Monday, 12th April, 1943

[Mr. SPEAKER in the Chair]

Ordered:

"That the Proceedings of the Committee of Ways and Means be exempted, at this day's Sitting, from the provisions of the Standing Order (Sittings of the House)."—[The Prime Minister.]

The external costs of a country are met in ordinary circumstances by exporting goods and services for sale abroad. For the first two years of the war we relied largely upon this policy, but now we cannot spare the labour and the materials to produce the exports or the shipping to convey them. Recently the volume of our exports available to be sold abroad has fallen to about a quarter of what it was before the war. A new unifying method has been found in the great new system characteristic of the finance of this war known as Lend-Lease, or Reciprocal Aid. The institution of this plan by the President of the United States is one of the most striking and far-reaching acts of the war. It rests upon the principle that in a common war all shall give all they can to the common task. There is no question of reckoning mutual financial indebtedness. Where one Ally ships its own produce or gives it own services to another Ally, it makes the whole or part of this available without charge. Of the total goods and services which the United States supplies to this country and to Russia, China and the other members of the United Nations, 80 per cent. are on Lend-Lease terms. At first the larger part of what we received from them was in the form of food, but now the major proportion is in munitions of war and other supplies, which we are receiving in great quantity. I am not using idle words when I say once again that the people of this country do not and will not forget this splendid action of the people of the United States.

I spoke last year of the great gift of one billion dollars from Canada, which meant so much to us at that time. This year Canada has again come forward in the same generous spirit and is proposing to share her production of essential war supplies with us and the other United Nations on the basis of strategic needs. She is proposing an appropriation of a billion dollars in the current year for this purpose. In addition, she is proposing to take over the whole cost of the Royal Canadian Air Force squadrons serving overseas, which will shortly be again increased in numbers, as well as to provide the pay and allowances of the Royal Canadian Air Force personnel serving in the Royal Air Force. This is a considerable financial contribution as well as a splendid addition to Canada's share in the deeds and the renown of the Air Forces of the United Nations. I take this opportunity—and I am sure the Committee will join with me—of expressing again to Canada how much we appreciate this new manifestation of their splendid co-operation in the common cause, magnificent in total and great-hearted in the manner of doing. The people of Canada are not yet very numerous, and they have not yet accumulated wealth like that of their great neighbours, but their action has been on a grand scale, the action of a nation conscious of its power and its place.

I do not think anyone still believes that this traffic of Lend-Lease is one sided as far as Britain is concerned, or that we receive all and give nothing or little; but all have not a complete conception of what we have in fact accomplished. If we look at the total volume of supplies which have reached us from North America since the beginning of the war, we have in fact paid for a substantial proportion of them. This country has actually spent some £1,500,000,000 in the United States since the outbreak of the war on supplies, munitions and the provision of capital equipment for the prosecution of the war. Now we on our side are applying the Lend-Lease principle to all munitions and military supplies and services, including shipping, which we furnish to the United States, Russia, China and certain Allied European Governments. Our commercial exports for which we ask payment have, as I say, fallen to a small fraction of the normal figure. The supplies which we are contributing in this way to the common task have increased greatly in the last year. The whole conception of the plan does not and is not intended to lend itself to close accounting. The American people have never put the dollar sign in the help that they have given us, and we are not putting the pound sign in the help we give back to them or give to others.

Let me illustrate why precise reckoning is beside the mark. Let us first take our great and gallant Ally, Russia. On Red Army day my right hon. Friend the Minister of Production stated that from the beginning of October, 1941, to the end of December, 1942, we had despatched to Russia some 3,000 tanks, 2,500 aircraft, 70,000,000 rounds of small arms ammunition and 50,000 tons of precious stocks of rubber. In very round figures the value, if we sought for a moment to estimate it, of the munitions that we have already given to Russia is about £170,000,000. More than that, the Northern waters on the way to Russia tell the story not only of how British ships and men have taken the cargoes safely through, but of British ships sunk and British lives lost in our determination not only to give these supplies but to get them to Russia. We do not make a balance-sheet of items like these any more than we can ever compute in such terms the defence and victory of Stalingrad or the debt we and the whole world owe to Russia for its wonderful and outstanding achievement in the common cause. To other European Allies we are giving aid in the same spirit and in the same way. We are also giving aid on Lend-Lease terms to China to assist in her stout-hearted resistance against Japanese aggression. Transport difficulties at present reduce the full flow of that aid, but stocks are being steadily accumulated, and as transport improves they will go forward to play their part in the final and complete destruction of our common enemy Japan.

It is natural that the largest amount of our Reciprocal Aid goes to the Americans, and that for a quite simple reason. The growing American Forces who are in this country or who are stationed within the areas for which we are responsible receive, apart from their pay and from the necessary supplies they bring with them, everything that they ask for, which we are able to give, as Reciprocal Aid. Much of this Reciprocal Aid takes the form of services whose value neither they nor we seek to reckon. Who puts a price upon the service we gave when we took over, largely in our own ships, the American Expeditionary Force safely to North Africa? Who puts a value on the free access we have gladly given them to all our important war inventions or lessons of experience in the production and supply of war equipment? It may, however, be said, by way of example, that we are spending about £150,000,000 in constructing aerodromes, barracks, hospitals and other buildings expressly for American use. Mr. Stettinius, the Administrator of Lend-Lease in the United States, gave Congress a remarkable inventory of the type of aid we provide to the American Forces, and Major Spiegelberg, the staff member of the Lend-Lease Administration in London, quoted a vivid figure to show how completely we had tried to provide the American Forces in this country with all they wanted.

From June to January last the total expenditure of the American Army authorities in making purchases in this country was no more than £250,000. As Major Spiegelberg said, this is a drop in the bucket compared with the cost of maintaining an army. All the rest of the articles, equipment, facilities and services required for the United States Forces and available in the United Kingdom are procured as Reciprocal Aid from the British. In the last seven months of last year from our own resources we furnished to the American Forces in the United Kingdom a quantity of supplies which would have involved 1,200,000 tons of shipping, which was more than the Americans themselves shipped to their own troops in the same period. We provided about 1,600,000 tons of construction materials and made available 700,000 dead-weight tons of shipping for American military operations. It seems a long time since the Prime Minister, in prophetic utterance, said that we and the Americans would find ourselves greatly mixed up during the war. We are all liking and benefiting from the mixture, and we shall continue it.

The Committee will appreciate that the total cost of all this reciprocal aid is a very large sum. We do not attempt to keep close accounts. It would take a whole division of accountants and clerks to keep such figures, and we cannot spare them for such a purpose. If we take the Lend-Lease aid now being furnished to the United Kingdom, apart from the additional aid to British Armies overseas, and make a rough comparison on the same scale of costs and values, the Committee should know that, large though the help from the United States is, it is no greater than the help we ourselves are affording to all our Allies without charge. Having regard to the comparative size of our population and to the proportion of men and women we have already absorbed in the Forces and to the longer period in which we have been bearing the struggle, the scale of our reciprocal help is one of which we need not be ashamed. We should not forget that Reciprocal Aid is operating also on a considerable scale in Australia and New Zealand, as well as in India and in the Colonial Empire. This is a further source of strength to the Allied cause.

But this is not the whole story. The aid that we receive from the United States and Canada solves almost completely our financial problems in North America, but in the rest of the world we have to fend for ourselves. For all the local costs of the war in North Africa, except at the Algerian end, throughout the Middle East and in India and Burma we are primarily responsible. The Forces of the Dominions and increasing numbers of United States Forces are also engaged in these areas, and they meet the specific expenses of their own contingents. There are also certain large military works for which the United States has taken financial responsibility. Apart from this, it is we who are carrying the financial burden of the general costs of the war over these large areas. Egypt and other countries of the Middle East are not being asked to make any contribution. Japanese aggression has made a new situation in India, and this has involved greater burdens to India itself, but the greater part of the additional costs of the defence of India, and in particular the cost of that defence when it is carried on outside her own frontiers, falls upon us. When, as we hope in due time, an Army moves forward from India to the aid of our stout-hearted Ally China, it will be at our expense. Moreover, India has become a major arsenal for materials of war from the Middle East, and for reasons of shipping this fact is of the utmost value to the cause of the United Nations. Here again we in Britain carry the financial liability of practically the whole of this considerable cost.

