counterbalance to this penalty on the old age pensioners the only way to do it is to give them more money. I think that one of the ways is to take less from them by,increasing their allowances in this respect. The other matter will be discussed at a later stage, not on this Bill.

I wish to refer to one point in regard to the national income which was referred to by the hon. and learned Member for Montgomery (Mr. Clement Davies). The national income of this country has gone up since 1938 from £4,661,000,000 to £6,896,000,000, an approximate increase in the national income or national production of 5o per cent. It is extremely interesting to note, from the statistics provided by the Chancellor, that the actual consumption in the country has increased about 10 per cent., that is, it has gone up from £3,619,000,000 to £4,000,000,000, the balance having been taken back by the Treasury in the form of taxes and savings.

It is very satisfactory that individual personal consumption in this country has increased so little, and it is a certain safeguard towards avoiding inflation. But may I make this suggestion, that it would be much better if we did not pay these incomes and did not have to take back the taxation? In other words, if the prices of a great many goods could be kept down, such as the price of war production, if they could be decreased still more and excess profits not made, then the total amount of money in the country would be kept still better within the proper bounds, and the danger of inflation further avoided. I would therefore suggest that the Chancellor ought to give further consideration to the possibility of the Departments, in their costings investigations in works, bringing down the prices at which battleships£of which we had an example the other day—and many other war materials are still being priced. These are too high, therefore bringing profits which have to go back in excess profits. If these could be brought down, money would not have to be paid out and brought back by taxes or War Savings. It really is an annoying thing from the point of view of the general public to get money and have to pay it back again when actually they would, I believe, much rather receive what they had to receive and not have to indulge in this two or three-way traffic.To the extent that the Chancellor could use his influence to bring that about, I think he would benefit the situation not only now but at the end of the war.

The hon. and learned Member for Montgomery raised an important point. He pointed out that production—and all our national income is production—fluctuates very greatly, whether by trade cycle or otherwise does not matter. When it is up the Chancellor takes less taxation, and when it goes down he takes more taxation. I was not enamoured of the remedy which the hon. and learned Member proposed, but I would like to suggest to the Chancellor and the Treasury that in considering the post-war finances of our nation they realise that we have proved that by employing our whole population we can have a national income of approximately £7,000,000,000. That is the productivity of this country. If after the war we go down to £5,000,000,000, it means that we are not using £2,000,000,000 of capacity and labour inside the country. I suggest that a much better way than trying to manipulate taxation into an equalisation fund, as suggested by the hon. and learned Member for Montgomery, is that the Government should realise that it is not only the custodian of the finances of the country, but it is the custodian of the productive capacity of the country, and if all the capacity is not being used, then, of course, the way to get the national income increased is to see that, consciously, productive capacity is used.

Therefore, in addition to the Treasury we require a productive planning council connected with the Government who are to ensure that the production of this country is maintained at its highest level. If it is allowed to sink, ever so many calamities will come upon us, financially and otherwise. There is no reason at all until we produce all we require in this country why our national income should ever again fall below £7,000,000,000. If we keep it so, our financial burdens after the war will be easily borne. Not only that, but the very necessity of keeping it there will produce so much in the way of goods that there will be no necessity for anyone to be in want, or for anybody to suffer any hardship at all. The extent of equalisation of income that has gone on during the war is very remarkable. On the whole, I think it is likely to con- tinue in some form or other. We do not want to destroy incentive, the inducement to enterprise, to stop people from as far as possible using every initiative, but we do not want to have these great divergencies of income between people below the starvation level and people who advertise, as I saw the other day, their second mink coat at £500 to somebody who wants to buy it. There is a difference between extravagance and licence and liberty within certain limits.

I suggest that the Treasury should consider the question of not only planning the finance of after the war but that the Government must at an early date set up a council which will plan the use of our productive capacity for the purposes of peace as we have planned it for war. It is what the people of this country expect. Everywhere we go people say, especially to us, "We are spending £14,000,000 a day on winning the war. Why cannot we do it on peace?" I quite agree that there are a great many fallacies in that comparison, but this part is not a fallacy, that it is perfectly true that the people of this country have seen us harnessing the energy of our people to do what is necessary for war, and they will never believe it is impossible for us to harness that energy for the purposes of peace. They will never believe that a country which has done what we have done cannot feed its population on a minimum standard of subsistence. I think the Government must plan that, and come before the House with constructive proposals for providing full employment by planning for production at the maximum.

I do not propose to follow in detail the very fine speech which has just been made, but I hope to answer and elucidate some of the points raised by the hon. Gentleman in the course of his remarks. Anybody who addresses this House on this Budget must first of all realise—I think this is very important—the superhuman task which the Chancellor of the Exchequer and the Cabinet faced in producing this Finance Bill. The unknown factors are so colossal that it almost makes accurate budgeting impossible. On the Second Reading of the Finance Bill, when I understand we are allowed pretty wide range, I want to examine some of the problems with which this country is faced and which we must try to solve. It is hardly necessary to say so, but very important to keep it in the forefront of our minds, that first and foremost the vital job to do, irrespective of party or creed, is to win this war, which is being fought all over the world in the cause of God and freedom. No expense, no sacrifice, is too great to crush out of existence for ever that diabolical German policy of hate, aggression, tyranny, of concentration camps and Gestapo and world domination by brute force. No compromise with Satan is possible. What is the use of any planning if recurrent waves of savagery are to sweep away all our plans like sand castles? Here I would respectfully comment that hon. Members, if they want to know what we are really up against, should read Lord Vansittart's book "Lessons of my Life," especially Chapter 9.

I am afraid that "Lessons of my Life" is going very considerably beyond the Second Reading of the Finance Bill.

When the hon. and learned Member for Montgomery (Mr. C. Davies) spoke he insisted upon the need for unity, and in the face of a common danger our people are united as never before. In unity is strength, in war-time as well as peace-time. The difficult problems which will arise will call for all our patience and good will if they are to be solved. Those who write the peace must think of the world as a whole. We cannot perpetuate economic warfare without sowing the seeds of military warfare. The Prime Minister added another jewel to his crown of leadership when he proposed a four-year plan after the war to be followed by another four-year plan, because then we shall be better able to see what is practicable and what is impracticable, and what is possible and what is impossible of achievement. I believe it is against the national interest for responsible Ministers now to introduce detailed legislation

I must ask the hon. Member to keep to the Budget and not go into legislation.

Does not the difficulty arise out of the hon. Member having a written speech? Is that quite in Order in this House?

If I were to rule hon. Members out of Order for reading, I should have to make it pretty well universal.

All I was trying to say was that in the present situation we must face the facts, however unpleasant they are, as Philip Snowden did in 1931. We must tell the people the truth. What are some of the unknown factors with which the Chancellor was faced when he introduced the Budget proposals and framed his Finance Bill for the year? I have tried to think of some of these factors, and I want to refer to them briefly. I have tried to put them in order of priority of claims on the national purse.

The national purse will not be so full after the war as it was before the war. There is only one pool of wealth, and there are certain claims which must come first upon it, and whatever party we belong to, these facts have to be faced. First, of course, the great fact is that the war is not yet won. We cannot even begin to imagine the ghastly consequences of losing it. No one can say how long the war will last. We do know it is costing £15,000,000 a day. We have to remember that the Prime Minister has pledged this country to go on with our Allies to complete the downfall of Japan when the German war is over. We do not know what that will cost. Another unknown cost will be our share of the Army of Occupation. Unless we beat Germany and keep Germany beaten, no plans for post-war reconstruction can possibly come to fruition. Then, there is the unknown quantity of the cost of the service of the National Debt. Those who have lent money in our Warship Weeks and our "Wings for Victory" Weeks, to win the war, must have their capital interest safeguarded.

I want to give one or two figures to show the magnitude of the liability. In 1913 our total National Debt was £661,000,000; in1927 itwas £7,600,000,000; to-day it is £16,861,000,000. The amount raised in the last financial year in Income Tax was £2,483,000,000. On top of that, there is the estimated amount of £218,000,000 raised in rates. There must be some limit to this expenditure. In handling the finances of the country, perhaps the most important thing is to maintain the stability of our currency. Those who have lent money to prosecute the war are justified in insisting that they shall be repaid in a currency of the same value as the currency that has been lent. Unless there is some such assurance, there will soon be no money to lend, or people will refuse to lend, and the whole basis of our modern industrial society will collapse. Stable currency is the lifeblood of the healthy modern industrial State, and successive injections of paper currency will rapidly turn the lifeblood into water. It is interesting to note that the workers of this country, through the thrift societies, have accumulated, mainly in the past 15 years, savings to the astounding total of £5,000,000,000; and let these thrifty workers realise that if currency depreciation, comes the real value of those savings may easily depreciate by 5o or 6o per cent.

I want to say a word in parenthesis here to the Chancellor about the International Clearing Union and the policy of the Government in that connection. In a war what international value can be placed on those intangible services that are rendered—for instance, when we stood alone for 15 months, the Lend-Lease policy of America and the 2,000,000,000 dollars given by Canada to this country? When international settlements come to be made these and similar factors must be taken into consideration, for without those generous, gestures it would have been quite futile for us to talk about post-war reconstruction. Another important point is the extent to which in national or international relations we should use gold as a basis of currency or credit. Human nature being what it is, and in view of the impossibility of controlling the policies and actions of other countries, the fact of having gold as a basis of credit gives a basis of stability, nationally and internationally. But I would remind the House that what brought us to the fore through the centuries and kept us there was what I would sum up as the quality of integrity: the quality of our goods and the high standard of our business men and our people. It is of vital importance to see that nothing we do shall tarnish that record.

Does the hon. Member suggest that we should go back to the gold standard?

I was talking about the Clearing Union and the eventual possibility of its being based on gold.

There is a lot of wild talk about the banks and their operations in connection with international finance, by people who ought to know better. I have had prepared, from an authoritative source, a statement of the position of the II London clearing banks which are members of the Bankers' Clearing Association and which have all made up their balance-sheets to 31st December last. Many people have said that banks create credit out of nothing, and all that. On the debit side, there is a capital, in round figures, of £78,000,000 and reserve funds of £62,000,000. An portant item is deposits of £3,628,000,000. There are authenticated figures of how those assets of the banks are distributed: Cash, £390,000,000—10.8 per cent.; balances of other banks, £186,000,000— 5.1 per cent.; call money, £142,000,0003.9 per cent.; bills discounted, including Treasury bills, £197,000,000—5.4 per cent.; Treasury deposit receipts, —895,000,000—24.7 per cent.; investments, £1,I20, 000, 000—30.9 per cent.; and — here is the important item —advances, £772,000,000—21.3 per cent. Then there are two other small items.

Another thing to consider, when discussing our national finances, is that directly the war is won we have to go instantly to the help of the persecuted and distressed peoples of Occupied Europe.

I thought the hon. Member was going to draw some conclusions from.the figures he has given. Do the banks create credit, or do they not?

The hon. Member should not just read the figures; he should go back and study them.

I respectfully ask the hon. Member to study them, and they will show that he is wrong.

Another matter which has been referred to is the unknown cost of pensions and allowances for the men and women, not only of the three Services but of the civilian population, who have fought and suffered in this war. Then we have to consider, when discussing a Budget, the cost of rehousing and of rebuilding the devastated areas. We have heard to-day of further expenditure on education.

To what extent have we lost our power to import through the existence of invisible exports and our overseas investments? Practically all this power has been dissipated during the war. This is an important unknown factor in considering postwar reconstruction. We are compelled to import certain foodstuffs and raw materials. To secure these, we must export goods at a price which an impoverished world will be able to pay. Quite recently—I think it was 12th May—Lord Woolton told us that we were producing about two-thirds of our present consumption—

I am afraid we must not go into the speeches of Lord Wootton here.

I was only giving an illustration to show the importance of realising that we have lost our overseas investments and exports. We have to import about one-third of our foodstuffs, and these have to be paid for. The City of London, through its banks, insurance companies and exchanges, is the biggest asset that the country has. By its initiative and enterprise it developed not only the British Empire but vast areas all over the world which brought us imports in return for the invisible exports thus secured. In 1929 insurance, banking, shipping and foreign investments accounted for £480,000,000 of revenue. We are compelled to import certain foodstuffs and raw materials, and now our invisible exports and foreign securities are reduced to the minimum, and we only get the necessary food and raw materials and pay for our social services by exporting goods at a price which the foreigner can pay. It is not possible to export sterling. The value of a currency is what it will purchase in its own country. This is elementary, but it ought to be said. If you want to pay a foreigner, you have to pay him in his own currency. Therefore, it is of vital importance to have a stable currency here, so that at any given moment the pound sterling is able to demand a maximum number of dollars, francs, escudas, lire or other foreign currencies. Even before the war our position as a creditor nation was deteriorating.

I do not think we can go into the question of foreign currency. It is a very full subject, and I do not want to have to pull up the hon. Gentleman too often, but really to go on to foreign currency is going beyond the limit of this Debate.

May I say respectfully that if we do not have a stable currency all our Budget proposals and taxation will fall to the ground?

It is not necessary that we should go into the question of foreign securities and all that sort of thing to-day.

There is another point to which I want to call attention, and let me say at once that I am one who will do anything in my power to help in the betterment of the conditions of the people of our country, These facts have to be faced. The cost of the social services in 1913 was £93,000,000, in 1923 it was £300,000,000 and in 1938 it was £544,000,000. Let us wait until the war is over when we shall know how we stand before launching out on further reconstruction schemes and shall be able to provide for existing commitments under the social services. There is another interesting thing that I can tell the House. It is on the question as to how long Lend-Lease will last after the war. No one can say, but I have tried to get some good information from America. It would seem that public opinion there is tending in three directions—that Lend-Lease should stop immediately after the war, secondly, that the Americans want to get control over the development of all the international air routes; and, thirdly, when the war is over, there will be a sharp revulsion of public opinion towards the Right and the election of a Republican President. These are the factors. That opinion is very trustworthy, and it must be considered when framing our Budget.

I am afraid that two other points that I wanted to mention are not in Order, but, in conclusion, I would ask the House to think of the reasons for which we are fighting. It is not for material gain or for acquiring territory. It is for something more precious and enduring. The soul of man is at stake, and that is why we must make a complete sacrifice of all material things, so that that battle shall not be lost. There is the danger, as I see it, that we may have our liberty taken away from us by bureaucracy. We are fighting for freedom and liberty abroad, but let us make sure that we do not lose the freedom on the Home front. I believe that a new world lies behind the clouds of war, a world of hard work, fine ideals and of great endeavour. The greatness of Britain and her people very nearly died, but the sun will shine on those who work faithfully for the national good. I want to remind those who believe in working on sound principles, unselfishly, to make the world a better place, of the prayer spoken by Sir Francis Drake on the morning of the attack on Cadiz:
"0, Lord God, when Thou givest to Thy servants to endeavour any great matter, grant us also to know that it is not the beginning, but the continuing of the same, until it be thoroughly finished, which yieldeth the true glory."

There are only two matters that I want to raise on this Bill. The first is the issue of a certificate for Excess Profits Tax and afterwards a word or two about employment in the cotton industry of Lancashire. I know from the number of letters that I have not received from my constituents that the people there are reasonably satisfied with the Budget, and I have not had complaints about the increased taxation of beer, tobacco, etc. The only letter I have had was one from a lady who asked, "What are we fighting for? Here £5 18s. is deducted from me for deferred Income Tax to be returned to me after the war." I was able without the assistance of the Financial Secretary or the Chancellor of the Exchequer to answer and advise her that this was a loan free of interest to the Government during the war and that she would get it back after victory had been won. There are complaints from various companies, and I think that the Financial Secretary has probably also seen correspondence with various chambers of commerce about the Excess Profits Tax and the return of a portion of this money after the war. When a private citizen pays his Income Tax he receives a certificate to the effect that there is so much to be returned after the war. But no certificate of any kind has been given to any company for this payment of E.P.T., of which some 20 per cent., less Income Tax, is to be returned to them after the war. It has been said that it has been incorporated in an Act of Parliament, but that Act is very vague indeed. There are many companies operating overseas as well as in this country whose machinery, engines and stores are being very much run down. We know that certain conditions apply to this E.P.T. return, namely, that it may not be paid out in dividends to shareholders or used for the issue of bonus shares, but if something could be done to encourage these companies to place their orders for new machinery and plant now, ready for use when the war is over, I am sure it would help the continuity of policy of these companies a great deal. The Chancellor could lay it down as a condition, if he liked, that machinery, engines, etc., are to be purchased in this country so as to continue employment, because without mass employment none of the schemes like the Beveridge plan and others to which we are looking forward will be possible.

I agree that for the first two or three years after the war there will probably be plenty of employment and orders, but hon. Members like my hon. Friend the Member for Ealing (Sir F. Sanderson) and others have exhorted the Chancellor to plan ahead lest there should be mass unemployment after the war. One thing we are afraid of in Lancashire is what is to happen to our cotton trade. We know how we suffered from Japanese competition before the war. Whether it was by efficiency, cheap labour or the currency manipulation of the yen, cotton overalls were sold outside the Blackburn cotton mills, in the market, at a price cheaper than that at which they could be made in the mills even if the workers received nothing at all for a week's work. Although there is plenty of employment in the cotton industry at the present moment, we are afraid of what might happen in the future. When we go to the Secretary of State for the Colonies, he refers us to the Foreign Secretary; when we go to the Foreign Secretary, he tells us it is a matter for the Board of Trade, and when we approach the Board of Trade, we are told it is a matter for the Chancellor of the Exchequer. The fact is that the Chancellor will not be able to balance his Budgets in future without mass employment, and all these Departments are more or less under his authority. In certain mandated territories in Africa and Asia we were not allowed any preference for British goods over our foreign competitors. The cotton goods that were imported into those mandated territories came largely from Japan, and I respectfully ask my right hon. Friend to keep his eye fixed upon what will happen to the duties in these territories after the war, so that Japan, which is murdering our prisoners to-day and which treacherously attacked America, will not again reap the benefit of our efficient administration of those mandated territories, which before this war contributed to full employment in Japan and mass unemployment in Lancashire.

The Chancellor of the Exchequer, in moving the Second Reading of the Finance Bill today, referred to an inquiry which is taking place on the question of depreciation allowances and taxation of industrial reserves. He suggested that this was a post-war matter which would not affect this year's Finance Bill, and while that may be perfectly true, it may well be that the proper policy relating to reserves may require a number of years' notice in order that it may be fair to industry. Big changes in the policy of depreciation allowances ought not to be put into operation without considerable notice. Furthermore, as this is a vital matter of financial policy, I think it should be remembered that it is this House which makes policy and that it is the function of the Board of Inland Revenue to carry out that policy. I certainly think it is highly desirable that this matter should be ventilated here, and I make no apology for raising it now.

In 1938 this country raised about 24 per cent. of its national income in local and national taxation. Since then we have involved ourselves in very heavy future commitments. There is a vast housing scheme facing us; there is educational reform; there is implementation of the Beveridge Report; and in addition to those things, over which we have control, there are the questions of international security and war pensions, over which we have no control, but which may well add considerably to the bill we have to meet. In addition to the accumulation of liabilities, we have lost a considerable amount of our overseas income through dissipation of our overseas assets. When the war is over we may find ourselves in the dilemma of trying to get a quart out of a pint pot. I do not think there is any question but that after the war, to carry out what the country will demand, it will be necessary to make a very big increase in our national income. My right hon. Friend the Member for East Edinburgh (Mr. PethickLawrence) in his speech on the Budget referred to the need for increased national income and suggested that we must practically double it. That is quite possible, but it will depend on the rate at which we increase our industrialisation.

You cannot increase national income to any great extent unless you are prepared to mechanise, to improve your plant and to increase your industrialisation. The difference between a poor and a rich country is very largely the difference in the ratio of mechanisation. Of course, the speed of this change depends upon the amount we save out of our national income. But taxes are so high at the present time, and are likely to remain so high after the war, that I think it is time we started to discuss in its widest aspect the effects of taxation upon industry and particularly the effect of our high rate of taxation upon savings and investment. A rate of tax which involves a standard rate of Income Tax at 10s. in the pound which probably after the war will not drop below 7s. 6d., and Surtax, which is at present at 19s. 6d. in the pound, is so heavy a rate that we really must take stock of what effect this will have upon industry. We may have to change our policy and see that as far as possible it stimulates and helps industry rather than hinders it, particularly as regards investment and saving.

I want to look at the investment and saving policy of the country in recent years. There are three clearly defined periods, the first prior to 1914. Throughout the 19th century and the first 10 or 15 years of this century we were saving between 12 and 16 per cent. of our national income. That is an enormous amount. It was the pressure of this very large sum steadily seeking investment which gave our industry during the 19th century its expansive and adventurous vitality. Then came the war. Income Tax, which from our point of view to-day had hitherto been negligible, increased to 6s. in the £ and eventually settled down and roughly fluctuated around 5s. Surtax increased to 13s. The immediate effect of that was to affect savings. Hitherto one very important source of savings had been the rich. With the enormous increase of taxation, they ceased to save, and the rate of national savings dropped to about 8 per cent, of our national income. The rich having disappeared as a source of savings, we were left with two major sources, first of all institutional savings—building societies, insurance companies and various savings banks which dealt with the savings of the working and middle classes, savings which by their nature, being institutional, tended to flow into fixed-interest securities, Government and municipal securities and, above all, into building societies for the financing of our enormous building programme. The Other source was the undistributed profits of industry. In fact, since the last war the undistributed profits of industry have been practically the sole source from which industry could draw new finance. Industry became self-financing, and that is a matter of very fundamental importance when we are considering taxation policy in its relation to savings and to industrial expansion. We must never forget that since the last war industry has been self-financing. During the 1920's something like £70,000,000 a year of fresh capital was used, that is, of course, after depreciation had been made good. Until you have made good depreciation you do not start to save. The primary source of this £70,000,000 was the undistributed profits, in other words, industry ploughed back into production something like two-fifths of its undistributed profits.

The third period is the post-slump period. Here we find again a complete change of condition. The 1930's were a period of redundancy schemes, quotas, pools and tariffs. Expansion was banished as an industrial aim and industry as a whole planned for a limited market and for scarcity. One scheme after another was propounded to deal with what was called redundant plant, for example, the Lancashire cotton scheme eliminated spindles. We suddenly found respectable boards of directors casting aside their top hats and frock coats and behaving as if they were wild, fanatical Luddites and the destruction of so-called redundant plant proceeded apace. All this was done with the connivance and the help of this House. Not only did we pass legislation, Labour Party legislation, such as the coal quota, but under Clause 25 of the Finance Bill, 1935, a levy collected by an industry to buy up redundant plant was regarded as a fit and proper expense to set against Income Tax. The 1930's were years in which industry followed a timid policy of contraction, of security and of planning for scarcity. When we turn to investment we find this contractionist policy reflected. There was no new industrial capital introduced, in fact, industry barely made good its depreciation. I do not suggest that that applies to every firm or concern, but I am taking industry as a whole. In 1933–4–35 the amount of new industrial construction that took place barely made good depreciation. But during those years industry piled up in undistributed profits something like £500,000,000, which, instead of being ploughed back, were invested in gilt-edged securities. Industry again played for safety. It desired to build up its security by increasing its receipts of unearned income. That is a most melancholy contrast with the extraordinary expansive vitality of Victorian times. That is the first problem that the Chancellor of the Exchequer will have to deal with. He must reverse this policy of timidity and contraction. Unless we do, good-bye to any possible expansion of our national income and good-bye to all the schemes which the people of the country are rightly demanding.

If the Chancellor is going to use the enormous power, which the very high rate of taxation gives him, of influencing industrial policy, it is not merely enough to protect industry from a high rate of taxation. It is not merely enough to give what the F.B.I. are demanding, a differential rate of tax on undistributed profits. It is not enough to increase the depreciation allowances, even if they are too low. What we have to do is not to protect industry but to stimulate it. By a judicial change in taxation policy the Chancellor will be in a position to do that. I do not say that any change in taxation policy will produce a revolution. I do not suggest that to get away from the policy of security and protection and planning for scarcity all we have to do is merely to change our taxation policy. It would require a great national effort but the Chancellor could help. He could make his taxation policy a stimulus rather than a hindrance to expansion, and it is with the idea of suggesting how that could be done that I have been so anxious that this matter should be discussed in the House.

It is of no advantage to this country to have undistributed profits piled up and then put into gilt-edged securities. If undistributed profits are to receive any advantageous differentiation in their favour it must be because they are used in the national interest and as we want them. Any differential advantage should be given, not when those profits are accumulated but when they are put back into plant, bricks and mortar.

If the Chancellor is prepared to adopt this policy of stimulating industry, it will be no use if it is done half-heartedly. A small concession is not likely to have much effect. If he embraces the policy, he should do it with courage. It is highly probable that in our lifetime we shall never see a standard rate of less than 7s. 6d. in the £. If I were Chancellor I would make two standard rates, one for the individual which would probably be 7s. 6d., and for profits ploughed back I would make a maximum standard rate of 2S. 6d. and give a differential advantage of 5s. That may seem a large amount if we weigh it up in shillings in the pound. If, however, we regard it from the point of view of the burden cast upon the Exchequer it will not be very much, even in the almost inconceivable circumstances of industry ploughing back at the rate of £200,000,000 a year the cost would be barely £1,50,000,000 to the Exchequer and the growth of income that would arise from this expansive policy of industry would soon turn that sacrifice into a highly profitable investment.

The second point where stimulus can be applied is on depreciation. Here again there has been a demand for an increase in depreciation allowances, but unless that increase has its effect upon industrial policy, unless it leads to a more rapid replacement of obsolete plant, it will merely be a gift to industry without any corresponding advantage to the community. There is here a point of considerable importance. Our obsolescence allowances are a minute fraction of depreciation allowances and that is a serious position. For the sake of clarity I will recall to Members the difference between depreciation and obsolescence. In peace a plant is depreciated at a given rate per annum. Let us assume that there is a piece of plant which originally cost £1,000. It is depreciated 10 per cent. per annum. Ultimately it will have been written down perhaps to £200, perhaps to £100 in the books of the company when it is renewed. Obsolescence allowance is the difference between the book value of that plant and its scrap value when it is replaced. If the firm replaces the plant when it has been written down to £100 and sells the scrap for £50, there is an obsolescence allowance of £50.

It is obvious that if industry as a whole tends to keep its plant running until it has been written down to a negligible figure in its books, the obsolescence allowance is very small in proportion to the depreciation. If, on the other hand, industry adopts a forward policy of scrapping its plant in the early years as soon as it becomes obsolete and when it has been written down, say, only to 50 per cent. obsolescence allowances will be large compared with depreciation. The fact is that in industry obsolescence allowances are a negligible factor as compared with depreciation. That means that there is a large amount of obsolete, old-fashioned plant still running in the country. If we were merely to increase depreciation allowances what guarantee have we that industry will not merely pocket the advantage and still continue in its present policy of hanging on to its obsolete plant? None whatever. I suggest that as one is prepared to give industry an advantage in the question of differential taxation on ploughed back profits, here is a case where a penalty could be applied. Instead of depreciating plant down to nil no plant should be depreciated beyond a certain point, say 20 per cent., and thereafter depreciation allowances should stop Naturally it would vary according to the class of plant. There is no point in compelling a railway to replace its railway lines with identical lines which have not changed in design for a century. If we put a point below which certain types of plant shall not be depreciated, and if that plant is retained after that point attracts neither depreciation nor obsolescence allowances, we establish a penalty for running old plant and provide a stimulus to change it at an early period. I do not want the Exchequer to make a profit out of this. If it is necessary to increase the rate of depreciation let it be done. There should be a distinct financial advantage to a firm that keeps its machinery up to date and a penalty to the firm that goes on using obsolete and out-of-date machinery.

I do not suggest that these proposals will produce a revolution or that they will reverse the tendency of the thirties to which I have referred, but I do suggest that they will help in that direction. I think it is very important that financial policy should help in the direction we want rather than that it should hinder. If we are to give concessions to industry then industry must give us something in return. If we are to protect industry from the terrible rate of taxation which totalitarian war involves, the concession we must demand from industry is that they recognise that it is their duty to plan not for scarcity but for plenty and that they play their part in expanding our income so that the abundance to which the nation has a right shall be provided.

The hon. Gentleman has suggested in his excellent speech that Income Tax should be reduced to 7s. 6d. in the £. Does he honestly think it possible to get full employment with the Income Tax at a level of 7s. 6d.?

I am sorry that it was not possible for me to hear some of the earlier speeches in the Debate to-day, but that was due to circumstances outside my control. I was glad, however, that I came in in time to hear the speech of the hon. Member for Chesterfield (Mr. Benson). I was glad that there should have come from those benches a feeling of sympathy with the industrial machine and the policy of stimulating industry to provide that national income which many. of our post-war ideas will.need for their fulfilment. He attached considerable importance to granting differential direct taxation when profits were actually spent in the form of bricks and mortar rather than at the time they were earned. Whilst one can follow the logic of his reason it may well be impracticable to give effect to that policy. On the one hand there may well be a need to build up funds which ultimately may be spent in one block, yet it would be unfortunate if a company were deprived of the advantage of differential taxation because it invested those funds during the interim period. He indicated that advantages might accrue to a company which kept its funds non-invested which would be denied were they invested; but one can, nevertheless, sympathise with the general policy.

During war it is customary to think in terms of strategy and tactics, but I suggest that those terms are no less applicable to the realm of finance, and in the few remarks which I propose to make I shall try to direct attention rather more to the strategic side of our financial problems than to the tactical side. There is a growing desire that we should find the means after the war of securing reasonably full employment, but I, for one, am not at all satisfied that our financial policy is playing as full a part in bringing about a state of full employment as it should be. Whether public ownership is extended or not, whether the number of public utilities is greater after the war than now or not, I think it is virtually certain that for a great many years to come we shall have to depend upon private enterprise for the production and distribution of the bulk of the goods in this country. If that be so it seems to me essential that we should ensure that private enterprise has adequate financial resources at its hand in order to provide employment after the war.

We on this side do not think it will be necessary after the war for private enterprise to interfere too much.

Perhaps the hon. Member may have an opportunity later to enlarge upon that point. The effects of taxation must clearly be much more noticeable when the rate is high than when it is low. Before the last war Income Tax never reached 2s. in the £. Between 1916 and 1938 it fluctuated between 4s. and 6s. in £ the so that whatever ill-effects there may have been in our taxation policy in the old days they were scarcely discernible before the last war, and however bad and unfortunate they may have been before the war they assume paramount importance when the taxation in any way approaches the rate prevailing to-day. I think it is generally agreed by Members of all parties that taxation has become much more than the mere collection of money. It has become regarded as an instrument of economic policy. It is a weapon which the Chancellor uses in his fight against inflation. It is a means by which he seeks to draw off the surplus spending power of the people. But it is even more than that, for it is regarded in a sense as an instrument of social policy. As I see it, the national conscience has become increasingly uneasy at the disparity between the resources of one private person and another as we knew them before the war, and direct taxation has come to be used as a means of reducing that disparity. But at the same time as the weapon of taxation may be used for economic purposes and for social purposes from the point of view of the individual, it may well be that the result of using it for this purpose is to injure the sources from which those resources come, namely, trade and industry itself.

I do not think the point I am trying to make has any direct bearing on the war as such. I am endeavouring to bring out the considerations applicable to direct taxation from the point of view of the individual, war or no war, and to show that they must not in their application damage the source from which that income comes. There is no question of drawing off the surplus funds of industry, as the attempt is now being made, and rightly, to draw off the surplus funds of individuals. There is no question of seeking to reduce the disparity between the resources of one company and another. Arguments which apply to the individual become quite meaningless when applied to companies. For that reason it seems to me that if we use this weapon in the way which has become recognised as desirable we must introduce some flexibility into the system if we are to avoid the inevitable damage to which I have referred. That brings me to a point which the hon. Member for Chesterfield touched on, namely, the question of differentiation between the tax charged on distributed profits and the tax charged on undistributed profits. If a lower rate of tax is to be levied on the undistributed profits, what it may be asked, is to prevent the shareholders deriving benefit by the capitalisation of reserves?

I am by no means suggesting that the advantages of differential taxation should accrue directly in the form of dividends to shareholders. That problem is no new one, for it arose in connection with E.P.T., when it was decided to grant 20 per cent. post-war credit to industry. The Chancellor told us that that post-war credit was to be given for the development and the equipment of industry and was not intended to be distributed direct to the shareholders. The same considerations apply to undistributed profits. We must assume therefore that since the question as to how to ensure that the benefits are used for the purpose for which they were intended has been faced and solved in connection with post-war credits, the solution may equally well be applied to the other question. It is not only a matter of the high rate of tax but as to whether certain expenditure, which is necessarily incurred in industry, shall be charged against gross profits or against net profits; in other words, the question of what expenses shall be allowed before the calculation of tax. It is no new statement to make to say that what is regarded as profit by a prudent commercial man is in many cases not so regarded by the Inland Revenue authorities. There are instances of expenditure incurred in connection with leasehold premises.

May I ask whether the hon. Member means that what a prudent business man would declare as a reasonable profit the Income Tax authorities will insist upon putting very much higher?