I have given this account, not for a moment in any spirit of questioning or complaint, for we judge these matters only by the progress we all make towards victory, and not by any assessment of the contributions any of us may make; but it does mean that a financial situation of some difficulty is being created for us in the future of which we should be aware. Our exports, as I have said, cannot buy us more than a trifle towards these external costs. The rest we have to borrow from those countries who are making common cause with us and whom we are defending, and we are incurring a considerable obligation about repayment. The sterling balances thus created in favour of India, which represent, of course, sterling obligations for us, have been used by India to pay off what she has borrowed from us in the old days, but when all this has been discharged she will still have much in hand. Altogether, to meet the local costs of the war all the way from Tunisia to Burma, we are borrowing between £400,000,000 and £500,000,000 a year, and we are borrowing it from the countries concerned. No one but ourselves plays any part in shouldering this debt. There remain our net external costs for what we purchase in South America and the neutral countries and for the chartering of ships from the European Allies. This brought the total of what the White Paper calls our overseas disinvestment in 1942 to £630,000,000. I do not expect that the total during the coming year will be materially different.

The Committee will understand why, in the face of such a situation, 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. But we are not dismayed, and it is not the first time that we have had to face and have successfully overcome such difficulties. Robert Hamilton, writing in 1814 in "An Enquiry concerning the National Debt," described how everything we held dear was then at stake and he expressed the determination of the nation at that hour of peril and crisis when he said:

"No exertion can be too great, no pressure of increasing burthens is to be regarded, no dread of exhausting our resources entertained."

Old, but true again to-day.

Britain is proud and privileged once more to throw everything she can into the common effort until the surrender of the enemy is final and complete.

We must now turn to the domestic front. The outstanding features there are the still growing cost of the war, the sums we have to raise in taxation to meet it, and the borrowing programme necessary to provide the balance. The cost of the war has now reached the stupendous figure of £13,000,000,000, and the total of all our expenditure, including Debt charges and normal Civil Services throughout the war period, amounts to some £15,600,000,000. We have managed not only to meet the great war expenditure but to go on steadily developing our social services, which mean so much to the health and happiness of large numbers of our people. The social services, excluding payments in respect of unemployment, cost £160,000,000 in 1938. They will cost £219,000,000 in 1943, and this is apart from the considerable sums we are expending in connection with our stabilisation policy, to which I shall refer later. Two other matters should be noted. The increases which have been granted during the war, with the unanimous approval of this House, in the pay and allowances of the Fighting Services will cost some £159,000,000 in the year 1943, excluding the year's post-war credits for the Forces. We have also made payments under the War Damage Act in compensation for damaged buildings, business plant and machinery, and private chattels exceeding the total sum we have received in premiums and contributions.

Our war expenditure itself has been steadily increasing throughout the year. It is substantial evidence of our growing strength and power. When I opened my first Budget in 1940 we were spending about £5,000,000 a day on the war. At the time of my last Budget the rate was £12,500,000. It is now £15,000,000. I know the recital of these immense figures will again raise in all our minds the question whether we are doing all we can to avoid waste and extravagance, which are unpardonable offences at this hour. I have many times in this House referred to the vital need of ensuring that such vast sums are wisely spent, and I have given examples of the steps the Treasury and the Government Departments have taken, in conjunction with the Public Accounts Committee and the Select Committee on National Expenditure, both to cut out waste and to promote efficiency. The Service Departments in particular are continuously reviewing their needs in order to adjust them to the changing circumstances of the war. So far as Government contracts are concerned, we are keeping the machinery under constant scrutiny in order to secure that our necessary supplies are obtained at the lowest possible cost. There is still much to be done, and we must continue our endeavours to ensure that the lower costs which result from greater experience on the part of contractors and increased turnover are adequately reflected in contract prices.

As regards the Civil Service, there has been a continuous scrutiny of the staffing arrangements within the Government Departments. Civil Service leave has been curtailed and hours of work lengthened to the maximum extent compatible with efficiency, for there comes a point when further action in that direction defeats its own object. Attention has also been concentrated upon the simplification of departmental procedure. During the last few months an intensive examination has been undertaken of the work of Government Departments in this country, coupled with a special review of certain centres abroad, with the object of curtailing those less essential services which, however desirable or necessary in ordinary times, can hardly be justified under present conditions, and economies in manpower are, I am glad to say, already resulting. Curtailment in itself is not sufficient; it must be supplemented by arrangements to ensure the most appropriate use of the man-power and woman-power which is set free. The Treasury and the Ministry of Labour, together with the Departments concerned and their staff associations, are co-operating to this end, and I have every hope that substantial benefit will result from these efforts.

To meet the huge expenditure I have already referred to, we have raised in taxation during the past financial year, with the general and willing assent of our people, but not without many sacrifices and hardships, the unprecedented figure of £2,483,000,000. The amount of Income Tax collected in the year has for the first time in history exceeded £1,000,000,000. Of all our expenditure since the war began, whether at home or abroad, no less than 44 per cent. in the aggregate has been met by current domestic revenue. The percentage has risen year by year from 36 per cent. in 1940 to 46 per cent. in 1942. That record compares, for instance, with the 29 per cent. covered by revenue in the 12 months ended 31st October, 1918, and, indeed, on any criterion or comparison, is a magnificent achievement by all sections of British taxpayers. They have readily accepted our double object in imposing such high taxation: first, the reduction of the large additional volume of purchasing power created by our war expenditure, and, secondly, the need to pay as we go for as much of the war as we can in order that the demands on the taxpayer for the service of the Debt after the war may be kept as low as possible and thus, among other things, greatly help then our plans for reconstruction and advancement.

On a famous occasion Mr. Gladstone, when Chancellor of the Exchequer, likened direct and indirect taxation to two fair sisters of equal charms, and if I understood him rightly, he thought it was proper to woo them both simultaneously and with equal ardour. Whatever may be thought of the ethics of such procedure in private life, the financial consequences are bound to have attractions for the Chancellor of the Exchequer. In the increase of our war taxation I have at any rate endeavoured, as the Committee are aware, to hold the balance between the two, that is, between the taxation which falls inescapably on incomes and estates and the taxation of which a considerable part is the result of optional expenditure. That balance has been substantially achieved. Direct taxation has, in fact, been called upon to bear a rather higher additional burden than indirect taxation. The additional yield over 1938–39 of all taxation in 1942–43, excluding Excess Profits Tax and National Defence Contribution, was £1,231,000,000, of which direct taxation produced £687,000,000 and indirect taxation £544,000,000. Of the increased war-time yield of indirect taxation, the increase from liquor, tobacco and entertainments, which may be regarded as essentially optional forms of expenditure, accounted for no less than £452,000,000, or 83 per cent.

Here I must say a few words about the operation of the deduction of Income Tax from wages. There are now some 7,000,000 wage-earners, who pay about £200,000,000 of Income Tax for the year. To-day nearly every family in the country contains at least one Income Tax payer. Income Tax is, therefore, a matter of concern in millions of homes which had previously been subjected only to indirect taxation. Apart from those considerable national implications, the machinery and methods of collection are of much importance to the taxpayers concerned. Following our discussions last year, a number of modifications have been made, and I am glad to say they have proved to be successful and have largely contributed to a smooth working of the tax. Special efforts have been made to simplify tax forms and to give further facilities for learning about methods of assessment. Arrangements have, for instance, been extensively made for tax officials to attend periodically at factories in order that employees who desire it may receive expert advice in connection with all tax matters.

I have not overlooked the suggestions that have been made to levy the tax on the basis of current earnings. I described the difficulties last year, and explained how, after receiving the advice of the Trades Union Congress and the British Employers' Confederation, we had all agreed that no scheme had so far been produced which would be equitable and practicable. I said I would at any time be prepared to consider any new proposal which would meet the case, but no acceptable plan has as yet been forthcoming. There is, however, to be considered in connection with this whole matter the different situation that may arise on the return to peace-time conditions, when a considerable change-over in employment may be expected to take place. My advisers are now engaged in a close examination of this aspect of the matter and the consideration of a current earnings basis for the deduction of tax will not be ruled out of their deliberations. I shall, of course, continue to keep in close touch with the British Employers' Confederation and the Trades Union Congress on the whole subject of the operation of the tax.

Even taxation of the great weight which we have imposed upon ourselves has left us with a very formidable borrowing programme. From the beginning of the war to the end of March we have borrowed no less than £8,667,000,000. We have been able to borrow those large sums at low rates of interest and on gradually improving terms, and we have carried this process still further in the past financial year. This has been due to two main factors; first, the controls which have reserved the capital market primarily for war purposes, and, secondly, the variety of the sources which we have tapped for subscriptions to Government issues. Subscriptions to small savings, after allowing for repayments, accounted for 21 per cent. of our total borrowings, and those from non-Government sources to our longer term loans, for 34 per cent. Those are two important planks in our borrowing programme, and we must continue our efforts to strengthen them. The balance of our borrowings has been covered as to 10 per cent. by Treasury bills issued to the market and banks, as to 11 per cent. by Treasury deposit receipts from the banks, as to 5 per cent. by Tax Reserve Certificates, and as to 19 per cent. from extra-Budgetary State funds and various other sources, such as overseas borrowings and interest-free loans.

Shortly before the close of the financial year, the total sum raised during the War Savings Campaign by small savings, longer market issues, gifts and loans free of interest, amounted to the magnificent sum of £5,000,000,000, a land mark in the history of the war, and the total on 31st March was £5,320,000,000. I should, however, like to call special attention to the total of the subscriptions to small savings which, on 31st March, was £1,968,000,000, and which was made up of millions of small loans. Savings Certificates brought in £756,000,000, Defence Bonds £555,000,000, and the Post Office and Trustee Savings Banks £657,000,000. Very largely the same army of regular savers now own Income Tax post-war credits amounting, for the two years 1941 and 1942, to some £300,000,000. They deserve well of their country, and they will be a strong and stabilising force after the war. We must go on increasing the number of the small savers, for we shall have largely to depend upon the small man for our future savings, to which in turn we shall have to look for assistance in our capital commitments after the war. Perhaps I may add here that I shall ask the House this week to pass the usual annual Bill giving the Treasury the borrowing powers necessary to cover our expenditure in 1943–44 on the same lines as in previous years.

I would call attention at this stage to the further special White Paper which I am issuing to-day. The extensive information which I published in the White Papers in 1941 and 1942 was warmly welcomed and approved both inside and outside Parliament. They are rightly regarded as important State documents, and they make a considerable and valuable addition to our official statistics. The very magnitude of our borrowing programme alone makes it most desirable that we should have adequate statistical information; for example, it is most important that we should know how far the sums we are borrowing are ultimately being made available out of the current national income. We are building up, amending and revising these statistics, as we find better approaches to the problems involved and are able to devise more exact methods of estimation. Certain revisions have been made, for example, in the previous estimate of the national income and of personal savings, which will be found in full in the White Paper. We have been able to expand the information given in previous issues, as, for example, on the main heads of personal expenditure on consumption, and an index of prices applicable to such consumption has also been provided. One table has been discontinued until we can obtain a better basis for our estimate.

There is an interesting series of figures which show how the large increase in personal incomes over the pre-war level has been disposed of. Table II shows that between 1938 and 1942 the gross total of such income, before payment of any taxation, increased by £2,235,000,000. Provision for direct taxation took £713,000,000 of the increase, and £757,000,000 was saved. Expenditure on consumption increased therefore by £765,000,000, of which about half was due to higher indirect taxation, mainly, of course, on liquor and tobacco.

The annual figures show a steady rise in personal savings, excluding provision for taxation accrued but not paid. Such savings are estimated to have increased from £628,000,000 in 1940 to £704,000,000 in 1941, and £891,000,000 in 1942. On the other hand, the fact appears that, of the increase in personal incomes during 1942, a greater proportion was spent on consumption than of the increase during 1941. The increase in expenditure on consumption, excluding the corresponding increase of indirect taxation, was actually about one-third higher than the increase during 1941. If we allow for the increase in prices as set out in Table C of the White Paper, the volume of goods and services purchased, which had fallen during 1941, remained stationary in 1942. We ought not to be content with that. I think it will be generally agreed that there is still an appreciable margin of personal expenditure on non-essentials which can and should be curtailed.

There is one other general comment I should like to make in this connection. The main figures relate to the ultimate sources from which the nation has been able to place funds at the disposal of the Government for the prosecution of the war. The White Paper is not primarily concerned with the form in which the funds are, in fact, made available to the Exchequer. Besides ensuring that the sources of our borrowings are basically sound, the Government obviously want to borrow in the forms least likely to cause embarrassment in the future. Thus, the figures of personal savings cover such savings in all forms, whether invested, or left in the bank, or kept at home or in the pocket in notes—of the last of which there are far too many. While we are glad to see all these personal savings increasing, I must say that it is most desirable, from the point of view both of the saver and of the country, that as much as possible of those savings should be invested in some more or less durable form.

This is a convenient opportunity for me to refer to suggestions which have been made by some hon. Members that, in some form or other, our annual Budget should be accompanied by a national balance-sheet or some form of capital assets account or the like. I am not unsympathetic, as I hope I have already shown, to giving the fullest information to the House in relation to financial matters. It is, however, evident, I think, that the State could not produce anything like the exact accounts of a business undertaking. We are incurring the cost of the war for

intangible reasons and not for material ends. Even in the more limited sphere of things with money values, there are serious difficulties in attempting to assess the position to-day. What post-war value, for instance, could now be placed on such capital items as land, buildings and the plant which the State has acquired? It would not bear any necessary relation to their costs. What matters is the earning capacity of each asset after the war; and who can say now what that earning capacity will be? These are the kinds of matters which render many of the suggestions made impracticable—at any rate for the time being.

Having said that, I would not rule out the idea that lies behind the whole matter. I expressed during the Debate on our post-war economic and financial problems the belief that we should be wise to develop to the greatest possible extent the service of statistical information. We ought to have not only financial statistics of the kind which we now have and which have been so greatly extended by the White Paper, but as full information as we can get on such matters as domestic production and private investments in capital assets; and an account of these, say, in the form of a further White Paper might well accompany our future annual Budgets. We should thus have another important State paper which would give us a much wider account, and a better picture of our affairs, and which we could continue to build up and improve, so as to enable the House and the country to have a clearer estimation of our capabilities and potentialities.

The Committee will appreciate that a publication of this kind could not be contemplated during the war, for we certainly could not publish, for example, figures of our current war production; but, in the interval, we will endeavour to make the best progress we can in the very great amount of preparatory work which will have to be done. I will only add two things. The first is that in order to accomplish what we purpose we shall need the co-operation of all our industries and that they should, as I believe they will, recognise that the time and labour employed and supplied by them will be well worth while; and, secondly, that when we have this further information we must not indulge in wishful thinking. Statistics are no substitutes for assets, and accountancy will not take the place of economic activities and endeavour.

Since I last opened my Budget, we have had several Debates on post-war problems, including economic and financial questions. While we are concerned first and foremost with winning the war, we must also be preparing ourselves for the problems and projects which must be dealt with and accomplished when the war is over. In the last few months I have spoken at some length on such matters, and I do not intend to say much more on the subject now; but I should like to point out that it is as true of financial and economic policy as of any other, that what we do in war-time may be a very direct preparation for what we shall have to do afterwards. 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.

Let me take two important examples, one of a particular nature, one other more general. 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, 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.

My second example is the general question of inflation. I have warned the House on a previous occasion that inflation will be one of the greatest dangers after the war. The purchasing power of current personal income will have behind it a potential reserve in the large volume of war savings and the Income Tax post-war credits, but for some time there will be only limited quantities of goods to be purchased. Whatever controls the Government may have to maintain over the supply and distribution of these goods, there will still be as great a need as ever, side by side with the taxation we impose, for the restriction of personal consumption by voluntary savings. Only in this way shall we be able to find the physical resources and the funds which will be needed to carry out our many programmes of post-war capital reconstruction and development.

In the forefront of the measures which we have taken during the war to remove the threat of inflation is our policy of stabilisation of prices. It has wide significance, and it involves a considerable annual charge upon the Exchequer. In my Budget speech of April, 1941, I undertook to hold the cost-of-living index number, apart from minor seasonal changes, within the range of 125 to 130 in terms of the pre-war level. That endeavour has been rewarded with a full measure of success. The cost-of-living index has been successfully stabilised. It has at no time risen higher than 30 per cent. above the pre-war level, and for most of the time it has been below that figure. So far as food is concerned, the food index last month was 20 per cent. above the level at the outbreak of war, as compared with 23 per cent. in April, 1941. It is sometimes suggested that while the items falling within the cost-of-living index have been stabilised in price, this has not prevented many other prices from soaring. The new material provided in Section C of the White Paper shows that, taking the general price level as a whole, this is not correct. Apart from price increases deliberately brought about by higher indirect taxes, the whole volume of consumption goods and services, including luxury goods and other non-necessaries, has not risen in price by more than 36 per cent. It is not undesirable that the less necessary goods should show a greater price increase than necessaries. The rise of 36 per cent. over the whole field apart from taxes is, I think, in a proper relationship to the rise of 30 per cent. or thereabouts in the cost-of-living index, on which the effect of war taxes has been slight.