I perhaps made a slip of the tongue. I meant to say that what is regarded by the Inland Revenue as chargeable to capital is frequently regarded by a prudent commercial man as properly chargeable against his profits, namely, as income. If I put it the other way round, it was a mistake. There are conditions concerned with leasehold premises, legal expenses and matters of that kind. Because of the attitude of the Inland Revenue authorities, those items require to be taken out of the net profits, which makes it that much more difficult for industry to collect adequate financial resources for developments of various kinds. As a result of the war there will be many reasons why adequate finance will be needed. Firms may have to change the site upon which they have been working during the war. There will be many inventions which have a peace-time application. There will be expenditure in changing over from a wartime to a peace-time production. Therefore it seems essential that we should need adequate funds for industry, to ensure that the change-over is made sufficiently quickly and to a sufficient degree. Postwar credits by themselves will not be enough. If any loss results to the Exchequer, it will be as nothing to the increased earning capacity to which the Exchequer can look forward from industry at a later date.

It requires no stress from me, I hope, to emphasise the vital importance of our export trade after the war. We cannot expect to develop and to maintain an adequate export trade unless we have up-to-date equipment with which to do it. Reference has been made to the question of replacements. As matters stand now, the only assistance which industry can obtain from the Inland Revenue is that which remains after depreciation on the one hand and disposal value on the other hand are taken into account. What is left is allowed as a replacement charge, but it entirely ignores the situation in which a manufacturer may be placed if the article or the machine, which he wants to buy to replace his old one, costs two or three times the cost of the original one. If we are to develop an adequate policy of replacement and modernising of equipment, some regard must be paid to replacement costs and the calculation must not be confined merely to the residual value of old plant.

It may be argued that if the Treasury were to allow full replacement costs it would merely be an incentive to people to be extravagant and take no care in the amount they spent on the replacement article, but there is no reason why it should not be practicable for some such system to be applied as we know of in regard to the cost of living. There, we have a yardstick by which we measure costs in a certain period against costs in a former period. I should have thought it perfectly practicable to take a broad category of industry or of types of equipment and to relate the replacement costs to the period in which they were installed and so use that broad calculation for the assessment of replacement costs. If that were done, it would avoid the risk of extravagance by individual manufacturers, and would go a long way towards encouraging firms to instal new plant.

There is one other broad point I want to touch upon before I sit down. In the second Finance Act of 1939, in the Seventh Schedule, arrangements were devised to take account of the loss which industry might be expected to suffer because the plant they installed for war purposes would be or might be of no value at the end of the war. Reference is made to that point in the memorandum issued by the Treasury on 8th June, 1942, and the point was brought out that the existence of that arrangement, whereby manufacturers could have the loss made good, was regarded as a reason why the contractor should not be allowed to write off the value of his plant against the contract which had been placed with him; but the only way in which a manufacturer can take advantage of the Section in that Finance Act is if the plant in question is obsolete, has ceased to be required or is sold. If we want our industrial resources to be used to the full and as quickly after the end of the war as possible, it seems absurd to deny any help to the manufacturer using war-time machinery for peace purposes merely because none of those three conditions has been fulfilled. One must presume that it was intended to be some offset to the manufacturer who found plant of infinitely less value after the war than it was while the war was proceeding. But the terms in which it is drawn deny any help from that Section if the machinery used for the manufacture of munitions or guns or anything else is turned over to peace-time purposes, even if it has an infinitely lower value, as it may well be expected to have. I suggest that there should be some way of increasing the opportunities which industry has to get help by adding other conditions than merely those I have enumerated.

A number of the points I have made are not fresh. No doubt they have reached the ears of the Chancellor before. He told us in his Budget speech that he had instructed the Inland Revenue to review a number of these points, and that in due time he hoped that he might be in a position to act on the advice that had been tendered. I want to submit that the considerations involved are of far wider scope than merely tax collection and that if justice is to be done to this problem from a national point of view, it is to my mind essential that the scope of the inquiry should not be confined merely to the Inland Revenue. If he could assure us that those concerned would work in close association, and that the Treasury itself would be associated with it, it would go a long way towards adding confidence to those who are interested in the outcome of that inquiry, The Chancellor has received many compliments on the handling of the nation's finances in war-time, and if a humble addition may even now be made to the many tributes which have been paid, I would like to add mine. But I do hope that he will look as far beyond the point at which manufacturers are looking as the Prime Minister tells us he is looking beyond the viewpoint of those actually engaged in the theatres of war. We must look well ahead if we are to devise satisfactory conditions after the war. If I may conclude by repeating what I said at about the same time last year, I would express the hope that in trying to take the profit out of war we shall not take the trade out of peace.

I am sure the House has listened with great interest to the hon. Member for Northampton (Mr. Summers). I am always in a difficulty when I hear affirmations such as the House has just listened to of the vast capacity of private enterprise to provide the country with all the requirements to carry on all the activities of the community, and then, after hearing an affirmation of that kind, to listen to an eloquent appeal to the Chancellor of the Exchequer not to eliminate entirely the spark, but to be very tender and gracious and take into calculation all factors about depreciation and obsolescence of plant, and then perchance private enterprise, if it is not burdened with too heavy taxation, may be able to stand and absorb the available labour and utilise the available resources. Any review of history will show how absurd that really is. There have been periods when taxation in this country has been at a ridiculously low figure, but slumps and booms occurred just the same. There have been periods when there have been vast available bank balances being piled up but when, at the same time, the volume of unemployment rose correspondingly. There have been periods like the present time, when every farthing is being raked out of every stocking or sock, and taxation is up at a figure which staggers the imagination, and the Chancellor of the Exchequer is presenting Budgets running into thousands of millions, and even so there is practically full employment.

Wages are rising, and thanks to the wisdom of the Chancellor and other Departments in subsidising certain industries such as agriculture to maintain relatively low costs for food, the standard of living and the standard of health are actually rather higher than what we were accustomed to. I have had some experience of business, and my experience has been that generally any Chancellor, in framing his Budget, tries to be scrupulously fair to industry. It is very difficult, as we all know, to frame regulations and rules which apply with equal justice in every case, but, generally speaking, our experience is that legislation is not only so framed, but is so applied by the officials of the Treasury, that it is very seldom that there is any glaring case of dishonesty. If anything, my impression is that the allowances for depreciation are on the generous side. I know that when one comes to the actual detail one manufacturer, through lack of proper supervision and care, has a bigger rate of depreciation, whereas in a more careful and more efficiently controlled industry, where the plant, both human and mechanical, is taken into consideration, the allowances are generally adequate. It is a question in the case of every tool of how you use it that decides how long it runs.

With regard to the general idea behind the last two speeches of the importance of introducing new plant and adopting new methods, it is just there that private enterprise, it seems to me, so often breaks down. It is not only a matter of financing new development. More than that any Long Stop Hill is in the minds of people. The captains of industry, who, for generations, have been wedded to a certain way of doing a thing, cannot believe that it can be done better some other way, and it is a psychological as often as it is a financial problem. I sug- gest to the Chancellor of the Exchequer and to the House that if we are to get this thing into perspective, we have to face modern history as it has unfolded before us. Twenty years ago, before this war started, Germany was bankrupt, unable to pay, so that international finance provided the Dawes and Young loans so that it could pay all that it was supposed to pay under the terms of the Versailles Treaty. Even so, a brief 20 years afterwards they were in a position to stage a world war calculated to sweep everything in front of it, equipped on a scale unprecedented in world history. How was it done? Germany had not the vast Colonial resources that we had. They had not the intangible resources of revenue. As a matter of fact we were accusing them continuously of Government-subsidised exports which we called dumping, and they were actually selling goods at what was supposed to be for less than they were produced. However it was done, it was done, and there was practically no unemployment in Germany, but it was not only a financial process. Methods were adopted which we probably would not tolerate. But certainly the interests of profit, as profit, will not be allowed to come in front of national policy.

The other classic case in modern history is Russia, the first country which was able to stand up against the vast might of metal and mechanism in the modern Blitzkreig. It was the same story. A brief couple of decades ago Russia was in the same position. Czarism had collapsed, and there was a totally new order, which had to pay as much as 10 per cent. on foreign loans, to make the necessary purchases in foreign countries. It was paid; and, by some method, Russia has practically solved unemployment, has raised the standard of living of her people, Alas raised the educational standard, and has obtained social services of such a standard that I suppose the average Russian would not exchange them for zoo per cent. Beveridge. That has been done, and the Russian people are prepared to stand over the structure that has been built up to such an extent that we have epics like Stalingrad.

Would the hon. Member not agree that that has been done chiefly at the sacrifice of the people?

No. Those who know Eastern Europe know that it is ridiculous to compare the standard of living there with the standard in this country. The only proper comparison is with the standard which existed there 20 years ago. The more you know about the standard of living there, and the poverty, the ignorance, the degradation which prevailed there 20 or 3o years ago, and then consider that out of that Stalingrad has been achieved, education has been made universal, unemployment has been driven from the country, the more you marvel. So far as we know, Russia is not having any insuperable difficulties; I have seen no suggestion that the war in Russia might collapse because the counterpart there of the Chancellor of the Exchequer will not be able to raise the necessary funds.

I was suggesting that the point we have to consider is whether it will be possible after the war not only to maintain but to raise our standard of living, or whether, as more pessimistic people, like the hon. Member for Chislehurst (Sir W. Smithers) for instance, think, when all the expense is considered, it will be practically impossible to fulfil the terms of the Atlantic Charter. I think it is perfectly legitimate to suggest that the Chancellor of the Exchequer should study how the problem has been solved in other countries in the modern world. I am not suggesting any mere slavish repetition of what has happened anywhere else, but I suggest that we could secure a higher standard of living as a result of the expansion of industry at a rate which staggers the imagination. If these questions had been left in Germany and Russia purely to private enterprise, even if they had had the kindest Chancellor of the Exchequer, who made every allowance to industry and all sorts of remits for obsolescence and so forth, they would not have been able to expand and at the same time to build up a vast military machine, and also to raise the standard of living of the people in every way.

Is the hon. Member asking us to follow the example of Russia and Germany as countries where the standard of living has been raised solely because of dictatorship? Is he advocating similar methods in this country?

No. This shows how difficult it is to make oneself understood. I am appealing to the Chancellor of the Exchequer merely to study these questions and to discover by what methods finance has entered in—we all agree it must have played some part—in the solution of such problems. Even if what has been achieved by dictatorship is good, we are not going to say that democracy is damned because we have not done better.

I suggest that we have not. According to some of the speeches made here to-day, we are piling up such a terrific debt that we shall not be able to move, because it will be on top of us. It has been suggested that, although it is very nice to talk about the Beveridge Report, we cannot guarantee anything.

There still seems to be a lot of prejudice against Russia. I have already suggested that, in considering what has been achieved, you must take into account Russia as it was and as it is to-day.

Surely you have to take England as it was 50 or 60 years ago and as it is to-day.

My memory goes back just about 5o years; and all I can say is that we had universal education; we had quite a number of things; and I believe that the average standard of living in the country then was not very much lower than it is to-day.

Does the hon. Member not know that the standard of living has increased by 30 per cent, since 1900?

One can only speak as one finds it. I belong to the working class, and I am proud of it. There may be a difference of 30 per cent. in the standard of living, but in 50 or 60 years a 30 per cent. rise in the standard of living, when there has been all this vast development, is, to my mind, nothing to write home about. Some people, because they are in a position of affluence, may be very happy, but I could take them to homes in my constituency where, even in a wartime boom, they would be moved to pity. I could take them to the homes Of old people who have lived through these 50 years, who have served in industry and have built up the wealth, but have not got any reward, and are in dire penury. However, my object was to help the Chancellor to solve his problem, and to do what I believe he desires to do, to implement the general promise of raising the standard of living and solving the general problem. I suggest that he would get some guidance from studying other countries. I would like to make some other points, but probably I shall get an opportunity on the Committee stage.

I propose to make my contribution to the Debate on the assumption—and I suggest that it is a realistic assumption—that,whatever our political views may be, we have to face the fact that for a considerable number of years after the war a very large part of the economic activity of this country will remain in the hands of private enterprise. Therefore it is of great importance to consider how to make private enterprise work as well as possible in the national interest, and in that respect I entirely agree with what my hon. Friend the Member for Chesterfield (Mr. Benson) said. I want myself to speak with close reference to the topics raised in the Amendment to which I and other hon. Members put our names, and I want to make it clear at the outset that, in putting down that Amendment, at any rate as far as I was concerned there was no spirit of tax "escapism." I am a supporter of generous social expenditure and of direct taxation as the way to meet it. Therefore I accept the need for continuing heavy rates of Income Tax after the war. But the tax must be levied on true income. I would rather have a l0s. tax levied fairly than 7s. 6d. levied in a way which is damaging to national interests. Another point I want to make is that I personally wish to speak looking ahead to the continuing prosperity of British industry after the war, and leaving aside all the problems of war taxation and post-war readjustment. The third preliminary remark I want to make is that in putting down that Amendment we did so in no spirit of criticism or of hostility to my right hon. Friend. He has been extremely good in talking to us on these matters, and I fully appreciate what he has said in two previous speeches and again to-day as to his recognition of their importance and as to his intention—which indeed he has already started—to have a special inquiry on them. But we did feel—those of us who put our names to the Amendment—that there was an issue of very urgent public importance, and that it was worth while to make an attempt to have a connected and focused discussion on it in this House.

That brings me to the first point I want to make, and that is what an immensely important instrument taxation at present levels has become for affecting the whole course of industry. Misused, that instrument may gravely damage our economic tissue. Properly used—though that is more difficult—it may be of real benefit and guidance to the course of industry. We are all familiar with one case where taxation had decisive indirect effects on industry. By adopting a particular form of tax on motor cars we permanently affected the course and shape of the motor car industry in this country. I am not saying that the result was either right or wrong, but I urge that these indirect reactions must be seriously considered and that we should not regard taxation merely as a means of collecting revenue. Analogous but much wider and more fundamental reactions may result from our methods of assessing and taxing industrial profits.

Briefly, the case I want to put is, first, that these methods have tended to make British industry stick to obsolescent machinery, and to patch up and repair old factories which would have been better scrapped and rebuilt. Secondly, that this tendency is likely to be most dangerously strengthened in the future with the higher rates of tax to which we must look forward; and, thirdly, that its effects in future will be far more serious than in the past because we are going to live in conditions in which, if British industry is to keep its place, the need will be greater than ever before for British industry to be progressive, adventurous, inventive and flexible—always bold to risk expenditure on research and experiment with new methods, always ready to scrap and replace obsolescent machinery. I want further to urge comparison with the United States tax system and to assert, what no one with practical experience will deny, that a characteristic difference between our business methods and those of the United States has lain in the greater readiness of the latter to scrap its old plant and buildings and to design new factories and lay-outs to fit the job, as compared with our tendency to stick to old methods, and, as I said before, to patch up. I am not saying that everything in the American system is right or that everything in ours is wrong, but there is in that difference something of great danger to British industry, and the danger is greatly increased by the characteristics of our taxation system.

What is that system? It was founded on an Act of 1842—itself a revival of Pitt's Income Tax law of 1799. The original Act has, of course, been considerably amended. There has grown up too a mass of case law, and executive interpretation has developed, but fundamentally the spirit remains that of 1842. But industrial practice and methods of accounting and calculating profits have changed beyond all knowledge. The net result of all this has been to create a perfect rabbit-warren of rules and interpretations which it requires a senior wrangler's intellect to understand or interpret and which leads to a vast and wasteful amount of wrangling in its interpretation. Let me make clear that what I say implies no criticism of the Revenue officials. I have always found them to be men of the highest intelligence and integrity, most helpful in every way. But they are working with an out-of-date machine. The worst feature of all is that to which attention has been called by my hon. Friend the Member for Northampton (Mr. Summers), that profit calculated for taxation purposes by the revenue authorities really in fact means something quite different from profit as reckoned by the prudent and progressive business man. That difference did not matter seriously in the old days, but it is going to matter terribly in future. And that for two reasons. Not only has the tempo of scientific and technological advance increased enormously in recent years so that the need for being ready to scrap and replace old and obsolescent plant has greatly increased, but—and this is the vital point—the increase in the rate of tax has altered the whole nature of the rap. The time has conic for a fundamental review of the whole system, not with any idea of any revolutionary change in war-time, but so that we may start after the war on a better basis.