The success of our stabilisation policy has been achieved by a firm control of prices, coupled with some application of subsidies and remission of taxation when control has been secured. It has been a cardinal point of policy that subsidies and tax remission should not be granted until an effective control of prices, and in most cases also of supply, has been obtained. For example, there has been no general remission of the Purchase Tax on clothing, but utility clothing, which unlike other clothing is manufactured under the close supervision of the Board of Trade, has during the past year been made free of Purchase Tax. Subsidies, moreover, have not been directed exclusively to price stabilisation but have also included expenditure incurred primarily for nutritional reasons, like the national milk scheme and the school meals scheme. In pursuance of this policy, control has been extended step by step over the prices of food and other essential commodities, and in respect of food prices control now covers probably 90 per cent. of the average housewife's expenditure. The cost of the stabilisation policy to the Exchequer has been substantial, and it is now running at the rate of about £180,000,000 a year, but it has been of great benefit, not least to those who depend upon small fixed incomes.

The objects of the price and subsidy policy may be summed up as a substantial effort not only to stabilise the cost-of-living index but at the same time, in conjunction with measures of rationing and control of distribution, to secure adequate supplies of essential articles to all sections of the community. It may, I think, be fairly said that, in the result to-day, not only has the war-time distribution of the available goods and services worked fairly and with little or no likelihood of hardship, but the foundation has been laid for an improved nutritional standard for the nation as a whole, especially when account is taken of the special schemes, such as the national milk scheme and the vitamins scheme run by my right hon. Friend the Minister of Food with such success. Certainly it can be said that the whole policy has, in its achievement, marked a great improvement over the course of events during the last war, when after three and a half years of war the cost-of-living index was nearly 90 per cent. above the pre-war figure as compared with a rise of only 28 per cent. between September, 1939, and March, 1943, while for the same period in the last great war food prices rose by 108 per cent., as compared with 20 per cent. in his war.

I must again point out that the stabilisation policy and the wages policy set out in the White Paper of July, 1941, are complementary. The former is dependent on the latter and at the same time renders it possible. The stabilisation policy has obviated the necessity of increases in wages where automatic adjustments are linked to the cost-of-living figure. Since September, 1939, the average increase in wage rates has been rather more than the increase in retail prices shown by the cost-of-living index. The average increase in weekly earnings has, of course, been much greater on account of greater output and longer hours. On any calculation of the prices of necessaries the rise in the cost of living is far below the net increase in earnings. It is my duty to say again that this valuable but costly stabilisation policy depends upon the wise use of our machinery for wage negotiations. There is still need for vigilance. Increases in wages, properly and fairly justifiable as they may be, do not make more goods available nor do they increase the general standard of living, and they may make it more difficult to secure a fair distribution of the limited supply of goods. But this also should be said, that while no system can give perfect results, our wages policy has also been successful in two important matters. It has helped to maintain the sense of responsibility and self-government which has characterised our industrial system for so many years. It has also done much to foster that industrial peace which has played such an important part in our war effort.

I have now completed my necessarily condensed general review of a period of economic and financial problems unprecedented in their size and complexity. In all we have done we have had three essentials in mind. First, we have sought to assist the war effort by ensuring that war production suffers no hindrances from unsound economic conditions. Secondly, we have endeavoured to do this in such a way that our people, united in the firm will to work and produce to the utmost, may be secure in the knowledge that their standard of living will not be filched away by rising prices. Thirdly, we have sought so to order our economy now that the inevitable consequences of the war will prejudice as little as possible our financial and economic ability to engage ourselves in those progressive developments which we all desire to achieve and upon which we are already engaged. We must steadily continue with those objectives, but I think it can be said without exaggeration that with the full co-operation of our people a large measure of success has already been obtained in all these vital and far reaching matters.

I think hon. Members will find, when we come to consider the financial prospects for this year, that it will be convenient to have the corresponding figures for 1942 more or less fresh in their minds. Accordingly, in order not to disturb the continuity of our review of 1942 and 1943, I will refer now to one or two taxation matters of general interest not directly related to the finances of any particular year, and I will mention certain amendments which I am proposing to make in the taxation law, and also certain changes in Post Office charges.

The Committee will remember that in my last Budget, after consultation with my right hon. Friend the President of the Board of Trade, I announced the exemption from Purchase Tax of utility cloth and clothing, including boots and shoes, made in accordance with the specifications prescribed by the Board of Trade, and later in the year I introduced a similar exemption in respect of utility furniture. I now propose to make another important exemption by freeing from the tax all utility cloth, whether in the piece, shaped or partly made up, which is not already exempt, as well as textile articles of a kind used for domestic purposes, soft furnishings and haberdashery which comply with my right hon. Friend's utility conditions. The list of articles affected is too long to be given in extenso, but I may perhaps mention utility black-out cloth, towelling, handkerchiefs, bed linen and mattresses, as examples of the sort of thing which will benefit from this remission of tax. Of course, it behoves everyone to be as economical as possible in the consumption of these, as of other goods, but where a purchase is really necessary we desire, particularly in view of the wider national considerations, to achieve economy in materials and in processes

of manufacture, thereby easing the strain upon labour and factory space. When these exemptions are added to those of utility clothing, footwear and furniture, which I have already mentioned, much will have been done to reduce the cost of a wide range of sound and serviceable articles in war-time household budgets. Subject to the approval of the House, a Treasury Order will be made in due course giving effect to these proposals as from 3rd May. The cost to the taxpayer will be about £6,000,000 in a full year.

In the course of the Finance Bill Debates last year, a number of my hon. and right hon. Friends, in all parts of the House, pressed for an extension of the housekeeper and dependent relative allowances, and urged that at the present high level of taxation considerable hardship arose from the conditions attached to these allowances. The Committee will remember that, while I had to point out the difficulty of making in war-time concessions which had been refused in peace-time, I promised that these representations should receive my consideration before this year's Budget. I have decided, in the light of this consideration, to propose certain reliefs, which are directed to meeting certain broad and clearly defined types of cases in which substantial hardship may exist and where it has certainly been accentuated by our present heavy taxation.

My first proposal is to widen the scope of the housekeeper allowance. The existing law gives a deduction of £50 from income in respect of a housekeeper maintained by a taxpayer who is a widower or a widow, or in respect of a widowed mother or other female relative maintained to look after young brothers and sisters. The allowance for a widower or a widow was originally given only where there were young children to be cared for, but in 1924 this condition was dropped, with the result that the widower or the widow obtains the allowance merely on the ground of the maintenance of a resident housekeeper. Although I do not propose to disturb it, I am not sure that this extension of 1924 was a wise one. It was a great source of complaint on behalf of other taxpayers that they had not the same allowance as the childless widow or widower if they employed a housekeeper. My proposal for widening the sphere of the housekeeper allowance is founded primarily on the presence in the home of young children and the absence of a wife who can perform the normal maternal duty of looking after the home and the children. I propose, accordingly, to extend the scope of the housekeeper allowance so as to grant it to any taxpayer who is entitled to the Income Tax reliefs in respect of a child or adopted child and employs or maintains a resident housekeeper. There must be the proviso that the taxpayer is either entitled to a single personal allowance or, if entitled to the married personal allowance, can show that the wife is permanently incapacitated, and that he must, therefore, have a resident housekeeper.

This will extend the relief to the following types of cases not covered by the existing law: First, the single taxpayer who has to maintain young brothers and sisters is at present entitled to the housekeeper allowance only for his widowed mother or a female relative, but under my proposal he will get the allowance for a resident housekeeper, even though she is not a relative. Secondly, where, owing to separation or divorce, the family does not include husband and wife and the married allowance is therefore not due, the spouse maintaining the children and entitled to the Income Tax allowance for the children will be able to claim the housekeeper allowance for a resident housekeeper employed to look after the home and the children. Thirdly, where the wife is permanently incapacitated and there are young children qualifying for the Income Tax allowance, the housekeeper allowance will be given to the husband who employs a housekeeper to look after the home and the children. The type of incapacity which has been particularly pressed is that of the wife who is permanently incapacitated and, by reason of physical or mental illness, is no longer in the home, but I do not propose to limit the new relief to such a type of case. It will extend also to cases where the wife is still at home, provided it is established that she is totally incapacitated throughout the year of assessment. This is a condition that I must emphasise. I do not think, however strong the human appeal may be, that I could propose an allowance for the cost of a housekeeper where the incapacity of the wife may have existed for only part of the Income Tax year. I ask the Committee to accept what I propose as meeting the general case as well as anyone can expect it to be met, at any rate in war-time. The proposed extension of the housekeeper allowance will cost £2,000,000 in a full year, and I am advised that this extension of the relief will benefit about 100,000 householders.