What sort of changes ought to be considered? Let me suggest two questions. Ought we—with Income Tax in the range of 7s. 6d. to 10s.—to continue our present system, which puts the full rate of tax on industrial income as such, or ought we to adopt a system like that of the United States, which subjects the industrial undertaking as such to a certain tax and then on top of that collects a tax from personal incomes? The other question I would put is, Would not vast labour be saved and better results produced if we gave up the attempt to make the distinction between capital losses and current expenditure, which would, of course, also mean that if you allow capital losses as expenditure you must also tax capital profits? I do not however want to advocate specific changes to-day, but only to urge that the time has come when changes of this kind should be considered. I will try to give chapter and verse for the general case I have made. It is really worth while to ask the House to consider just in what respect it is fair to suggest that our methods of assessing income for tax purposes are not identical with the methods which ought to be followed by progressive business men.

Let us start with research and development. Nothing could be more important to-day than that British industry should be willing to spend large sums upon this in order to maintain their competitive position and provide for progressive improvements in standards of living. The treatment of expenditure on research and development by our Revenue authorities almost always leads to complicated argument. The general formula appears to be that only expenditure relating to the existing products of the company concerned can be allowed as a deduction from profits. Experimental work in an existing laboratory may be allowed—though not always—the test apparently being whether the experiment is designed to produce benefits within a measurable time. But if a pilot plant is built to test out the making of some new product, that is treated as capital and cannot be written off if it proves a failure. Yet a bold programme of experimental work of this kind on new products is absolutely essential and is, from an economic standpoint, really a maintenance charge, because a company can only maintain its position and provide employment for its workers if it keeps pace with foreign competitors and rising standards in demands.

I turn next to the question of the alteration and improvement of our factories—another vital matter which is treated in a similarly unsatisfactory way. Manufacturers, to keep their place, must be constantly making alterations and improvements in machines and in factory lay-out. But the Revenue authorities are always seeking to stress what they call "the improvement element" and to disallow expenditure which can be attributed to that. But even if the undertaking is improving its plant, it is really doing no more than keeping pace with current demands, either as to product or efficiency or with its competitors. To stand still is to go backward. Sweden affords an interesting illustration of what Governments can do in this kind of case. There, in order to encourage expenditure in wartime, they have introduced a special provision allowing as working costs the so-called "over-price" on capital replacements made since 1939. Thus, if an installation standing at £100,000 is replaced by one costing £160,000, the £60,000 extra war cost is treated as a working cost. The country benefits from the expenditure, and the revenue ultimately benefits from the higher profits.

Next I want to turn to the question,of obsolescence. A deduction is allowed for wear and tear according to the estimated life of a plant, but a plant with a reasonable life of 50 years may become obsolete in 10 years. The Revenue authorities allow you to write off the remaining book value only if you can prove that you are replacing the asset. To prove that precisely is often very difficult, and this is a frequent cause of argument, involving expenditure of much time and money. Let me give a practical case. A manufacturer used to make a certain part from iron castings. He did his own casting and machining. He found it would give a better and more economical product if he bought steel castings from another concern. That meant scrapping his own casting plant and putting in new plant for machining the steel castings. He wanted to write off the casting plant as obsolete and treat the new machining plant as a replacement of his old casting plant. In the end the Revenue authorities agreed; but it took two years of argument to make them do it, and the manufacturer had to employ the tax expert of a leading firm of chartered accountants before he could succeed. This illustration is interesting from many points of view because it illustrates, first of all, the long delay, the waste of time for skilled personnel in arguing the case, the disadvantage for the smaller concerns which cannot afford skilled help, and above all, the uncertainty hanging over the whole question. This must have a strong deterrent effect. People hesitate to incur expenditure which ought to be incurred, because they do not know if it will be allowed for tax purposes, and if it is not allowed, they cannot afford it. The United States law treats obsolescence in a clear and well-defined way and allows it as a deduction without proof of replacement. Also, an annual obsolencence allowance is permitted running concurrently with the wear and tear allowance.

Let me turn to another important matter—buildings. This is a well-known and glaring case. A business is allowed to write off I per cent. per annum on mills and factory buildings but nothing at all on any others—nothing on warehouses, garages, workers' houses, offices, shops, etc. The I per cent. is a grudging allowance given on the ground that these buildings are supposed to suffer from vibration. These are therefore given zoo years' life. All other buildings are supposed to be everlasting. The factor of obsolescence is not considered. Repairs are allowed as expenses but no alterations or rebuilding. If you repair your roof tile by tile, that is an allowable expenditure, but if you replace the roof altogether, it is probably not. I say "probably" because there appears to be no certainty. It depends on what is considered to be the unit. You cannot change the whole unit. If the roof is decided to be the unit, then its replacement is treated as new capital expenditure. A factory chimney, I am informed, has been treated as a unit, and therefore its rebuilding has been disallowed. I will not enlarge on this subject, because it is so well known, but it is very important for two reasons. First, no factor has been more powerful than our tax system in encouraging the patching-up of old buildings and thus perpetuating slum conditions, both in factories and human dwellings; second, it illustrates the short-sightedness of our present methods. The Revenue really lose from them in the long run, not only because they encourage the retention of bad lay-outs, but also because they tend to make people go on patching up old buildings and to incur heavy costs for repairs. Both results reduce the taxable profits.

Another important matter is the treatment of wasting assets of all kinds. Mining, of course, is the chief example. A company may obtain a mining concession for which it pays a lump sum, and in addition it may spend money on prospecting, development and shaft sinkings as well as on plant to work the mines. An allowance is granted for the depreciation of machinery, but nothing for development. I do not want to put this forward with any idea of protecting mineowners' interests; I am only concerned in the effect it has on national interests. If you go down a mine, you may find coal being carried two miles underground to the nearest shaft. If you ask why there is all this waste of labour and upkeep expenditure, you will very likely find the real reason to be that the company could not provide the money to sink a new shaft because they were not allowed to write off the cost of the old shaft. Here again the United States law differs and allows the writing-off of expenditure on mines and other wasting assets, both tangible and intangible.

I have mentioned these instances—and I could give many more—of expenditure which over a period of years ought to be regarded as the cost of running a business—expenditure that every progressive business ought to undertake but which our tax law refuses to treat as current expenditure. I want now to put to the House the urgency of appreciating what the practical effect of this is at the present high rates of taxation. Let me give a simple calculation. If I want to spend £150,000 to put up an experimental plant, if that was treated as an allowable expense, I should just have to find £150,000. If it is treated as capital, I have to find £150,000 net out of the gross income after paying Income Tax. If the Income Tax is Is. in the £ I have to find about £158,000. The extra £8,000 may be irritating, but it does not seriously matter. But consider what happens as the tax goes up. If it is 5s in the I have to find £200,000, and, if it is 10s., as at present, I need £300,000 to provide me with my net £150,000. The effect is obvious. The tendency must be either that the work is not done or that it has to be financed by raising new capital. Both these results must Tie bad in the national interest. It is bad that the undertaking of that kind of work should be discouraged, and it is equally bad that if it has to be done, it has to be financed out of new capital. All our new capital ought to be available for new investments. I entirely agree with what the hon. Member for Chesterfield said about the fact that for the development of existing industry we must rely more and more on the resources of industry itself.

There is one other special aspect of our tax methods that I want to mention. That is the danger under our present system of driving away from this country industries with international connections which are very valuable to us. I have particularly in mind at present the mining machine industry. It is of the greatest possible importance to us, because it is not only a question of supplying the initial plant. Once you have done that, you have the continuing flow of orders for spares and replacement. We are in fact in grave danger of driving away our work for this particular industry.

I beg the House to consider my argument as raising matters of real national interest, not as a plea designed to enable rich men to build up great assets for themselves free of all taxation. I want the removal of hidden obstacles to British industrial development. Get industry humming, and then by all means divide up the proceeds in any way you like, with good employment, high wages, generous social services and all the rest of it. Our present methods check growth at the source and are very bad national economy. We cannot afford bad national economy to-day, when we are moving into conditions of very great difficulty.

I have already said that we need to keep our British industry flexible, adventurous and progressive if we are to keep our place and provide full and fruitful employment. There is one special aspect of this that I have not mentioned. Casting their minds forward to the sort of conditions that will prevail after the war, many people now are stressing the need for mobility of labour, if we are to create the conditions for full employment. I hate the idea of shifting large masses of people from their home districts. Why should not industry itself have a qualitative mobility—a variability and flexibility —so as to create new openings for employment when old industries are displaced? That, I believe, should be the special quality and function of British industry rather than of developing rigid mass-production methods which would degrade our fine workers into something no better than a miserable type of automatic machine. The spirit and methods for which I have been pleading are in harmony with that idea, and I beg the Chancellor in that spirit to undertake a review of this terribly important instrument of taxation. I want to ask for a fundamental review of the position—both of our methods and of those in other countries, conducted with regard to what our industrial problems and requirements are likely to be. It must be undertaken with a broad vision, neither influenced by the narrow views of sectional industrial interests nor merely by Revenue officials. We must of course be businesslike. The Revenue officials must be brought in at all stages, but the essential question is, What ought to he done in the national interest? The problem of the machinery for doing it can only be considered when that question is answered.

In the Budget Debate I ventured to say that my right hon. Friend would go down to history as the Chancellor who, to his lasting credit, first helped the House and the public to see public finance in its true relation to the whole national economy. I now ask him to earn still greater credit by proving himself to be the first Chancellor who had the courage to face the problem of how the complex mechanism of direct taxation could be adapted so as to provide not only a means for the fair distribution of the national income but also a guide and incentive to the progressive development of British industry.

The hon. Gentleman is one to whom everyone is bound to listen with respect. I do not know any Member whom I like to hear more, but our fundamentals are different. He is speaking to back up private enterprise, and all his arguments are based on that. If private enterprise shows signs of failing, there must be some relaxation, and the Treasury must do something to let it go forward. Should there be mass unemployment, it is simply because it has not had the opportunity, so the Treasury must come along and do something for private enterprise. But all the time private enterprise must be the governing factor. We on this side say that private enterprise has been tested and has not succeeded. Before the war it did not prevent mass unemployment. There was money in the bank belonging to private enterprise, but it was afraid to use it. Private enterprise always has to make sure it has something to fall back upon. If an enterprise does not appear to be payable, the State has to step in to prevent the whole thing collapsing. That has happened in the past, and we object to this kind of thing and to private enterprise pointing out all the time what must be done to help it forward in the new world.

I hope the hon. Member does not think he is representing my point of view, because he is certainly not.

I thought I was, when I said the hon. Gentleman was backing up private enterprise.

The point that I have always emphasised is that private enterprise carries public responsibility, and it is only if it discharges that responsibility properly that it is worthy of help.

I agree, and it has not been able to bear its responsibility. It has failed, and it is because of that that I take strong objection to its being boosted again as it has been in this Amendment, the whole reading of which is backing up private enterprise. I am sorry that one of our Members has his name to it. I said to him that he was backing up private enterprise, and he did not deny it. He said it was necessary for the time being. I do not agree that it is necessary. We are changing through the war to something better than has ever happened in the past, and I claim that private enterprise cannot carry out the change for us. It must be done under Government control. My hon. Friend the Member for Chesterfield (Mr. Benson) said that some firms would not do their work properly and were using old machinery, but if private enterprise had any vitality, they would go ahead, bring in new machinery and build up industry.

If that is so, it should be left to the State to carry it on. [Interruption,.] Hon. Gentlemen opposite are no better than myself. Their leaders are in industry, and they want to keep their position for all time, saying that they are creating employment. They are creating a certain section of financiers, capitalists and industrial magnates, and all the time they try to see that they are backed up and are never on the losing side. The hon. Member for Walsall made a threat that machinery might be taken to some other place if it was not utilised here.

What I said was that the mining machinery industry might have to go somewhere else for its orders. I did not mean that the physical machinery would be moved.

Where would it go? Many years ago I challenged a Member on the other side when we were talking about taxation, and he threatened that it would drive capital out of the country. I asked him where it would be taken to, and he said, "To the best country of all." I told him that if capitalists took their money out of the country, they would not be patriots.

I want to deal with various points in the Finance Bill which I would like cleared up. Clause 15 refers to
"a claimant who maintains at his own expense a person whose total income from all sources does not exceed £50 a year, being either an aged or infirm relative."
I would like to know what the term "aged" means. Nothing is laid down about it in the Bill, and its meaning is left to the Income Tax officer to determine. Some guidance to its meaning should be given in the Bill. Clause i8 provides that Post-war Credits paid to members of the Forces and certain other classes shall not be regarded as income for any of the pur- poses of the Income Tax Acts. The meaning of that should be made clear. Are there some sections in the country who are not paid Post-war Credits?

That brings me to the question of borrowing. The Post-war Credit scheme means that the taxpayer is lending through Income Tax payments money that will later be paid back to him on which no interest is paid. If we can get some savings from the people through Post-war Credits in this way, why not extend the system so that instead of borrowing and paying interest the Exchequer collected more savings without interest through additional taxation? If, for instance, a person's Post-war Credit is now £5 10s. and it was increased by taxation to £50, the country would save the interest on the additional amount. Huge sums of money on which interest is paid are being borrowed, and I suggest that the Chancellor in the next Finance Bill should impose additional taxation and put the money thus raised in Post-war Credits and so save a large amount of interest.

Clause 26 deals with a reduction of the rate of interest on Death Duties. I am at a loss to know what that means. Does it mean that those who pay Death Duties are getting away with more than they did before? If so, there is some objection to it. Clause 28 deals with the permanent annual charge of the National Debt and states that it shall be £375,000,000 instead of £355,000,000. Does that mean that extra money has to be paid for the increased borrowing? If it does, it reinforces my suggestion to increase Post-war Credits. If that were carried out, it would save this additional £20,000,000. I would like to ask a question, not immediately connected with the Finance Bill, but connected with the Fiduciary Note increase. We have had given to us a Treasury Minute which increases the Fiduciary Issue from £950,000,000 to £1,000,000,000. I would like to know what is meant by that. I find high finance a bit troublesome. Does this mean that this is a kind of note of credit, that the nation has not the gold reserves to meet it, and that as we want the money all the Chancellor has to do is to get the consent of the House to an increase of the note issue? If that is so, I do not want the Bank of England to deal with this matter. Why cannot it be a direct activity of the State? The State bears the full responsibility of any debt that accrues, and I cannot understand why we should make a request to the Bank of England for this money to be issued.

The other point with which I want to deal is one in which my hon. Friend the Member for Ipswich (Mr. Stokes) is interested. I have my name down to an Amendment dealing with the taxation of land values. I do not want at a time like this to create a crisis by dividing against the Finance Bill on this issue, but I would like an explanation on this matter, so that I can give my reasons for my support. As I understand it, land values are increasing, not by the help of the individuals who own the land but through the good will of the community. If that is so, why cannot the Chancellor say in his next Financial Statement that all this increment created by the community shall come back to the State? If, for example, land valued at £1 per acre rises in value, through the work of the community, to 30s., there is no case for saying that that increased value should not go to the State. That is what is behind this Amendment on the Paper. It is a means for the Chancellor to get hold of a sum of money from people to whom wealth has accrued through no efforts of their own.

The speeches we have heard to-day and the Budget speech of the Chancellor of the Exchequer all indicate that certainly during the war —and I believe it will continue to be so after the war—finance and taxation are being used as instruments of policy. The taxation on beer, tobacco and luxuries is intended, of course, to raise revenue, but the Chancellor indicated, and rightly indicated, that he does not mind what people do about it. If they spend their money on beer or tobacco he is happy, because he will get the revenue; if they do not, he is equally happy because they will thereby save labour and shipping space. The Excess Profits Tax at 100 per cent. is another example of taxation as an instrument of policy. I believe that if the Chancellor had been merely looking for revenue it might have been worth his while to have encouraged output and provided industry with an incentive, by reducing the 100 per cent. to, perhaps, 80 per cent. But the purpose of making the tax 100 per cent. is a psychological one. It was thought it would be a good thing to create the im- pression in the country that nobody was making a profit out of war production in excess of what he had made in peace time. From that psychological point of view, any sacrifice which the Chancellor may have made has been worth while, but it is another example of taxation being used as an instrument of policy.

The speeches of my hon. Friends the Members for Chesterfield (Mr. Benson), Walsall (Sir G. Schuster) and Northampton (Mr. Summers) have all been directed along similar lines. They take the view that if the Chancellor were to relax taxation in certain directions, it would be of social and industrial value to this country. I do not propose to follow their arguments in any detail, but I think it fair to say that, assuming that the Chancellor still needs a certain revenue, any relaxation of taxation on industrialists will have to be met by the rest of the community, and I think the rest of the community have a right to consider whether this additional burden should be put upon their shoulders.

Industrialists belong to the community. What I was urging was a relaxation of the taxation on industry as such, making up the difference, if necessary, by putting a personal Income Tax upon everybody who receives dividends or interest.

I think my hon. Friend cannot escape from the logic of what he has put forward, that in so far as one section of the community is relieved of taxation the rest of the community will have to make it up. That is inescapable. It may be a good thing or a bad thing. I am not arguing that now, but I was very much surprised to hear my hon. Friend the Member for Chesterfield saying, on the one hand, that this alleviation was necessary for industry, and, on the other hand, talking of hundreds of millions of industrial profits on which the relief of taxation was, he said, about £50,000,000. If there are these hundreds of millions of industrial profits available, it does not look as though industry particularly needed any stimulus.

I want to propose to the Chancellor a form of taxation which I think will be very welcome to him. I know he has been looking round for new sources of taxation, and that he wants to broaden the basis of taxation. I suggest to him that he can achieve what he wants by the taxation of land values. Unlike the other proposals that have been put before him to-day, that would result in an increase and not in a reduction of taxation and he would also achieve a purpose which, judging by the speeches we have heard in this House from time to time, all of us would desire to achieve. There has been much talk recently of post-war reconstruction. The time of the House has been taken up passing a number of Measures dealing specifically with town planning and other matters and we have been promised further legislation along the same lines. I submit that whether we can succeed in providing homes for the large number of people who will require to be accommodated after the war with homes within their means, whether we can succeed in replanning and redeveloping our bombed cities and towns, whether we can succeed in properly locating industry so as to avoid the evil of the special and distressed areas after the war, will all depend upon whether we solve the problem of the high cost of land. As my hon. Friend the Member for Leigh (Mr. Tinker) has told the House, land is a commodity which increases in value and will continue to increase in value without any effort on the part of the owner. It increases solely through the activities of the community.

I should like to give one or two examples which have come to my own notice. There was a piece of land in the county of Essex which was worth £50 an acre as farming land. At the expense of the community an arterial road was put through that land. It then became frontage land, and was sold within a short time at 20 times its original value —£1,000 an acre. The owner of that land cannot possibly claim to have had any part whatever in increasing its value. There was in North London some land at £300 an acre for which the London County Council were negotiating. Then came a tube railway, and eventually that land was fetching £3,000 an acre, ten times-the original price. There are the classic cases of the large estates in London and other big cities which have multiplied in value many times over, through no action on the part of their owners, except perhaps the exercise of a little foresight in acquiring land where they thought development might be in prospect.

The building of working-class houses in certain areas is essential. I have said this before in this House but it is important to repeat it. It is essential not only to get the maximum development but also in the interests of those who are able to afford high rents for expensive flats, in order that they may have people to do their domestic work. I know a case in which a block of expensive flats was built some years ago, but could not be let because it was difficult for the tenants to get people to do the domestic work. The owners then acquired another site near by and built a block of working-class flats, for the express purpose of providing domestic workers, whereupon the expensive flats were let. In areas like Marylebone or Kensington, nobody could possibly afford to put up working-class accommodation, because the cost of the land is anything from £50,000 an acre upwards. With land at that price, you cannot acquire sites and provide the amenities and necessities of life which we should all like to provide for the people who ought to be housed in those areas.

I, therefore, submit that it is appropriate that land values should be the subject of taxation so that some portion of the increase in value should go to the community who created it. This is nothing very revolutionary. In another form it is one of the recommendations of the Uthwatt Report. Moreover, the policy is being carried out in many parts of the world, including some of our own Dominions and the United States of America. It has been found to work. The taxation of land values would not only provide the Chancellor with important revenue and give the community a share of what it had itself created, but it would bring down the present unreasonably high cost of land. This taxation of land values happens to be one of the forms of taxation which an owner of land would find it impossible to pass on to his tenants. He would have to bear it himself and it would have the immediate effect of bringing down the income which could be derived from such land, and therefore of bringing down the value of the land. In that way it would facilitate the acquisition of large areas by local authorities who, at present, find themselves unable to acquire land, although it may be most necessary from the point of view of effective town planning.

May I interrupt my hon. Friend? When he says that taxation of land values would have the effect of bringing down the value of land, I think what he means to say is that it would have the effect of driving the speculative value out of land.

Yes. I must face the consequences of what I am saying. By imposing a tax on land values and thereby reducing the incomes derived from land you are bound to reduce the capital value of land. That is a policy which I put forward to this House without any apology, because I think it is the right policy to adopt at a time when land values will be one of the most important factors in post-war reconstruction. Unless we do something to deal with the problem of land values, I believe that all talk of planning after the war will become a mockery. I believe that unless we do something, planning will founder on the rocks of high land values. The men whom we have thanked to-day are relying upon what has been said in this House about our intention to do better for those who are fighting our battles than was done at the end of the last war. They will be grievously disappointed, unless we carry out a policy which will enable the land problem to be solved.

I do not expect the Government to announce this afternoon that they have accepted this policy, but I hope ft at the Financial Secretary to the Treasury will not dismiss it lightly when he replies. This is a serious matter and a serious proposal, and while, fortunately for the Minister, perhaps, the policy of implementing what we frequently say in this House about creating a new Britain will not fall upon him, yet he has a big part to play. He will have perhaps the biggest influence in determining whether these things which we all wish to do are achieved or not. He will have the power of the purge and T hope that his voice, which will be important, will be raised in favour of doing everything possible to solve this problem through the taxation of land values.

In conclusion, I would say—and I want to be quite honest with the House—that speaking for myself alone I regard the taxation of land values as merely a step in the direction of public ownership of land. I believe that, eventually, we shall be forced to acquire the whole of the land of this country, and particularly the urban land. In this opinion I am not alone. I do not put it forward as a member of the Labour Party but because I think it is a policy which is essential. Many other people who have given consideration to the replanning of our cities have arrived, independently, at the same conclusion. I need only cite the Lord Mayor of Plymouth, who has given a lot of thought to the reconstruction of Plymouth. He has come to the conclusion that the only ultimate solution for the redevelopment of Plymouth is the public ownership of the land. I believe that we shall be forced to take this step, if we are serious in our profession of desiring a better world. In the meantime I put forward the proposal for the taxation of land values as a step in that direction and I hope that it will receive the serious and early attention of the Chancellor.

The hon. Member for Peckham (Mr. Silkin) and I represent bordering constituencies, but he and' I never stage border fights. I am not proposing to break a lance with him now on the taxation of land values, but his speech would have impressed me more if he had made clearer to the House exactly what he intended by way of compensation or otherwise to those owners of land who found that their property had depreciated in value. At this moment, however, I wish to speak about the Finance Bill itself.

It would be churlish of me if I did not thank the Chancellor for what he has done in enlarging the housekeeper's allowance. It was on the Finance Bill last year that I moved an Amendment drawing attention to the anomalies and inadequacies of the existing rules governing the housekeeper's allowance. Now the Chancellor has, in great measure, met the point which, on that occasion, I tried to put before the House. He has met the case where there are children in the household but where there are not man and wife both able to take their full share in the domestic life of the household, so that a housekeeper is needed. In the action he has taken he is going to make taxation fall with sud- den heaviness on a person at one stage in this sense: in future the housekeeper's allowance is to be available to a man who is responsible for the upbringing of children so long as he can claim the children's allowance, so long, that is to say, that one of the children is not more than 16 years of age. When a child reaches that age the taxpayer will lose, in future, the children's allowance of £50 and the housekeeper's allowance of £50 simultaneously. For a man living on a relatively small income—say, £400 a year—he will find that when the child reaches 16, his taxation liability will go up at one bound from about £60 a year to £110 a year, a tremendous difference to a man whose gross income is only £400. I wish some means could be found of tapering off that increase so that it would fall with less extreme suddenness.

My own feeling is that we shall not get the matter of the housekeeper's allowance right so long as we continue to grant it to all widows and widowers irrespective of every other fact about them and their responsibilities. From something the Chancellor said the other day, I gained the impression that he took that same view. It was in 1924 that the housekeeper's allowance was extended to all widows and widowers automatically, whatever their age, and I have never been able to understand why the Labour Government of that day took that step. It inevitably creates anomalies and ill-feeling as between a widower of 40 and a single man of 60 who has, in fact, exactly the same household responsibilities. The single man, with taxation now at 10s. in the £ has to pay £25 a year more than the widower. It was a matter of comparatively small moment in 1924 when taxation was only 4s. 6d. in the £. Now everybody is more hard pressed, and with the high rate of tax, it becomes an anomaly and a hardship. I perfectly understand that the Chancellor finds it difficult in present circumstances to remove an allowance of that kind. He might be criticised if he singled out one class of person for additional direct taxation when everyone is very heavily taxed, but I suggest that as soon as the time comes when Income Tax can be lowered from l0s., when the war is over, that will be the moment for him to seize in order to clear up all difficulties and anomalies in connection with the housekeeper's allowance generally.

It seems to me that there are three criteria on which the housekeeper's allowance should be based. The first is the age of the taxpayer. A widower and a widow should not, necessarily, get an allowance by reason solely of their widowhood; all people who are getting on in years should be considered for the housekeeper's allowance. The second is that which the Chancellor has recognised in this Finance Bill —the presence of dependent children in the household. The third criterion is the presence of an invalid dependant in the household. That brings up a type of situation with which I am sure many hon. Members are familiar, in their own constituencies, where a man taxpayer is responsible for an elderly infirm father, let us say, and the taxpayer's sister has to stay at home and cannot go out to work because that invalid father is in the household. The sister is, unquestionably, dependent on the taxpayer, but there is no means at present, if the man is a single man, for him to claim the housekeeper's allowance in respect of her. Of course, if he is a widower he gets an allowance automatically in respect of her, and no questions are asked.The position is wrong.

But the last thing I should wish to do to-day would be to seem to be looking any gift horse in the mouth. Personally, I think the Chancellor has produced a wonderful 1943 Budget with which I agree in almost every particular. One of the significant facts is that this Finance Bill we are discussing is the third successive one in which there has been no major initiative in the field of taxation. In both these last Finance Bills the main changes have been the increases in the duties on alcohol, tobacco, and entertainments, and in the Finance Bill before that the main change was the increase in direct taxation. So far as I can remember there has been no enterprising new tax of any sort, whether good or bad, during the war except the Purchase Tax. Surely, we are coming to the end of the period when we can meet the situation by increasing existing taxation. I very much hope that between now and next year, in preparing for his next Budget, the Chancellor will carefully investigate the possibility of a tax on advertisements. It would, I am sure, be in accord with the general feelings of the people of this country. There are many practical and psychological diffi- culties in imposing taxes on advertisements, but if it is to be done at all, wartime is the time for introducing such a tax.

Owing to the shortage of paper, newspapers and periodicals are so cut down, and advertising has been so rationed—there is so very little advertising now in war-time—that any tax on it would produce a negligible sum.

Would you not tax circulars as well? I have filled a basket with them to-day.

I am not dogmatising and saying that it will be easy, or that it will bring in a big revenue. I am trying to put my contribution into the pool of thought, because it seems to stand to reason that the Chancellor will need to find new sources of taxation before the war is over. Another matter on which, I hope, one day he will enlighten us is his attitude towards the old taxes on common consumption goods. I mean the taxation on tea, coffee, sugar and the like. In the old days they were imposed because it was thought right that everyone should contribute something to the national Revenue. But nowadays practically everybody is contributing something through the Income Tax. We are, in fact, offsetting the effect of many of these taxes by direct subsidies to the very same articles. I cannot help thinking that there is some clarification to be done here. If hon. Members look at the Budget White Paper, they will see that the Chancellor expects this year to raise £10,000,000 from the tax on tea and £28,000,000 from the tax on sugar. We were told here last week by the Parliamentary Secretary to the Ministry of Food that the Government are at the same time subsidising the sale of sugar to the people to the tune of £16,000,000 a year, and subsidising tea also to a considerable extent. I realise that there are other points of value in the sugar and tea taxes —they make preferences possible, and so on—but it seems to me that this is another case in which we have allowed a complicated system to grow up, and we should not go on indefinitely taking money from the people with one hand and giving it back to them with the other.

I was deeply impressed by the contribution which the hon. Member for Walsall (Sir G. Schuster) made to this Debate. Whether one agrees with all his points or not, it was quite clear that here was one of us who had been doing some fundamental thinking about our taxation system. The Chancellor himself has helped the House a great deal towards that, by the enterprise he has shown these last three years in publishing the statistical White Paper along with the Budget. It is not as easy for some of us to understand as we might wish, but it gives us a starting point. I hope that by this time next year he will have considered further the future possibilities of dividing what I might call the revenue Budget from the capital Budget. There are, as he once pointed out, obvious difficulties in the way of doing anything of that kind in wartime, but it certainly was another weakness in our pre-war Budget system—one which, I think, the hon. Member for Walsall did not mention—that we mixed up revenue and capital items in the same Budget account, and treated, let us say, a subsidy to the beet sugar industry, as being exactly on a par with money which the Admiralty required to build a new dock or to put up a permanent building in a Royal Dockyard. That cannot be sensible accounting. People who think about these things are beginning to see the potentialities of a double Budget system, with a capital Budget and a revenue Budget, and the possibility that through that machine the financial weapon may be better used to help us towards creating full employment in the country after the war. I hope that the Chancellor will pay special attention to what Sweden has done in this respect. It is not easy to get information in this country on the Swedish double budget—for all I know, my right hon. Friend may know Swedish, and so have an advantage over me in studying the subject—but undoubtedly the Swedes have made an advance in the system of taxation through their separation of capital items from revenue items; and I would ask that that be taken, along with the matters which the hon. Member for Walsall mentioned, as a subject for further consideration.

In all that the hon. Member for Walsall said, nothing seemed to me more important than that we should first study the facts and then decide exactly what we want to do about this question of deciding what profits are. We heard earlier to-day about the depreciation and obsolescence allowances. I believe I am right in saying that up to 1878 the Income Tax was administered in this country without any allowance for depreciation or for wear and tear. It was not until 1918 that allowances for obsolescence were introduced. Both of those were definite advances. No one would now say that we ought to give up either of those allowances. The hon. Member for Walsall pointed out what an unsatisfactory position we are in at this moment as to a depreciation allowance on buildings. We have not yet made up our minds about that, and there is room for another advance such as was made in 1878 and in 1918. Particularly I hope that the Chancellor will go very carefully into the taxation of wasting assets. Hon. Members, if they care to look it up, will find an extraordinarily interesting address on the subject of mining taxation which was read by Professor Truscott before the Institution of Mining and Metallurgy a couple of months ago. To compare the British with other systems of taxation of mining enterprise is a highly technical matter with which I will not bore the House, but one thing is clear—our present taxation system militates very heavily against the development of base metal mining in this country. Also, because it is clumsy in its incidence as compared with the more highly developed systems adopted in other countries where mining enterprise is commoner, it undoubtedly tends to make anyone who wishes to develop a mine in any part of the world decide to register the company outside Britain. That is going to cause, first, a direct loss in taxation to the Chancellor of the Exchequer. Secondly, it has this, perhaps worse effect: it means that, on the whole, mining engineers will not be sought from this country, but will be employed from those countries where the enterprise is registered. It will be a great handicap to the industrial future of this country, if we cannot maintain our standing in the supply of mining engineers to the whole world.

When the hon. Member for Walsall was speaking about the effects on industry I was reminded of something which Bagehot wrote 70 years ago. He was pointing out the results of our system on industry and commerce at that time. He said, "All sudden trades come to England." What he meant was that the financial system in this country was such that a man with a new idea obtained the maximum assistance and advantage if he set up in this country to develop that idea. Nobody can say that that is the case at the present time; but if this country is to lead the world industrially, and to attain what we all want—full employment after the war—we must set ourselves to recreate that situation, so that this country does become a magnet for all the most forward-looking men in the world.

We have reached a stage now very near the ceiling of our daily war expenditure. Correspondingly, we have reached a stage not far off the ceiling of our war taxation. We can take stock and begin to look ahead, and other hon. Members have pointed out that from now onwards one of the Chancellor's tasks will be to think out how to adapt the war-time principles of taxation back to peace-time and to the maintenance of full employment in this country. To do that, he will need the co-operation not only of the House, but of the public. It would be of value for that purpose if he could help the ordinary man in the street now to understand better what has happened in our financial system in war-time. The ordinary attitude towards the Chancellor is still that he is some kind of conjuror, some kind of magician, who somehow produces the money that is needed to pay for a war. The process is not understood. It is better understood than it was four years ago, but it is not yet properly understood, and a great number of people would like to know more about it.