I now come to the dependent relative allowance. This allowance is a deduction of £25 from income in respect of a dependent relative who is incapacitated by old age or infirmity, and whose income from all sources does not exceed £50. I propose to increase the allowance from £25 to £50, which will bring it more into accord with the allowance for a wife and the allowances for children. I also propose, in order that the full value of the concession may be obtained, to replace the existing income limit of a flat maximum of £50 by a marginal arrangement based on the existing personal allowance of £80. At present the grant of the allowance is limited to the case of a dependent relative whose income does not exceed £50. If his income is just below that figure, the full rate of the allowance is granted. If it is just above, no allowance is given. I propose that, where the dependent relative has an income of £30 or more, the allowance shall be adjusted in such a way that the total of income and allowance together will amount to £80. The effect of this will be that nearly 500,000 dependent relatives with incomes of between £50 and £80, who are at present excluded from the allowance, will be brought within the scope of the concession.

Many of those who will now be included for the first time will be old age pensioners who, as a result of the extension of supplementary pensions, have an income of just over £50 and have hitherto been outside the present arrangement. At the other end of the scale, the cases in which the income is below £30 will qualify for the whole benefit of the increase of £25 in the allowance, while those cases where the income is between £30 and £50 will qualify for increased benefits in varying proportion. A further benefit which will flow from the increased allowance proposed is that it will remove the anomaly of the case of the invalid child who has reached 16 years of age. The Committee will remember that at this point the case becomes one of the dependent relative allowance, instead of the child allowance, and accordingly the amount of the allowance has hitherto fallen from £50 to £25. This will no longer be so, and the full allowance of £50 will continue to be granted. The increase of the allowance to dependent relatives will cost about £7,000,000 in a full year. I commend these proposals to the Committee for their acceptance, and I hope the Committee will recognise that, in the present financial circumstances, they represent a sincere endeavour to meet the wishes of the House in regard to the tempering of the Income Tax charge so as to bring relief to cases of hardship, particularly at the present difficult time.

I now wish to say something about tax matters and industry. The Committee will remember that during the course of the Finance Bill Debates last year various questions concerning the incidence of Excess Profits Tax and Income Tax on industry came more than once under discussion. I invited the representatives of industry to enter into consultations with the Board of Inland Revenue. A series of discussions have taken place with representatives of the principal industrial and commercial bodies and of the accountancy profession, and they have covered many questions. They have been most useful, and progress has been found possible on a number of matters. One matter of major importance which was considered is the question of what is known as terminal losses—that is, the expenses or losses that may be involved in changing back from war-time to peace-time conditions. This is mainly an excess profits question, and it is recognised by industry that it is one which cannot be dealt with in detail at the moment and must be left over generally until after the war, but I think industry is entitled to an assurance—which I give—that steps will be taken to see that all the expenses of a revenue nature which have been incurred in earning the excess profits will be allowed as a deduction in computing the liability to Excess Profits Tax. This is done in the ordinary course where the expenditure actually takes place during the life-time of the Excess Profits Tax, but in certain circumstances it may happen that the actual expenditure takes place after the termination of the tax. This, of course, depends essentially on the life of the tax.

A particular example, and one which it has been found possible to deal with on a provisional basis during the life of the tax, is the question of those repairs and renewals which have fallen due to be carried out but, owing to the exigencies of the war, cannot be carried out now, and are therefore being deferred until the end of the war. Industry has to put by a reserve to meet those expenses, but the law allows no deduction for such a reserve. In such a case it is the practice of the Inland Revenue authorities to hold a part of the Excess Profits Tax charge in suspense, and this is done in order to give immediate relief, as though the repairs and renewals had actually been carried out during the war. When, after the end of the war, the deferred repairs and renewals are in fact carried out, the tax held in suspense, after making any necessary adjustments by reference to the expenditure actually incurred, will be discharged. Discussions have taken place with a view to simplifying the procedure in this matter, and a satisfactory working arrangement has been come to. The form of procedure for claiming the allowance involved a special investigation, which absorbed an amount of expert time which industry could ill afford, and the Inland Revenue authorities have agreed to dispense with that detailed investigation and to found the provisional allowance on the measure of the repairs and renewals which were carried out annually before the war.

Another example is the cost of changing from war-time to peace-time conditions in regard to the lay-out of factories and the restoration of units which may have been dispersed. Any expenditure of this nature borne by the taxpayer in the change-over from peace-time to war-time conditions will already have been allowed for taxation purposes, and I have agreed that similar treatment should be accorded to the corresponding expenses, so far as borne by the taxpayer, in changing back from war-time to peace-time conditions, and that for the purposes of Excess Profits Tax these expenses should be related to the Excess Profits Tax period if it should happen that the tax comes to an end before the change back has taken place.

There is another important question. The return of industry from war production to peace production may involve the scrapping of buildings, plant and machinery which have been provided as part of the war effort. The law already provides relief both for Income Tax and for Excess Profits Tax in respect of any loss so incurred, and I agree that this relief should not be confined to cases where the equipment is actually scrapped but should cover also any loss of value in the case where the equipment may continue in use.

Another matter which, I understand, causes concern with industry is the treatment of losses in the event of a fall in value of stocks occurring after the war. In the Excess Profits Duty of the last war there was special provision in regard to post-war stock depreciation in the Finance Act, 1921, and I can now say that I certainly recognise that, at the end of the Excess Profits Tax, it may well be necessary to consider the question of a similar provision. Consideration, however, of this question and the precise nature of the provisions which may be required must obviously be deferred until the end of the war, when it can be undertaken in the light of conditions then prevailing.

In addition to this question of terminal losses, there is the more general question of the incidence of the Income Tax on industrial profits, which has been represented to me as a matter of post-war fiscal policy of great importance in relation to post-war reconstruction. I have in mind, in particular, the position of profits that are not distributed but are ploughed back into the business, and the treatment of capital expenditure, for which no allowance is made in the existing taxation code. I agree that this and other questions call for the most careful consideration, and in fact very full representations have been made to me—[An HON. MEMBER: "I bet they have."]—by the representative bodies of industry, commerce and accountancy, who have already had discussions with the Board of Inland Revenue. I believe it will be most advantageous that discussions on these matters should be carried still further. The Committee will appreciate that it is not sufficient to consider these important matters on the plane of general argument alone. It is necessary to look closely at the facts, and, above all, to find out what is the real effect of the tax provisions in actual cases over a period of time. That is why I hope, as the next step, to set on foot a detailed examination by the Board of Inland Revenue of the various matters which have been raised, for they are not only matters of moment for industry itself, but they have a wider importance in the general sphere of economic policy. This, of course, will take some little time, and the various matters will obviously, at the appropriate time, have to be considered by the Government and by Parliament.

One other matter which has been under consideration since last year is the treatment for Excess Profits Tax purposes of concerns operating wasting assets. Section 31 of the Finance Act, 1941, gives relief from Excess Profits Tax to concerns engaged in mining metal or getting oil in cases in which production has been accelerated in the interests of the war effort, with the result that profits are brought into the charge to the tax which otherwise would not have arisen until a later period, when the tax might no longer be in force. Similar conditions have been found to exist in the case of certain minerals, such as sand and gravel, and I propose in the Finance Bill to extend the relief to these cases also. I am also proposing to provide relief in cases where normal management practice, both in the mining of metals and in the getting of oil, has been departed from in order to accelerate production for the war, but in such a way that working costs after the war will be increased. The measure of relief to be given is necessarily rather complicated, and the Committee will not expect me at this stage to explain it in detail, as there will be an adequate opportunity of doing this when we come to the Finance Bill.

This is a convenient opportunity for me to refer to increases which my right hon. Friend the Postmaster-General is proposing in the charges for certain Post Office services, namely, trunk telephone calls and inland telegrams, which he will explain during the Debate. The Government have reviewed the matter of man-power as it affects the Post Office and consider it is desirable that a further contribution should be made by that Department. These increases in charges, therefore, are proposed, not in the interests of the Revenue, on which the effect is small, but to economise man-power by discouraging unnecessary use of the services in question. Full details will be found in the Financial Statement. In speaking of the Postmaster-General, may I refer for one moment to him in his old and honoured position as the late Financial Secretary to the Treasury? He will be greatly missed by the Treasury and not least by the Chancellor of the Exchequer. My right hon. and gallant Friend was Financial Secretary for three and a half years, and he took part in six Budgets, and I think I can say, with the assent of the whole Committee, he was an able, conscientious, accessible and resourceful Financial Secretary.