What I want to suggest is that the Chancellor should consider whether a popular booklet can be be produced that would explain for the men and women who are at all interested how we are paying for the war. That may frighten some people; they may consider it to be an impossible task, but I do not believe it. We have seen the enormous success of the booklets about war operations which have been published. This is a war operation; we have won the financial battle of Britain, and there would be tremendous interest in a well-produced booklet, written by a man with a flair for financial journalism, explaining in straight-forward language how the Chancellor and the House of Commons—for Parliament deserves part of the credit for it—have carried the country financially through the war. Such a booklet would not be only of immediate interest. It would assist the public to understand the principles of taxation as they have been developed in the war. On such a basis my right hon. Friend and we in this House would be able to play our part all the better in helping to explain to the country how these principles need to be adapted again to peace-time, and what kind of Budgets we must look forward to when the times comes to use the financial weapon again, not as a weapon of war but as a weapon of employment.

I think there will be common agreement that we have had a very interesting Debate to-day. A good deal has been said that is very instructive about the Amendment which stands in the name of my hon. Friend the Member for Chesterfield (Mr. Benson). I understand, however, that we have now passed from consideration of that Amendment and are now dealing with the points raised in the Amendment which stands in the name of my hon. Friend the Member for Ipswich (Mr. Stokes). That being so, I am sure the hon. Member for West Lewisham (Mr. Brooke) will not mind if I turn to that Amendment and follow my hon. Friend the Member for Peckham (Mr. Silkin), who spoke about it. I think the House should pay some attention to what my hon. Friend the Member for Peckham said, because it has to be remembered that he sits on a body which controls the greatest area in the world and is, I understand, the chairman of its Town Planning Committee. The London County Council has for a number of years now realised that the taxation of land values would make a great deal of difference to the problems which beset them in the vast sprawl of land known as the Metropolitan area. They have, on more than one occasion, put it on record that it would be of undoubted advantage to them if legislation could be passed through this House enabling them to implement the rating of land values. At the first glance it might be considered that there was very little in common between the Amendments in the names of the hon. Member for Chesterfield and the hon. Member for Ipswich, but actually the two dovetail in in a very remarkable manner.

The hon. Gentleman the member for Walsall (Sir G. Schuster) and others have appealed to the Chancellor of the Exchequer to do something to lighten the burden of taxation on industry, but they and those who share their view apparently fail to see that it is impossible to lighten that burden without placing that same burden on the shoulders of other people. If industry does not bear its fair share of taxation, obviously other sections of the community will have to bear more than their fair share unless the Chancellor can find fresh sources to tax, and, although I was interested in what the hon. Member for West Lewisham had to say about a tax on advertisements, it struck me as being very small beer. I imagine that the amount that would come from such a tax would be very small, even if paper were not in short supply, as it is at present. To meet the enormous bills that come in, the Chancellor, if he is to find some fresh source of taxation, must find one which will give a great deal more than would come in from a tax on advertisements.

It is our contention that such a source lies ready to his hand in the values created by the community with regard to land. There it is, waiting to be tapped, and, although it is difficult perhaps to estimate what revenue could be brought in from taxation of land values, there is not the slightest doubt that it would run into many millions. My hon. Friend the Member for Ipswich suggested that as much as £500,000,000 a year would accrue from the taxation of land values, but, whether that estimate is correct or not, there is no doubt that the amount would be very large. It has always been a mystery to me why the Chancellor has refused to consider this source of revenue, because, when he looks round the world and sees what other Governments have done, he must see that very large sums have been brought in from this source. I recently read a speech by the Hon. Walter Nash to an audience in New York on New Zealand's experience with land values taxation. He said:
"In planning for the future the problem of housing must be closely related to the problems of industry on the one hand and the requirements of home life on the other. The provision of adequate housing can be seriously handicapped and retarded if abnormal prices have to be paid for the land that is required, and a sound and scientifically based system of taxation can help a good deal by correcting such a situation. I believe that the kind of procedure we have adopted in New Zealand, although it is far from perfect, has nevertheless tended to discourage excessive inflation of land values generally and of building sites in particular."
The experience of New Zealand is similar to the experience in parts of the United States and in Australia. When we consider the problems that face this country and the desire on the part of everyone that something should be done to get rid of the slums and to replan our cities, we must realise that if these things are to come about, they will cost money. We have been told, as we were told by the hon. Gentleman who preceded me, that saturation point in direct taxation has almost been reached. There is no doubt that taxation is extremely high. We are during the war having to find practically £6,000,000,000 per year, which is ten times the National Debt when the last war broke out. We are raising from tobacco and alcoholic beverages alone more than the amount of the National Debt at the beginning of the last great war. We are dealing in astronomical figures which would have frightened all previous Chancellors of the Exchequer. There is a real fear on the part of the working classes that when the war is over the Government may turn round to them and say, "We are very sorry, but the National Debt is so enormous, the interest we have to find on it is so large, and the calls upon the public purse are so gigantic that with the best will in the world we shall have to refuse to carry out many reforms which we know are necessary."

It is beyond doubt that if this source of revenue were taxed, it would not only bring in very large sums of money to the Exchequer, but it would ease the situation in a large number of directions. It would help to ease the housing situation. It would help to bring down rents, and that would go a great way towards satisfying many pensioners and others who now find it so difficult to live. It would also cheapen many of the raw materials of production upon which industry depends. Therefore, although, like my hon. Friend the Member for Peckham, I have no hope that the Chancellor will see the light to-day, I would like to feel that this discussion will remind him that previous Chancellors have not only thought that the taxation of land values was worth while but have gone to the trouble of including it in their Budget proposals. It is one of the tragedies of the years between the two wars that the proposals introduced by the late Viscount Snowden were shelved by the Conservative Government that followed him. If these proposals had been given a fair run, if the Department which should have been set up had been set up and allowed to function, there is not the slightest doubt that the burden of the present Chancellor would have been much easier and we Should have had many millions more to use in prosecuting the war.

As a comparatively new Member of the House, I would ask for your indulgence, Mr. Deputy-Speaker, if I get off the rails a little and also for the indulgence of my fellow Members. I have not heard any mention of any new means of taxation until the taxation of land values was brought forward to-day. All the new money we were to obtain was to come from indirect taxation on beer, tobacco and amusements—what the Chancellor calls optional expenditure but what is really an added penalty upon the old people and the workers. We may be told that the taxation of land values will not be possible in war-time and in a war Budget. It does not appear as though we were willing to buy out the landowners as we bought out the owners of coal royalties, and they are very well entrenched and dug in, and so the only thing left to do appears to be to tax them out. The doings of individuals or finance corporations who make fortunes really over-night are the theme that appears to be before us now. I understand that already the Government have had to take steps to prevent them from buying up blitzed areas both in London and the provinces and making money out of them.

My remarks may be very elementary, but I can give one or two illustrations of where money is made, and made very quickly, by these people. If we sink a pit in a rural area and bore down to the coal, land which was 6d. or Is. a yard becomes the morning after the coal has been found 5s. to l0s. or even £1 a yard. Fortunes made while they sleep! The same thing happens when a factory is built, or even when a new bus route is opened up through the country. The price of the land goes up. Everyone Knows what happens. Every local authority will tell you that if it requires land for road widening, it finds the value goes up. But it is industry and the general community who have put the value into it. While the district value may be helpful in these matters, and you can even make a compulsory order for acquiring the land, that does not get down to basic principles in this matter. I understand, also, that an owner does not pay rates on unused land, and that industries pay only one-quarter rates. The remaining three-quarters should be spent, I understand, under the Derating Act, on developing industry in order to find employment, but is there anybody present who can remember that ever happening? Or did the money go to the shareholders? Certainly it was not spent in industry or in providing new employment. I suggest that we should tell owners to put a price on their land and then tax them on its value. That would be fair to everybody. Let us stop this trading in what should be the people's wealth.

Land is the real basis upon which everything depends. What about the land which will be required after the war? Are we going to allow landowners to exploit the position? Land will be required for houses, for roads, for parks and for planning of all descriptions. It appears that a glorious time is coming to landowners. The price of land reflects itself in everything we purchase and also affects in a great measure the wages of the work-people in the new factories and workshops which are being erected. We have all sung Elliott's beautiful song:
"When wilt Thou save the people,
O God of mercy, when?"
I think it is our job to save them from these—I was going to say, public benefactors. We have an opportunity of easing the burden of indirect taxation. I am told that land in London costs about £100 a square foot and that it would take about £40,000,000 to buy it. That is a terrible and colossal price. I have letters here which I can vouch for, showing that a stone's throw from the doors of the Guildhall 6,000 feet of land would cost about £33,000. That price is abominable, yet nothing is paid on such land when it is out of use.

The Chancellor of the Exchequer has a great opportunity to make history for himself. Taxation of land values ought to be made a fact not only in order to find revenue now, but for the development of all our resources on a sure and sound foundation for prosperity in the future. No doubt we shall be told that the time is not opportune; I have never known it opportune. I have had a long experience in local government work, and I have often heard that argument. It was not opportune for a previous Chancellor of the Exchequer who tried in 1931 to deal with this matter. I urge the present Chancellor of the Exchequer seriously to try this excellent means of collecting revenue and easing the position of the indirect taxpayers who suffer real hardship, because they are among the poorer members of the community. This taxation would not impoverish the landowner but would make him put his land upon the market at something like its proper price. It would give a real send-off to the proposed new order. At any rate, I suggest that a committee be appointed to go into the whole matter and report its findings to the House.

Some of us have been trained in a rather hard school. It has been stated that it is the poor who help the poor. Let us reverse that position and give the landowner an opportunity of paying a tribute to the boys who are fighting so hard to save this country. We have never had such organisation or such team work. Many beautiful thoughts have been expressed to-day about our men abroad and our local people. There has never been such a wonderful spirit of fortitude as there is to-day. Everybody is giving his or her best to the war effort. No man made the land, but all men need it. It is the source of life and of all wealth, and it should belong to the poor as well as to the rich. It does not belong exclusively to the landlords, who falsely call it theirs.

When the hon. Member talks about nationalising the land, does he also include Church land?

I refer to all land. Revenue on the land should be paid into the public Exchequer. All shops, roads and public buildings create new values. The people's industry creates them, and the land speculator pockets them. Every civic development and every expansion of our borough and city communities create fresh land values. Service, not self, should be our motto to-day, and I am sure that a great deal could be done from this source. We only ask that all should share the responsibility and not take more from the general pool of life than they are giving value for. The taxation of land values is long overdue, and I trust that the right hon. Gentleman will give full consideration to this question. I understand that some of the Colonies have pointed the way. In Russia too there is no land monopoly, at least by individuals. Here, then, I am sure the right hon. Gentleman can earn the praise and gratitude of the whole community. He might ruffle the dovecotes a bit, but that, I think, is his job. In conclusion, may I quote:

"Breathes there the man, with soul so dead,
Who never to himself hath said,
This is my own, my native land!'"
I submit that this sentiment could be made a reality by these proposals.

Before I follow the theme which the hon. Members for Rothwell (Mr. T. J. Brooks) and Colne Valley (Mr. Glenvil Hall) spoke on, I want to go back for a moment to something which was said, I think, by the hon. Member for Walsall (Sir G. Schuster). He tried to urge the Chancellor to do something to amend what I would describe as our crazy method of dealing with depreciation of plant and buildings. The Chancellor, if he has ever done me the honour of reading my earlier speeches in this House, will be familiar with the point of view I have expressed before. I wish to emphasise that I think it is fundamentally wrong that our depreciation allowances should be so little; they are quite inadequate for the circumstances in which we work to-day. Let it be enacted that before any profits at all are declared, full and proper depreciation of 10 per cent. of the original value should be taken off all plant and allowed as a revenue item.

We have had a great number of days spent recently in talking about money. In fact, during the past few weeks we have almost devoted our minds to money. It has been a source of some amusement to me, because we seen, to attach so much importance to money and do not tackle the fundamental issues such as those described in the Amendment which stands in my name and those of my hon. Friends and right hon. Friends, I think, in some cases. The only thing that I was going to say about money to-day was that I wish that the general public—I know it is no use talking to the Chancellor about this—would actually understand what money really is. If the public would only realise that money is nothing more than a glorified bus ticket—[Interruption]—I will deal with "meaningless symbols" in a moment. The fact that you have a bus ticket in your pocket does not get you to the end of the road. You can put it on the pavement and sit on it, and you will still be there at tea time! The right it gives you is to get into the bus and it is the bus that takes you to the other end of the journey. So it is with money. It is time the Chancellor set a lead to the people of this country in the field of a proper realisation of what money really is. If I might say so to my hon. and right hon. Friends on the other side, it is quite time they did likewise. I am sorry my hon. Friend has raised the phrase "meaningless symbols." He knows perfectly well that the right hon. Member for Wakefield (Mr. A. Greenwood) was perfectly correct in what he said in emphasising that it is not money that matters but capability and power in the employment of labour in the obtaining of natural resources and extracting from the bowels of the earth all the good things we want. I have heard it said that love of money is the root of all evil. What I want to say to the Members on the opposite side is, How much truer it is that land monopoly is the root of all monopolies. I cannot do better, I am sure the Chancellor would agree with me in this, than quote the Prime Minister on this subject. I know that he has departed from the paths of rectitude. It is long years since he made these remarks.

On 17th July, 1909, in Edinburgh—[Laughter.] That is all very well. Principles are principles; they do not vary with time. After all, the Ten Commandments were issued some considerable time ago, and they have neither deteriorated nor altered. The fact that my right hon. Friend has departed from the paths of rectitude should be a matter of regret, and not of hilarity. At any rate, on that occasion my right hon. Friend then a budding Cabinet Minister, I suppose—said:
"Land monopoly is a perpetual monopoly. and it is the mother of all other forms of monopoly."
There he finds himself in close alliance with Karl Marx, who said that the basis of all capitalist society is the expropriation of the land from the people. I commend that particular reflection to the Chancellor. If he still does not believe that the land issue is more important than the money issue, may I invite his attention to the story told of an eminent banker in this country? He was asked by somebody like myself, trying to persuade him of the importance of the land question, whether, assuming that he could choose, he would have the power of creating all the money and credit or of owning all the land. He at once chose the power of creating all the money and credit. The person who asked him the question said, "You are sure you are right?" "Of course," said the banker. "Then what about the land?" said the other. "I will then buy the land from you," said the banker. "Oh, no," said the other, "I will own the land; and the amount which I shall charge you in rent for it will be that you give me back the power of creating all the money and credit." Control of the land has given control of the means of exchange to people who, in the vernacular saying, "didn't ought to have had it."

I want to speak on my Amendment, which has the support of some 70 Members of this House. I would point out, particularly to hon. Members opposite, the similarity of this Amendment to the tenth point in that letter, which I have referred to before in this House, which was signed by the leaders of the Christian Churches. This tenth point in that letter says that the natural resources of the earth should be used as God's gift to the whole human race. I wish the Chancellor would really study that letter and realise that if we are to have a just and lasting peace, this matter has to be dealt with, and dealt with not when the war is over—because that will be too late—but now, so that the peoples of the world may realise that we are setting an example and that we intend not only to apply this principle to our own territory, but to use all the influence we have on the Dominions, the Colonial Empire, and so on, so that their natural resources shall be used for the benefit of all the people. All the land was made for all the people, and not merely some of the land for some of the people.

Perhaps, if I might have the honour of my right hon. Friend's attention, I might persuade him into another revolutionary change. We have heard of revolutionary changes from my right hon. Friend, who made a free trade speech the other day. I am not sure whether he recognised that it was a free trade speech, but we did on this side. Free trade without free land is useless. Until you tackle this fundamental issue, whatever you do for free trade will be completely nullified. I know the feeling of some of my hon. and right hon. Friends on the other side about this land value question. They say, "Why should you take away these valuable rights which landlords have got?" I want to illustrate it in this way. An hon. Member said that the ownership of land is nothing. But it is the work you do and the work done by the community as a whole that gives land value. To take an absurd example, suppose the Chancellor of the Exchequer was the owner of Bond Street. Bond Street has a high value. Nobody would argue about that, but the right hon. Gentleman might have been whistling in the Isle of Wight the whole time that Bond Street was being developed in so far as he had any effect on the increase of that value from his ownership. What the right hon. Gentleman as owner of Bond Street ought to realise is that it is only the fact that there are 6,000,000 people in London that gives Bond Street that value. It is the presence of the community which gives it site value. Why not now introduce a Measure which will bring back to the people the values which the people themselves create? An hon. Member referred to my speech on the Budget in which I said that taxation on site values would increase the revenue by more than £500,000,000, and I repeat that. That is the revenue which you could collect if the landlords used the land properly in the way that best suits the need of the community.