I now turn to a review of our finances during 1942–43 and of the prospects for the year that has just begun. A year ago I estimated that our total Budget expenditure during 1942–43 would be £5,286,000,000, including £4,500,000,000 for Votes of Credit. Overseas dis-investment and the Canadian Government's contribution were expected together to amount to £786,000,000, leaving £4,500,000,000 as the total requiring domestic finance. Revenue, excluding the Canadian Government's contribution, was expected to produce £2,400,000,000, so that the amount left to be borrowed from domestic sources was £2,100,000,000, and I explained how this sum could be raised on sound lines. In the event we have had to borrow at home rather more than I anticipated.

The total Vote of Credit expenditure was £4,840,000,000, or £340,000,000 more than my estimate, and, including an increase on the Civil Votes due primarily to supplementary pensions, our total expenditure, at £5,637,000,000, was £351,000,000 more than the original Budget estimate. The Vote of Credit figure includes appreciable sums for war damage payments which were excluded from my original estimate, but the main reasons for the increase, in addition to some steady expansion in production at home, are the growing tempo of the war operations abroad and the development of the system of Reciprocal Aid to our Allies, to which I have already referred. These being the main reasons, the Committee will, I believe, regard the increase in our war expenditure as satisfactory rather than otherwise.

On the Revenue side, there was an excess of £47,000,000 on the Inland Revenue estimate. Surtax, Estate Duties and Stamp Duties yielded substantially the amounts estimated in the Budget. Income Tax yielded £94,000,000 more than was estimated, owing largely to the growth of profits and of wages earned on war production, but Excess Profits Tax and National Defence Contribution yielded £47,000,000 less than the estimate. This short fall in Excess Profits Tax does not mean necessarily any loss to the Exchequer, and it is no doubt largely due to the introduction of Tax Reserve Certificates. In previous years considerable sums have been deposited on account of assessments which would only become final after 31st March. During 1942 such sums were largely invested instead in Tax Reserve Certificates, which will not be presented until the due date for the payment of the tax, which may be during 1943 or possibly later. There is therefore a temporary adverse effect on the Budget receipts from excess profits tax revenue, but this should be made good during 1943–44. The Exchequer, of course, has had the use, through the certificates, of the accruing provision for tax, and, to a much greater extent than under the old system of advance deposits. The certificates, it will be remembered, carry no interest for the period between the due date of the tax and the actual payment.

Customs and Excise produced the handsome surplus of £80,000,000 over the Budget estimate of £805,000,000. The surplus is due mainly to tobacco £27,000,000, beer £14,000,000, and Purchase Tax £30,000,000. The consumption of tobacco and beer is still on a very high level, despite the greatly increased duties. Thus the weight of tobacco on which duty was paid in 1938–39 was 192,000,000 lbs., and that figure rose to 229,000,000 lbs. in 1942–43, an increase of no less than 19 per cent., despite the increase in duty. A small part of the 1942 revenue was no doubt due to some restocking by retailers, but, even so, the figures are a striking commentary on the persistence with which the smoking public clings to this form of optional expenditure despite a considerable increase in taxation. The same is true of beer. As the Committee is aware, supplies of brewing materials have been controlled, but as a result of substantial reductions in the gravities of the beers brewed the quantity available to consumers has increased from 25,000,000 bulk barrels in 1938–39 to nearly 30,000,000 in 1942–43, showing in this case also an increase of about 19 per cent. That these high rates of consumption have continued possible is no doubt due both to the increase in personal incomes, particularly in the lower ranges, and to the measures we have taken to keep down the prices of necessaries.

The excess on the Purchase Tax appears to be due mainly to a much slower rate of diminution than was expected in supplies of taxable goods available to the public, coupled, in some cases, with a higher level of prices. The only other head of the Revenue on which I need comment is Miscellaneous Revenue, which includes receipts and contributions and premiums under the War Damage Act not included in the Budget estimate. Since expenditure under the Act during the year exceeded receipts, the whole of such receipts is included under this head.

The total revenue, excluding the Canadian Government's contribution, amounted to £2,595,000,000, an excess of £193,000,000 over the estimate, as against a total expenditure of £5,637,000,000. Towards this huge expenditure overseas disinvestment and the Canadian Government's contribution together provided some £850,000,000. We therefore required domestic finance for a sum of nearly £4,800,000,000. Domestic revenue provided £2,595,000,000, leaving £2,185,000,000 to be met by domestic borrowing, an increase of nearly £200,000,000 over the amount of our domestic borrowing in 1941, which in my last Budget I took as the criterion for our borrowings during 1942.

In examining how far the general soundness of the sources of our borrowing was maintained during 1942–43, I must remind the Committee that, as I explained last year, we have not yet got the figures for all these sources up to as recent a date as the end of March. I must again, therefore, first take as the basis for my examination the calendar year 1942, and then estimate how far the results for the financial year 1942–43 are likely to have differed from those of the calendar year. The Committee will remember that the White Paper starts with the figure of the total central Government expenditure in the calendar year; then, by deducting the amount provided by overseas disinvestment, arrives at the figure requiring domestic finance. From this figure, by deducting first the central Government revenue, then the sums raised by borrowing from various specified sources, it arrives, finally, at a figure which we describe as the residue, and it is to this figure, or rather to the trend of the changes in this figure between one year and another, that we have looked as the criterion of the soundness of our borrowing operations from year to year.

The residue is made up, broadly speaking, of the balances of the depreciation funds and sinking funds in the hands of companies and institutions in so far as they have not been spent on replacements and renewals and after providing for other capital expenditure financed out of non-Government funds. Table A in the White Paper shows that for the calendar year 1942 the estimated residue was about of the same order as in 1941, namely, £175,000,000 to £200,000,000. To pass from the calendar year to the financial year 1942–43, we have to allow for the fact that, while both expenditure and revenue were higher in the financial year than in the calendar year, we had, in the result, to borrow rather more in the financial year than in the calendar year. Allowing, however, as we clearly may, for some increase in savings, the residue for the financial year 1942–43 will still have been of the same order as that in the calendar year 1941. The general object of maintaining our finances in the same sound conditions as those of 1941, was, therefore, realised, in spite of a great and progressive increase in expenditure.

With these figures for 1942 fresh in our minds, I turn to the prospects for 1943. On the expenditure side, I must this year provide £375,000,000 for the fixed Debt charge, the increase of £64,000,000 over the cost of interest and management during 1942 being due, of course, to our continued war borrowings. As in previous years, I shall ask for power to borrow any additional sum necessary to cover the contractual sinking funds. Other Consolidated Fund services are put at the same figure, £17,000,000, as in 1942. The total of Civil Votes is £464,000,000. It shows an increase of £20,000,000 on last year's Budget estimate and an increase of £8,000,000 on the actual expenditure in 1942. The increase over last year's Budget estimate is due, mainly, to an increase of £13,000,000 for supplementary pensions and to smaller increases for education, old age pensions and labour and man-power services, offset by a saving of £2,000,000 on assistance allowances.

As regards Vote of Credit expenditure in 1943, I have already referred to the generous assistance which the Canadian Government are giving us during the year. That assistance enables me, of course, to make an appreciable reduction in the provision which I should otherwise have to make for Vote of Credit expenditure, and on that basis I put the total at £4,900,000,000. As in previous years, that figure makes only nominal provision for expenditure on war damage, and receipts under the War Damage Act will also again be excluded from my revenue figures.

The total expenditure to be provided in the Budget for 1943 is thus £5,756,000,000. Towards that total, it is estimated that overseas disinvestment will provide £600,000,000 or slightly less than in 1942 without the Canadian Government's contribution. That means that the figure of expenditure requiring domestic finance is £5,156,000,000. I am proposing to ask the Committee for new taxation which will raise the total of domestic revenue to £2,900,000,000. This will leave about £2,250,000,000 to be covered by domestic borrowing, some £60,000,000 more than in 1942–43. Towards such borrowing, £425,000,000, or about the same as in 1942, will be available from extra-budgetary funds, local authority surpluses, and the war risks and war damage payments in the hands of the public. On the trend of the figures for the last two years, we cannot count on an appreciable increase in undistributed profits, which I put at £350,000,000. In view of the prospect of some further expansion of the national income, I am justified, as last year, in expecting personal savings to show an increase, and I am assuming that, including provision for accrued taxation, they will reach about £1,300,000,000 as compared with £1,170,000,000 in the calendar year 1942. On that basis, I estimate that the domestic borrowing of £2,250,000,000 would thus leave a residue, to be financed in the way I have just explained, of £175,000,000, or still of the same order as the basic figure for 1941, and the probable residue for the last financial year. If we succeed in establishing that position, we are, I think it will be agreed, continuing to keep the finances of the State on a firm and even keel.