I want to illustrate how landlords at the present time are getting away with profits to which they have no moral right, whatever their legal rights may be. Men and women of the country are having to go to war, and many of them sacrifice their lives, but what has to be done? They have to buy the land for aerodromes before they can use them. Up to November, 1937, for 26,500 acres we paid £1,525,000 for land which was probably absolutely valueless. That was the figure, but I have not been able to obtain the figures since, as it is not considered to be in the public interest to give them. If the information were given, everybody would be mightily angered and might throw the present Government out of power. [Interruption.] Certainly, I think that the present Government are entirely inadequate. Since 31st December, 1938, 58,000 acres of land have been bought for 73,760,000 or £60 an acre. When I asked the Chancellor of the Exchequer at Question time what about land values, why he allows profits in land sales by private owners, and whether he is going to take the excess away as Excess Profits Tax, he says: "No, that is capital appreciation." It is nothing of the sort. There is all the difference in the world between land and capital. All capital comes out of land, but land that is made for the use of all people is land and nothing else, and it is not capital appreciation in the true sense of the word in which profits on land sales pour into the landlord's pocket from the national need. On that alone the Chancellor of the Exchequer should take steps to put the matter right.

If he will not introduce a short Measure to tax site values, he certainly ought to stop landlords gaining out of the national need. Some of our friends have spoken about the obstruction which inevitably arises from increased land values. I want to quote three peace-time examples to show some of the advantage which goes into the pockets of landlords for doing nothing. The Middlesex County Council built 70 miles of arterial road at a cost of just over £6,000,000, and they estimate that they gave to the landlords on top of that a rise in site values amounting to £15,000,000. What does that mean? It means that every time anyone wanted to develop or use land on either side of this road, he had to pay through the nose to the now existing landlord for the privilege of doing it. We meet obstruction all down the line. I will give an example of what happened in connection with school sites. From 1934 to 1937, 105 sites were purchased, involving 290 acres —most of it agricultural and de-rated and making no contribution to the community—at a cost of £218,000, or £70 an acre. Again, in connection with housing estates, in the five years from 31st March, 1938, 35,000 acres of land have been bought at a cost of £8,000,000, or about £220 per acre—all this for land which was standing idle. There is land in my constituency which has for long been doing nothing and for which we shall have to pay inflated prices if we want to use it. As an example the building of a new power station at Ipswich. We did not choose the best site on the top of the hill in the residential area; we chose a smelly place between the gas works and the sewerage works which nobody wanted and which was being used to graze a few cows. When we wanted to use it for building our new power station we had to pay £17,500 for it. It is perfectly ridiculous that these values should be allowed to pour into the pockets of the landlords and that landlords should have this land and be able to hold up the community for ransom prices.

I will give another example. I think it is right to say that the Dutch bought the Island of Manhattan, the island on which New York City now stands, for £5. Heaven knows what its value is to-day, but it must run literally into millions of pounds an acre. Take, for instance, the site on which the Bank of England stands at present; it is assessed to be worth £6,000,000 or £7,000,000 an acre. The question is one of how to put the matter right. The fundamental thing is to reacquire for the people their infringed rights. Do not forget that landlords have "pinched" the land from the people and have legislated to keep them off it. The problem must be solved in a just and constructive way. So I want to discuss the three alternatives which are commonly considered. First, and the least agreeable and one which I do not suppose many in this House or outside would agree with, is confiscation.[An HON. MEMBER: "Does the hon. Member agree with that?"] No, I disagree, because I think it is unjust. I do not think any man morally has any right to derive benefit from land values, but I perfectly well recognise that some people have entered into their property legally, and to cut them off like a guillotine would not go down very well in more quarters than one. I am glad to see that for once the Chancellor and I agree—

No, I was only wondering why, because the hon. Member said it was awkward, he was not in favour of it.

No, I said it was unjust. I take it that the right hon. Gentleman has some respect for justice, although one doubts it sometimes when watching the peregrinations of the Tory philosophy. The second method is nationalisation which I would describe as buying out the robbers! The landlords have for years robbed the people. They have made them pay for the use of something that the landlords never made themselves and have taken from them values which the people themselves have created, and to buy them out seems to me perfectly ridiculous. I wonder sometimes whether some of my mining friends have ever woke up to what they have done. We paid the coalowners, the people who say they own the coal, though they never put it there, £100,000,000 for not having put it there, certainly not for taking it out, and the people who work the coal will for evermore have to produce, at 5 per cent., £5,000,000 a year to pay the interest on the debt. To do the same with the whole of the land of the country would cost something like £10,000,000,000, and, when you have done it, you will hand it over to a set of quite incompetent people in Whitehall who will not know what to do with it. Much as I loathe war—as much as anyone in the House—the war has taught us at least one good thing. For God's sake, let us have less bureaucracy and not more. [Interruption.] Certainly. It will be used against me many times and very conveniently taken out of its context.

The third system, which we are advocating, is by taxation. Taxation ought to be fair. I cited the chief tenets of taxation in my speech on the Budget. No doubt the right hon. Gentleman has studied it very carefully and will bear it in mind in his Budget for 1944. The great advantage of taxation of site values is that it can be gradual. It should be fixed according to the value of every piece of land, and it would make perfectly clear to the present proprietors that, while we do not dispute their ownership, we dispute their right to collect revenue from communally created values. What can be fairer than that? Added to which it would penalise idleness. At present we are crazy. The only thing we do is to tax effort. We never tax people for being idle. I visualise a sort of Erewhon where you tax people for being idle and not for working. People who work in factories are taxed up to the hilt. The Chancellor of the Exchequer taxes their effort. What does he do for the landlord who is reaping the benefit of the war? He allows him to pocket the increased land value tax free, arising from the war. The only person who benefits when a town gets bombed is the ground landlord. He gets his site cleared for nothing, and in many cases insists, and is supported by the courts in insisting, that his ground rent should continue despite the fact that the buildings thereon have ceased to exist.

We claim that to introduce a thoroughgoing measure of this kind would recover for the community the communal values which the people themselves have created. The Chancellor will say it is difficult to do it in war-time. I do not believe it. If he wanted to tackle the job, he could do it. Where there is a will there is a way. The trouble is that there is no will. It would be easy to make the landlords declare their own value and reserve the right to tax or to buy on that value. They would have to declare the true value. It would be an interesting performance to watch. The Amendment urges that land and national resources must belong to the people, and this method of taxation is the fairest way to bring it about. The most fundamental thing of all probably is the fact that if you insisted on a thoroughgoing taxation of site values, it would penalise idleness and make it impossible economically for landlords to hold their land out of use or not to put it to the best use because it would be uneconomical not to do so. If a tax were put on site values, unemployment would be done away with for ever. I want to quote again the Prime Minister on this subject. This is a somewhat earlier speech than the other and was made on 20th April, 1907, at Drury Lane Theatre, London. [Laughter.] This may be laughable to listen to but it is fundamental to me. This is really the only reason why I came into Parliament. All this humbug about war and poverty arises from the fact that the land and the resources of the world have been pinched from the people. This is what the Prime Minister said:
"We have to face all the resources of a great monopoly so ancient that it has become almost venerable. We have against us all the modern money power. We have to deal with the apathy and levity of all sections of the public. We have against us the political machinery of class and privilege represented by the Second Chamber in the State. There are only two ways in which people can acquire wealth. There is production and there is plunder. Production is always beneficial. Plunder is always pernicious, and its proceeds are either monopolised by a few or consumed in the mere struggle for possession. We are here to range definitely on the side of production and to eliminate plunder as an element in our social system. The present land system hampers, hobbles and restricted industry.… They were resolved if they could to prevent any class from steadily absorbing under the shelter of the law the wealth in the creation of which they had borne no share, wealth which belonged not to them, but to the community, wealth which they could only secure by vexatious obstruction of social and economic progress, far more injurious and wasteful than could be measured by their own inordinate gains."
I hope that the Chancellor will read that again when it comes out in the OFFICIAL. REPORT to-morrow and try and take it unto himself and guide himself and his supporters back in the direction from which the Prime Minister has, I regret to say, strayed. From those words of the Prime Minister I want to come to a quotation from Charlie Chaplin. I do not know whether my right hon. Friend saw the film "The Great Dictator." I thought that most of it was awful nonsense, but the peroration was one of the finest things that has ever been written. If we are to avoid a repetition of the awful conflicts which most of us have experienced twice in a lifetime we have to pay attention to what is said in that great speech. I would like to quote one short extract. This is what Mr. Charles Chaplin said:
"In this world there is room for everyone. The good earth is wide and can provide for everyone. The way of life can be free and beautiful but we have lost the way. Greed has poisoned men's souls—has barricaded the world with hate—has goose stepped us into misery and bloodshed. … Machinery that gives us abundance has left us in want. Our knowledge has made us cynical. Our cleverness, hard and unkind. We think too much and feel too little. More than machinery we need humanity. More than cleverness, we need kindness and gentleness. Without these qualities, life will be violent and all will be lost."
I would appeal most ardently and urgently to my right hon. Friend and to Members on the opposite side of the House, to realise that something fundamental has got to be done, if we are to prevent another outbreak of war. I do not think I can conclude better than by quoting a short extract from Tolstoy, who was himself, as far as my knowledge goes, a landowner. I would ask landlords on the other side of the House to pay attention to what he said, and see whether in their hearts, they cannot bring themselves to act in the way he suggested. He ended one of his great letters, referring to land monopoly:
"I should like to think that we Russian parasites (landlords), reared by and having received leisure for mental work through the people's labour, will understand our sin and, independently of our personal advantage, in the name of the truth that condemns us, will endeavour to undo it."
I commend that also to my right hon. Friend, and would earnestly beseech those on the other side to realise that this fundamental thing has got to be done, and that they have a golden opportunity to set the example by putting our house in order, and at once, before the war ends.

The Debate has covered a wide field to-day, and it is rather difficult to know where to begin to reply to it. I cannot possibly attempt to cover all the points raised. Some of them can be dealt with later in Committee, and others I will try to deal with now. I do not feel that the House will expect me to deal, in detail at any rate, with the speeches made by hon. Members on the subject of the taxation of land values, land nationalisation, and so on. As hon. Members are aware, the whole question of the future treatment of land is now being examined by the Government in connection with the Uthwatt Report, and it has been made clear on more than one occasion that no decisions in that very highly complicated matter have yet been arrived at. These are all matters of a controversial nature, and, though I cannot conceal from the House that I do not share the views expressed by my hon. Friend the Member for Ipswich (Mr. Stokes), it would only add to controversy at the present time if I were to attempt to deal with the subject fully. I might perhaps mention two points in connection with his speech. One is that there is, of course, a great deal of land which is now worth a great deal less than the money which has been spent upon it, a point which I think the hon. Member appreciates. I would also point out that there are, of course, other things besides land which have a value created by the community. I am sure my hon. Friend would agree with me that even the value of his own speech would be less if there were no community to enjoy it.

What does the hon. Gentleman mean to imply by telling me that some land has dropped in value? I am perfectly aware of that, and some has risen in value. That is why the Uthwatt Report is such a hopeless thing. It has been asked to stabilise the value of land, and it cannot.

I was aware that there is very little that I can tell the hon. Member about the subject of the land, and I am sure the House would not want me to enter into a controversy to-day, because, as I have said, the matter is now under examination by the Government in connection with the Uthwatt Report, and we shall have opportunities for discussing some of these matters before very long in that particular connection.

My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) asked a question about War Damage Contribution. I should like to tell him that no change in this matter is contemplated at the present moment. The matter has been fully dealt with, and if I may be allowed to quote what the Chancellor said on the subject, it will refresh my right hon. Friend's memory and, I think, give him the answer to the point which he made:
"Section 22 of the original Act continues to operate. The Treasury, if the House of Commons approves, may at any time, if the expected receipts fail short of half the expected payments, increase the number or the amount of the instalments of contribution while, if the expected receipts exceed the expected payments, Parliament may reduce the former. I cannot, of course, in face of so uncertain a future, give any undertaking as to what I would propose to do, if it became necessary to operate Section 22, but my present inclination would be, if an increase in contribution were found to be necessary, to increase the number of annual instalments rather than the 2s. rate. Similarly, if it should be possible to reduce contributions, I should prefer to start by remitting or reducing the fifth and last instalment."—
[OFFICIAL REPORT, 30th April, 1942; cols. 1112–3, Vol. 379.1

I think perhaps that covers, as well as it could be covered, the point to which my right hon. Friend wanted an answer.

Before I come to what I consider the most important section of the Debate today, that which dealt with wear and tear, obsolescence and taxation of reserves, I should like to deal with one or two other questions and perhaps get them out of the way. My hon. Friend the Member for Ealing (Sir F. Sanderson) asked some questions to which he wanted an answer. He was not right in suggesting that in our Statute law at the present time there is some Section which limits to 3 per cent. the rate of interest at which the Government may borrow. I think what he had in mind was the annual Consolidated Fund Bill. The hon. Member for Leigh (Mr. Tinker) will be very familiar with the subject. In that particular case, it is only short-term money which is limited to 3 per cent. There is no limit in law to the rate of interest at which the Government may borrow on medium and long-term loans, but only to the rate of interest at which they can borrow on Ways and Means advances. I quite appreciate the point which he really had in mind, and that was the question of cheap money. It is, of course, still the Government's policy to borrow at the cheapest rate possible, and I can only say here that the success which the Government have had in their policy up to date is some assurance to the House that that success will continue. My hon. Friend also raised the point about post-war balances of payment; that is, of course, a matter of the greatest importance, to which the Government are giving constant thought and attention.

Two or three questions were raised by the hon. Member for Leigh, who suggested that the Government should borrow without paying any interest at all. Naturally, that idea has attractions for my right hon. Friend, and he is always ready to receive contributions on those terms. As I have told the House some little time ago, a very considerable amount of money has been subscribed without any interest at all—more than £50,000,000. The interest on War Loans is paid on loans which are voluntarily subscribed and is in a different category to Post-war Credits, to which my hon. Friend referred. The rate of interest is governed by the rates at which subscriptions can be obtained. I think we have been extremely fortunate in this war in obtaining our loans at so low a rate of interest. On the average it is about 2 per cent., which in fact amounts to 1 per cent., when you take into account Income Tax at 10s. in the £.

Before the Minister leaves the question of interest-free money, will he tell us why the Chancellor of the Exchequer does not advertise, urging people to lend their money interest-free?

There are other points I want to deal with which were raised by the hon. Member for Leigh. He mentioned one or two matters which I think we can deal with better on the Committee stage. One of them was the question of the meaning of the increase in the fixed debt charge in Clause 28. Broadly speaking, the answer to that is that since the war began there has been an accumulation of war borrowings, and naturally the sum required to meet the interest on the National Debt has increased. We can go into that more fully, I think, more conveniently, if the hon. Member agrees, on the Committee stage. My hon. Friend asked about the Fiduciary Note Issue. He asked why it had been increased. The increase is due, of course, to the increasing needs of the public for currency. No doubt there are a number of causes for that increase. One of them, I regret to say, is the fact that there is a tendency to hoard notes. It is a very bad and very undesirable practice. I heard it suggested a little while ago in this House that it was good because it meant that the Chancellor was getting money without paying any interest. That advantage has offsetting disadvantages, one of which is that when people have money in their pockets they are inclined to spend it more readily. It is much better, therefore, that they should put it into War Savings, where it will be looked after carefully for them.

There would be no material advantage in transferring the note issue from the Bank of England to the Treasury, because the whole of the profits on the note issue belong to the Treasury. The Bank of England in effect act on behalf of the Government, and take no profit from that for themselves. Then my hon. and gallant Friend the Member for Blackburn (Sir W. Smiles) raised the question of certificates for Excess Profits Tax. I think he knows the difficulties of that particular problem himself. One of the greatest is that the sum to be determined is constantly varying, and it is therefore impossible to provide a certificate at the present time. He must be content with the assurance which the Chancellor has given him that the matter has in fact been dealt with by Act of Parliament—[Interruption]—

My hon. Friend said "has been dealt with." Surely no one knows what is going to happen to those certificates until after the war, when Parliament has to decide? That is the provision in the Act.

I know my hon. Friend's views on the matter. I do not think he will expect rue to go into the matter.

A most interesting part of the Debate was that part initiated by the hon. Member for Chesterfield (Mr. Benson) and some of his friends, who had placed upon the Order Paper an Amendment which showed the House what their views were in this matter. The Amendment as it was drafted raised two main points, the general issue of relief in respect of undistributed profits as applied to the development and extension of industrial capital, and the more particular issue of the measure of wear and tear allowances and obsolescence allowances. As my right hon. Friend indicated in his Budget speech, and said again in the House in his speech to-day, he has commissioned the Board of Inland Revenue to carry out detailed investigations on these subjects. The point was made by the hon. Member for Northampton (Mr. Summers) that since taxation really went far beyond the field of mere revenue collection in these days, it would be desirable for some other Departments to be associated with the Board of Inland Revenue. I should like to tell the House that not only is the Treasury associated with them, but also the Board of Trade. I hope that that will prove a satisfactory answer on that point.

All these matters were raised shortly before the Budget by associations representing industry. My right hon. Friend the Chancellor has invited the Federation of British Industries, the Association of the Chambers of Commerce, the accountancy profession and certain others, to give their assistance to the Board of Inland Revenue in carrying out these investigations. From the terms of the Amendment which has been put down, and from the speeches which have been made, it appears that the suggestion is that some steps should be taken now. But I think my hon. Friend the Member for Chesterfield made it clear that that was not really his intention. At any, my right hon. Friend the Chancellor made it clear that this is essentially a matter of post-war policy, and certainly not something which should be dealt with in the current Finance Bill. The Government recognise that it is vitally necessary that industry should be in a position after the war to find the expenditure which will be involved. I know that the importance of this investigation which is to be carried out is full appreciated by hon. Members on all sides of the House. The House will recollect that all these matters have been investigated before, and hon. Members will no doubt bear in mind, with regard to the question of the taxation of reserves in particular, that the Committee on the National Debt and Taxation, under Lord Colwyn, made a very long examination of this particular question, and came to the conclusion that:
"Altogether, when questions of practicability and principle are considered, we are forced to the conclusion that the proposal is radically unsound, despite its superficial attractions."
I suggest that the proposal has to be examined in the light of four main considerations: The industrial interest of the community; the practicability—a point to which my hon. Friend the Member for Northampton referred; the needs of the Exchequer—which can never be overlooked by any Chancellor of the Exchequer; and, finally, and not least important, equity. That matter was referred to by my hon. Friend the Member for Leigh and my hon. Friend the Member for Colne Valley (Mr. Glenvil Hall), and those who are interested in this matter will, I know, keep that closely in mind. They will also remember that already the reserves of public limited companies are in a more favourable position than the reserves of private firms, since the latter are subject to Surtax, whereas the former escape. Nevertheless, I agree that this matter is of vital importance to the future of industry, and it is clear from the Debate that many Members hold the view that there should be differentiation in taxation between the profits of businesses which are available for expenditure on dividend and the profits of businesses which are ploughed back into it for future development. Speeches made by many hon. Members to-day have stressed that point of view. As my hon. Friend the Member for Chesterfield has said, the state of affairs now, with Income Tax at 10s. in the pound, is very different from what it was when the matter was examined previously. That is a point to be taken into consideration.

I will now deal with the second main problem which has been raised: that is, the problem of wear and tear and obsolescence allowances. There is no question in my mind, or I think of the mind of anyone else in the House, that the present law meets the position very fully so far as the war-time situation is concerned. Special provisions under the Act of 1941 provided that any loss in the way of depreciation or obsolescence of buildings, plant, or machinery, provided as part of the war effort, is to be allowed, both for Income Tax and Excess Profits Tax, and I think we may agree that any proposal that the existing allowances require to be recast, so far as the war effort is concerned, is unnecessary.

Is my hon. Friend aware that the assistance to which he has just referred is not available to a manufacturer who continues to use his plant, who does not sell it, find it obsolete, or require to dispense with it?

Where the circumstances are such that the Government make it impossible for a firm to replace the plant, they cannot recover the obsolescence allowance.

I will look into that point, which is a new one to me. The suggestion has been made that the peacetime rules are inadequate—that is the main complaint. I think there is a good deal of misapprehension with regard to allowances for obsolescence and wear and tear. I do not think the hon. Member for Ipswich was quite fair in his comments in this connection. The rates of wear and tear allowance are common rates for the varying kinds of machinery employed in industry but any industry has a special right of appeal to the Board of Referees in respect of machinery used in that industry, if it considers that the rate is inadequate. It is a surprising thing, but in the 25 years during which the right of appeal has existed there has not been one appeal carried through before the Board of Referees against the rates of wear and tear allowances which have been fixed. I think it is useful for hon. Members to bear that in mind.

Does my hon. Friend mean that no appeal has been lodged, or that none has been successful?

One appeal was lodged, but it was not carried through. In addition, there is the 20 per cent. bonus under the Finance Act of 1938 which is additional to the rate fixed. That was a concession made to industry as some compensation for the incidence of taxation on reserves. If a trading concern decides that it is necessary, as part of the development of its business, to scrap plant and machinery before its life is exhausted and to replace it by new plant, it may well be that the allowance on the old plant has not been by that time written down to its scrap value. My hon. Friend the Member for Walsall (Sir G. Schuster), I think, was in a sense a little hard on the Inland Revenue when he said that the Inland Revenue was always trying to exclude items. I think he was really referring to certain items which the Inland Revenue is bound by law to exclude.

I think that the words my hon. Friend is referring to were that the Inland Revenue are always trying to stress the improvement element. Taking the view of the toad beneath the harrow, as I do, I think that that is not exaggerating.

I think my hon. Friend rather suggested that the Board showed a tendency to exclude items. My recollection is that he was referring to certain items which they really were not entitled to include, although he may think they ought to include them.

If I have misinterpreted the hon. Member, I know he will forgive me. If that is the case, obsolescence represents the difference between the written-down value and its scrap value. Suppose a machine cost £100 and it has been written down to £40, and then it is decided by the management to replace the old machine by a different one. Let us imagine that the scrap value of the old machine is £10. In that case there would be an obsolescence allowance of £30, which would be given against the cost of the new machine, so the trader will have the whole of the £100 original cost allowed for, £60 by the wear and tear allowance, £30 by the obsolescence value, and £10 from the scrap value. My hon. Friend the Member for Walsall rather suggested that there was not any encouragement to scrap. In fact, the sooner you scrap the sooner you get the allowance, and the trader would certainly have an advantage in that way. I want to make it clear that the Inland Revenue does not now make it a practice to insist that the plant that is being replaced should be replaced by the same kind of plant. That has not been their practice now for TO years. They recognise that in the development of industry new machinery may not be of the same kind as the old machinery. I do not know whether that is appreciated. I gather from one or two observations that have been made that some hon. Members are not themselves completely up to date in their knowledge of the practice of the Inland Revenue. The fact that there have been no appeals in the last 25 years really gives rather strong prima facie evidence that the rates of the wear and tear allowances are on the whole not inadequate, and I suggest that the provision for obsolescence meets quite handsomely the case of a business which seeks to bring its plant up to date. Nonetheless, all these matters are being examined afresh by the Board of Inland Revenue, in consultation with industry itself, and when this examination has been completed the various matters which have been raised will all come before the House again for further consideration.

My hon. Friend is referring to the 20 per cent. bonus given in 1923. I am sure he did not intend to mislead the House, but it was misleading. It is 1½ per cent. and not 20 per cent.

I agree. The 20 per cent. is on top of the amount of depreciation allowed. If I gave the House any reason to misunderstand me, I am sorry.

I should like to say a special word with regard to research. There is no matter on which the whole future of industry depends more than industrial research, and any taxation which militates against that certainly ought to be reviewed. I refer to this, because the Amendment specifically mentions developments and new processes. It may not be out of place to refer for a moment to the position under the existing law of money spent on research. If it is spent on research carried out by a central research body, all the annual contributions made to it by the trading concern are allowed as deductions for taxation purposes, provided the central body is approved by the Departments of Industrial and Scientific Research. There are something like 24 associations of this kind in the country. I should feel very much happier if the total amount of contributions paid to such associations was very much higher than it is. Nothing is more important than that industry should become research-minded. If this Debate has helped along in that direction, it will not have served its purpose ill.

With regard to the expenditure undertaken by trading concerns themselves, all revenue expenditure is allowed, and wear and tear allowances are made in respect of plant and machinery. In actual practice the overwhelming bulk of expenditure is allowed as revenue expenditure. The question of capital expenditure, which is important, although it may not be so great, is one of the matters which will certainly have to be considered by the Inland Revenue inquiry, to which my right hon. Friend referred. If we are to keep in the forefront of industry in the years which follow the war, we must emulate the example of America and certain other industrial countries and devote a great deal more effort and money to this object. The sympathies of my right hon. Friend are very much with the House in its anxiety to encourage industrial research. I have covered a great number of questions raised in the Debate. Those which have not been covered to-day will, I think, be dealt with in Committee. I am obliged to the House for the kind reception that has been given to the Bill and hope that it is now ready to give it a Second Reading.

I do not want to continue the Debate at any length, and I have no intention of attempting to repeat the arguments of the hon. Member for Ipswich (Mr. Stokes) included in the very interesting and important speech which he made, particularly when those arguments at the moment remain unanswered and undealt with. What I rose for was to protest against the way in which the Government have dealt with this question. Here is a question which has formed part of the declared policy for many years of a party in the Government as an equal partner with any other party in that Government. It was set out in an Amendment which appeared on the Order Paper as long ago as three weeks. It was signed by 70 Members of this House. It deals with a question—whatever anyone may think of the merits of it—which goes to the root of our method of financing the war and which must also go to the root of any plans of reconstruction that may be in anybody's mind. It was put forward in this House in a speech which could not be described as extreme or provocative, although it did bring together not too lengthily the weighty arguments which many people have in support of this principle. It is an abuse of the House for a question of such importance both for the present and for the future, of which the Government had ample notice and which is widely supported, to be dealt with as it has been dealt with by the Government spokesman and dismissed as though it was a matter of no importance and had no support, and as though it was a matter with which the Government need not concern themselves at all. I understand that the reason given was that it was controversial, but our Debates are controversial. That is why we have them. The business of the Government spokesman is to reply to the criticisms made of the Government's policy and the Finance Bill. It is entirely wrong that the Government should have failed to pay any attention or respect at all to the principle of the Amendment or to the arguments advanced in support of it.

I also subscribed to the Amendment on the Order Paper in the name of my hon. Friend the Member for Ipswich (Mr. Stokes). I felt that the arguments which he adduced so forcibly and yet so persuasively must have converted even the Chancellor himself, and that I would not have been astonished to learn that the latest convert to the taxation of land values was the Chancellor of the Exchequer. When we reflect that this is one of the Amendments which Mr. Speaker decided not to call, it seems to me a very sound policy so to organise one's Amendment that we shall not be called, because evidently a much better discussion can be obtained by not being called than by being called. I also wish to make a protest against the very cavalier manner in which this subject has been treated by the Financial Secretary. I was astounded to hear him say, as I am sure was the House, that he did not intend to make any reply to the arguments which had been put forward from this side. This has been a question of fundamental importance in this country for many years past. It has been accepted in conference after conference, and it would be extremely difficult to find one local authority that is not most cordially in favour of the taxation and rating of ground values. These are looked upon as a new source of revenue, from which new funds may be justly claimed, for they are created by the presence, by the necessity and by the expenditure of the community. No one can just cavil that these are some unjust form of taxation. All that is required is the necessary legislative power to carry them into effect. Yet we have the Financial Secretary in the blandest manner possible informing the House that the matter in his judgment apparently is of such slight importance that he decided to make no statement upon it.

What I said was that the House would be aware that this mattes is under consideration by the Government in connection with the Uthwatt proposals, and, therefore, it was impossible for me to give a full answer.

Does that mean that the House cannot consider any matter until the Government have made up their mind?

Is the hon. Gentleman aware that the Uthwatt proposals are only an absolute sop?

The House can now judge whether this is a satisfactory reply to an important question. With regard to the general Debate, I may be more ingenuous than the hon. Member for Leigh (Mr. Tinker), but I cannot follow him in his strictures upon the attitude adopted by the hon. Member for Walsall (Sir G. Schuster). He seemed to feel that the hon. Member for Walsall was seeking to expand the interests of private enterprise after the war. The hon. Member, how- ever, expressly referred to British industry. The Prime Minister has carefully advised the House that there will be private enterprise, public enterprise and Municipal enterprise, and I take it the term "British enterprise" is an all-embracing one, and if it is essential for private enterprise to receive certain benefits that are mentioned in the Amendment, where itsays that there should be greater provision for the accumulation of industrial capital by differential taxation on undistributed profits from industry, and so forth, they will apply not only to private enterprise but to municipal enterprise and to public utilities. If that be so, I fail to see how we can cavil at that position.

With regard to research, in every field it is imperatively necessary that there should be great expansion. Those who have studied the position in Russia will notice that probably the most striking thing in their industry is the amount of money expended everywhere upon research. As soon as a country directs its attention to the maximum amount of production and distribution, it is bound to turn its attention to research in order that its efforts may be ever increasing. While comparisons have been made between the expenditure of this country and of the United States upon research, figures can be quoted to show that Russia's expenditure is many times greater than that of this country.

It is a highly unpopular course to oppose the Chancellor of the Exchequer, particularly one who is the soul of urbanity and has a disarming innocence in the face of criticism, but in the taxes which he has added to tobacco and beer, which particularly affect many of my poorer constituents, he has, in my judgment, violated the canons of equitable taxation. As I said when the Budget was introduced, he has introduced a new and disturbing factor into the coalfields and where incomes are low. The new taxes have certainly added further indirect taxation to working classes already bearing excessive burdens. The National Debt has increased since the war by some £8,460,000,000. If inflation can be avoided with a National Debt of£16,000,000,000, this £100,000,000 net addition should certainly not increase our liability to inflation. It might have been found in other directions, and it certainly should not have been taken from the hard-earned pence of the poorer sections of the community.

I want to quote one or two figures relating to total taxation of every sort, in proportion to income, in cases of married couples with three children. Pre-war, with £100 a year, their total taxation amounted to 5.9 per cent. In 1941–42, the proportion was 8 per cent. Families with £150 a year paid 4.3 per cent. before the war, and the proportion had risen to 5.7 per cent. by 1941–42. Similar comparisons are: £250 a year, 2.7 per cent, and 3.5 per cent.; with £300 a year, 1.2 per cent. and 2.9 per cent.; with £350 a year, 1 per cent. and 4.9 per cent. The House will notice that the lower the income the higher the burden of taxation upon that income.

These are the actual, corrected figures. The hon. Member will have an opportunity of refuting this argument. The story is similar with regard to married couples without family. Pre-war, with £100 a year, the proportion of taxation was 4.9 per cent. By 1941–42 the proportion had risen to 6.2 per cent. With £150 a year, the comparison was 3.4 per cent. and 4.2 per cent., indicating that the poorer the worker the heavier his burden of taxation. In an equitable system of taxation the poorer person should be the more lightly taxed.

With regard to tobacco, again we have a system which the Chancellor of the Exchequer would have the greatest difficulty in defending if he desired to act in a perfectly just manner. The tobacco taxes are proportionately greater on the cheaper grades, which are consumed by the workers. In my humble judgment, Empire tobaccos might have their taxation reduced or even be relieved altogether. There should have been equitable taxation upon an ad valorem, and not upon the poundage, basis of tobacco. As an illustration, I will mention those cigarettes which are greatly consumed by the workers, "Woodbine" cigarettes. In pre-war days they cost 4d. for 10; now they are 1d. each.

The same statement might be made with regard to having a bath. The workers are not obliged to use soap. The workers are under no obligation to use light in the form of gas or electricity. In my judgment, beer and tobacco have become prime necessities. If we deprive the workers of a variety of diversions to which they have been accustomed, we must leave for them the beer and tobacco which they look upon as prime necessities. The workers are now unfairly treated, both in regard to direct Income Tax and indirect taxes. If one adds local rates in addition, the position is certainly much worse for the very poor.

There is another important matter which the Chancellor has probably overlooked, and that is the question of nutrition among the poor. We are told that the Atlantic Charter will rectify all that, but Budgets are provided for the purpose of remedying disabilities of the character indicated by the Atlantic Charter. Food is the most important health factor. The official figures show that among the ill-fed in Britain, the general mortality rate is some 30 per 1,000, while among the well-to-do it is nine per 1,000. With regard to infant mortality among the very poorest, it is about 100 per thousand births, whereas among the well-to-do it is about 20 per 1,000 births. There is no doubt that malnutrition by poverty is general among the very poorest section of the community, and the Chancellor has overlooked them and accentuated their troubles by these new taxes. It ought to be remembered that the lower the income the greater is the proportion expended upon food. That inevitably follows. For that reason it is an imperious necessity that taxation should not be added to that poverty-stricken section of the community. I believe that what is wanted is a diet for health within reach of every family, and I regret to think that the Chancellor in these additional taxes which he has imposed has overlooked that pre-requisite. I hope that the time is not far distant when he will mend his ways in that respect, and perhaps bring forward some proposal to modify, before the Third Reading, the taxation to which I have referred.

Question, "That the Bill be now read a Second time," put, and agreed to.

Bill read a Second time.

Bill committed to a Committee of the Whole House, for the next Sitting Day.