I have proposed that we should raise about £2,900,000,000 by domestic revenue, and the Committee will now wish to hear what the revenue would be on the existing basis of taxation.

As regards Inland Revenue Duties, I put the yield of Income Tax at £1,175,000,000, an increase of £168,000,000 over the out-turn in 1942–43, this being due to the effect on various classes of incomes, including wages, of the very high level which has been reached by war production. The estimate allows for the concessions which I have announced in regard to allowances for dependent relatives and housekeepers. The Excess Profits Tax I estimate to yield £500,000,000. Here, again, the substantial increase of £122,000,000 on last year is due to the effect of the high level of war production and the fall in advance deposits during 1942 to which I have already referred. Estate Duties are estimated to yield £100,000,000, which is £7,000,000 more than the amount received last year, an increase due to the steady improvement in security prices. I expect Surtax to yield £80,000,000, Stamps £17,000,000, and Miscellaneous Duties £1,000,000, making a total for Inland Revenue of £1,873,000,000.

As regards Customs and Excise, the supply of many dutiable articles is subject to restriction and control, so that the revenue is largely determined by this factor, and, in general, the estimates reflect this position. I have put the Purchase Tax estimate at £90,000,000—the amount actually received last year having been £110,000,000—in anticipation of the increasing effect of the Board of Trade limitations on manufacture and supply, coupled with the fact that the changes which I introduced in the tax last year will operate for a full year instead of only a part, as in 1942–43. In the aggregate, the Customs and Excise estimate on the existing basis is put at £873,000,000, or £12,000,000 less than the revenue I received last year.

As regards the remaining heads of revenue the only item calling for comment is Post Office revenue, the net receipts from which will practically disappear as the result of an accounting charge which is explained in the Financial Statement. Miscellaneous Revenue, including the Post Office, is estimated to produce £59,000,000, so that the total revenue on the existing basis of taxation is estimated at £2,805,000,000 or about £100,000,000 below the target of £2,900,000,000 which I mentioned just now.

It follows, therefore, that I have to propose additional taxation of that order in the current year. There is, in fact, a two-fold justification for this, first, the rising cost of the war and the consequent increase in the excess of expenditure over revenue, part of which we must certainly pay for as we go and, secondly, the necessity for curtailing purchasing power still further by additional taxation.

In considering how the additional taxation should be imposed, the facts of the situation lead me to the same broad conclusions as they did when I opened my Budget a year ago. Apart from the financial considerations I have already mentioned, the primary object of the new taxation must be further to reduce purchasing power, and its type and method must be designed accordingly. For that purpose some significant figures will be found in the special White Paper. Table F shows that 83 per cent. of the total of all individual incomes remaining in 1941–42, after payment of Income Tax and Surtax, was found in the range of incomes up to £500. Further, Table II shows that whereas the total of personal incomes increased by £668,000,000 during 1942, no less than £439,000,000 of that increase occurred in the wages group. It is clear that if the object of the additional taxation is to be achieved, it must be as widely spread as possible, and it must deal with the excess purchasing power in the lower as well as in the higher ranges of income. We must also remember that while many

millions of incomes have increased during the war and continue to increase, there are large numbers which remain fixed and not a few which, as a result of the war, have diminished. Income Tax is framed to take account of capacity to pay and is generally acknowledged as a fair tax, but in these times of drastic and unequal changes of income, a blending of direct and indirect taxation is the appropriate way of tempering the severity with which the necessarily heavy tax burden falls on the most difficult cases. As I have already pointed out, the extra burdens imposed during the war, excluding Excess Profits Tax and National Defence Contribution, have so far been higher on the direct than on the indirect side, and on the existing basis of taxation the disparity would grow greater during the year.

Such considerations have led me quite clearly to the conclusion that on this occasion I ought not to increase our direct taxation, and that any additional taxation should take the form of levying a further toll on expenditure which can, if necessary, be avoided or curtailed. I think the Committee will agree, therefore, that I have no option but to increase some of the indirect taxes. I think they will, in fact, have been partly prepared for that conclusion by the figures of consumption which I gave just now for liquor and tobacco. The facts that despite the heavy war-time increase in duties consumption has risen to such a high level and that the demand continues in some cases to exceed the supply suggest that expenditure on tobacco and beer is a proper subject for increased taxation. Spirits and wines fall naturally into the same category; and in view of the continued heavy attendance at cinemas and theatres, I do not think any elaborate justification is needed for an increase in the Entertainments Duty. These are stern times, and the longer this exacting war goes on the stronger are the reasons why, if further taxation is to be imposed, it should be borne, not by those who, whatever the size of their incomes, are already making a heavy, if not a maximum, contribution to taxation and savings, but by those who have at any rate some money to spare for expenditure of the kinds I have mentioned. I will now give the Committee the details of the increases which I propose.

On beer, I propose to raise the duty by an amount which will represent one penny per pint on the retail price of draught beer of the present average gravity. On the high gravity beers the increase will exceed this figure, and prices of these must be expected to rise by more than a penny per pint. At the same time there will be a further increase, not to be passed on to the consumer, related to changes in the cost of brewing materials during the coming year, and this will require a further consequential adjustment next year. Particulars of the new rates will be found in the Financial Statement. The total yield of the increases, which will come into effect to-morrow, is estimated at £33,000,000 in a full year and £28,500,000 this year.

On spirits, which continue to be in such short supply that prices have failed to effect an equilibrium with the demand, I propose an addition of £1 per proof gallon, equivalent to 2s. 4d. per ordinary bottle of whisky or other spirits, counting six bottles to the gallon at a strength of 30 degrees under proof. This increase in duty also dates from to-morrow and is estimated to produce not quite £9,000,000 in a full year and over £8,000,000 this, year.

Together with the increases in the Beer and Spirit duties, I propose, also, to raise the duty on imported wines and on British wine. Both these groups are in short supply, faced with an unsatisfied demand. The main increase will be 3s. per gallon on light wines, including British wines, and 6s. per gallon on heavy wines. Full details will be shown in the White Paper. The increases will date as from to-morrow and are estimated to yield rather less than £1,000,000 in a full year and £800,000 this year.

As regards tobacco, I propose to increase the duties by a further 6s. per lb. on the unmanufactured leaf, with a corresponding increase in the duties on imported cigars, cigarettes, etc. In connection with the Tobacco Duties, I made it clear in my Budget speech last year that the preference on Empire tobacco would be reviewed in the light of the undertaking given in the 1938 Trade Agreement with the United States of America, whereby His Majesty's Government agreed to consider the possibility of reducing the margin of preference on Empire tobacco when the 10 years guarantee under the Ottawa Agreements expired in 1942. A Sub-section was included in the Finance Act, 1942, extending the period of guarantee under this Bill to April, 1943, at the latest, in the expectation that by then a definite decision would be reached in the matter. It is now proposed to reduce the present preference margin of 2s. 0½d. per lb. on tobacco leaf by 6d., and proportionately on other tobacco, and the reduction will be effected by an increase in the Empire rates of duty. All these changes will take place from to-morrow. They will, I understand, amount to an extra 4½d or 5d. per ounce of pipe tobacco, according to the quality, and an extra 1½d. on a packet of 10 cigarettes now sold retail at 9d., and an extra 2d. on those now sold for 1s.

The Committee will remember that when the Tobacco Duties were increased last year special arrangements were made whereby members of the Armed Forces in this country and their associated Women's Services were allowed to purchase cigarettes and tobacco at pre-Budget prices at N.A.A.F.I. and certain other canteens. I propose to extend this concession to the present increases in duties. That is to say, tobacco and cigarettes sold under the 1942 canteen arrangements will continue to be available, under the same conditions as last year, at the prices which have operated since the 1941 Budget.

The gross gain to the revenue from these changes in Tobacco Duties is estimated to be £58,000,000 in a full year, and £57,000,000 this year. The net gain to the Exchequer will be less than this, because of the concession to the Services, but for obvious reasons the cost of that concession cannot be disclosed.

I now come to entertainments. I am increasing the Entertainments Duty both on the full scale applicable to cinemas, etc., and on the new reduced scale applicable to theatres and other living entertainments. The increases will apply throughout the range in prices in both cases with the important exception that no increase will be made in the duty on any seats, either in theatres or in cinemas, for which the present price to the public is 1s. or less. This represents a change from the arrangements that applied last year to the cinemas, when the exemption from the increase of duty was limited in their case to seats of 7d. or less. In view of this and of the different conditions obtaining generally in the living theatre compared with the cinema—a matter in which hon. Members in all parts of the House have taken a keen interest—I have felt justified in proposing a more modest series of increases in the scale applicable to the theatres than in the full scale. Particulars of the increases, which will come into effect on 16th May, will be found in the Financial Statement. The estimated yield is about £9,000,000 in a full year, and about £8,000,000 this year.

The Committee will recall that with general approval the Purchase Tax on luxuries and non-essential goods was increased last year from 33⅓ per cent. to 66⅔ per cent. Even those who objected to the Purchase Tax in principle did not oppose further taxation on articles which cannot be regarded as essential under the conditions in which we are living to-day—such as ornaments, jewellery, silk dresses, fur coats and other things which are enumerated in the Seventh Schedule to last year's Finance Act. That taxation has not been without effect, but, even so, I think further action is necessary and desirable. I propose, therefore, to increase the tax on these articles from 66⅔ per cent. to 100 per cent. ad valorem. As last year, the increased taxation will apply to all such goods delivered after to-day, in order that forestalling may be avoided. Registered traders will again be given the right to adjust their contracts to meet the increased liability. The increase of the tax yield on this account will be of the order of £6,000,000 in a full year, but, having regard to the further concessions I have made on utility goods, the total yield of the tax is unaffected.

The total revenue I expect to receive from this additional taxation amounts to £102,000,000 in the current year and £110,000,000 in a full year. The total revenue for the current year will, therefore, be £2,907,000,000. Of the £5,156,000,000 for which we have to find domestic finance during the year, we shall be providing 56 per cent. from current revenue. That percentage compares with 48 per cent. during the calendar year 1941, and 52 per cent. during the calendar year 1942. Such a result continues to represent, I know, a very great degree of sacrifice by all members of the community, but it is worth making, for it enables us to keep our financial and economic life in that sound and healthy condition which has already, as I believe, been such a powerful aid to the war effort and will help us so much after the war. I therefore commend these proposals to the Committee. I do not doubt that they will be willingly accepted by our people, who have played so great a part in the financial field. They once again represent our determination to see that nothing we can do is left undone to achieve early victory and that we go forward unceasingly and unflinchingly until the issue is decided by the triumph of the right and a free and decent world is assured for all mankind.

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three, the duty of excise charged in respect of beer under Section one of the Finance (No. 2) Act, 1939, shall be charged at the following increased rates:

and, in the case of beer in respect of which it is shown to the satisfaction of the Commissioners of Customs and Excise that duty at the foregoing increased rates has been paid, the excise drawback allowed under that section shall be allowed at the following increased rates:

Provided that, as respects beer the worts whereof were, before fermentation, of a specific gravity of less than 1,027 degrees, the amount of drawback allowable shall not exceed by-more than twopence for every 36 gallons the amount of duty which is shown as aforesaid to have been paid.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three, the duty of Customs charged in respect of beer under Section one of the Finance (No. 2) Act, 1939, shall be charged at the following increased rates:—

and, in the case of beer in respect of which it is shown to the satisfaction of the Commissioners of Customs and Excise that duty at the foregoing increased rates has been paid, the Customs drawback allowed under that Section shall be allowed at the following increased rates:—

Provided that, as respects beer the worts whereof were, before fermentation, of a specific gravity of less than 1,027 degrees, the amount of drawback allowable shall not exceed the amount of duty which is shown as aforesaid to have been paid, less threepence for every 36 gallons.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three, the rate of the duty of excise charged on spirits by Section three of the Finance Act, 1920, in addition to the duties specified in Part III of the First Schedule to that Act, shall be increased to seven pounds seventeen shillings and sixpence per gallon computed at proof.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three, the duties of customs charged on spirits of the descriptions set out in the first column of the following Table by Section three of the Finance Act, 1920, in addition to the duties specified in Part II of the First Schedule to that Act, shall—

(a) in the case of spirits being Empire products, be charged at the increased rates shown in the second column of that Table; and

(b) in the case of spirits not being Empire products, be charged at the increased rates shown in the third column of that Table.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three the duties of customs charged on wines under paragraph (a) and paragraph (c) of Sub-section (1) of Section three of the Finance (No. 2) Act, 1939, shall respectively be charged at the increased rates set out in Part I and Part II of the following Table, and the duty charged under paragraph (b) of that Sub-section on wine not exceeding twenty-seven degrees of proof spirit and being an Empire product shall be increased accordingly."

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April nineteen hundred and forty-three, the rate of the duty of excise on sweets shall be increased from one pound three shillings and ninepence to one pound ten shillings per gallon in the case of sparkling sweets, and from eleven shillings and sixpence to fourteen shillings and sixpence per gallon in the case of other sweets.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three, in lieu of the full and preferential duties of customs theretofore chargeable on tobacco imported into the United Kingdom, there shall be charged on tobacco so imported of the descriptions set out in the first column of the following Table—

(a) in the case of tobacco not being an Empire product, duties of customs at the rates respectively specified in the second column of that Table; and

(b) in the case of tobacco being an Empire product, duties of customs at the rates respectively specified in the third column of that Table.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as from the thirteenth day of April, nineteen hundred and forty-three, in lieu of the duties of excise theretofore chargeable on tobacco grown in the United Kingdom, there shall be charged on tobacco so grown of the descriptions set out in the first column of the following Table duties of excise at the rates respectively specified in the second column of that Table.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That, as respects tobacco on which there have been paid duties of customs or excise at the increased rates for which provision is made by any Resolution of the Committee of Ways and Means together with this Resolution, drawback shall be allowed at the rates set out in the following Table instead of at the rates set out in Part III of the Fourth Schedule to the Finance Act, 1942.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That as respects payments for admission to entertainments held on or after the sixteenth day of May, nineteen hundred and forty-three, other than payments made before the thirteenth day of April in that year, Entertainments Duty shall be charged—

(a) in the case of entertainments chargeable at reduced rates by virtue of Subsection (3) of Section one of the Finance Act, 1935, at the rates set out in Part I of the following Table;

(b) in the case of other entertainments at the rates set out in Part II of that Table.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That the higher rate of purchase tax shall, in the case of tax becoming due on or after the thirteenth day of April, nineteen hundred and forty-three, be one hundred per cent. of the wholesale value of the goods."

Resolved,

"That,—

(a) Income Tax for the year 1943–44 shall be charged at the standard rate of ten shillings in the pound, and, in the case of an individual whose total income exceeds one thousand five hundred pounds, at such higher rates in respect of the excess over one thousand five hundred pounds as Parliament may hereafter determine;

(b) all such enactments as had effect with respect to the Income Tax charged for the year 1942–43, other than such enactments as by their terms relate only to tax for that year, shall have effect with respect to the Income Tax charged for the year 1943–44.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That Income Tax for the year 1942–43 shall be charged at rates exceeding the standard rate in the case of individuals whose total incomes exceed two thousand pounds, and those rates shall be rates in the pound which respectively exceed the standard rate for that year by the amounts specified in the second column of the Table in Sub-section (1) of Section seven of the Finance (No. 2) Act, 1940.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolved,

"That any Act of the present Session relating to finance may contain such declaratory or other provisions as Parliament may determine as to the effect of the provisions of the Income Tax Acts relating to settlements or dispositions on settlements and dispositions where there is more than one settlor or party to the disposition."

Resolved,

"That the extent and incidence of Excess Profits Tax (for past and future chargeable accounting periods) shall be varied so as to give effect to amendments as to the computation of profits and provisions relating to cases where stock in trade of a company is disposed of otherwise than for at least its full market value."

Resolved,

"That the enactments relating to Estate Duty shall, in the case of persons dying after the twelfth day of April, nineteen hundred and forty-three, be amended as respects the definition of the property which is to be treated as derived from the deceased for the purposes of Sections thirty and thirty-one of the Finance Act, 1939."—[Sir Kingsley Wood.]

Motion made, and Question proposed,

"That it is expedient to amend the law relating to the national debt and the public revenue, and to make further provision in connection with finance."—[Sir Kingsley Wood.]

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again" [ Mr. Boulton], put, and agreed to.

Resolutions to be reported upon the next Sitting Day. Committee also report Progress; to sit again upon the next Sitting day.

The remaining Orders were read, and postponed.

It being after the hour appointed for the Adjournment of the House, Mr. DEPUTY-SPEAKER adjourned the House, without Question put, pursuant to the Standing Order.