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Mechanically-Propelled Vehicles Duties

Volume 415: debated on Wednesday 31 October 1945

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Second Resolution Read A Second Time

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

We shall have an opportunity of discussing this matter on which, as I know, opinion is not unanimous, and in which great interest is taken, when we reach the Finance Bill, and it occurs to me that it would be inconvenient, perhaps, to have a double discussion upon it. My own attitude towards the matter, as I sought to explain when making my Budget speech, is that granted the adoption of the cubic capacity tax, which is, I think, preferred by all to the previous cylinder horse-power tax, we have put down a Resolution in terms of narrow steps, following the advice we have received—which was not unanimous but it was the advice of the majority—from the motor car industry. I went on to say in my Budget statement that the mind of the Government was not closed on the matter, that we apprehended that there were powerful arguments both for the narrow steps and for the wide steps, and that so far as I was concerned I was prepared to listen with attention to the run of the Debate on this subject and, in the light of the balance of arguments adduced, to make a submission to the Committee at the end of the discussion on whether to retain the proposal in the form in which we have made it or to modify it in the direction of wider steps. I shall not be able to go further than that today, nor will my hon. Friend, and if there is debate on the subject today we shall have to ask the House to adhere to the form in which the Resolution is put down now, namely, in favour of the narrow steps and it will be open in Committee for an Amendment to be made in favour of wider steps if it should seem to the Government that that is desirable after the subject has been fully debated on the Finance Bill. That being so, and since we have a number of ether Resolutions, I wondered whether it would not be better to leave the discussion of this matter until we reach the Committee stage of the Finance Bill, because otherwise we should be discussing the same thing twice over.

I think it would be very useful to have a preliminary discussion now. We certainly should not divide against the Resolution because it was drawn in this particular form, but we should like an assurance that it is drawn in such a manner that its amendment would be possible on the Finance Bill. I am a little uncertain whether that is so, and whether we should be able to put down an Amendment.

An Amendment would be in Order, I am advised, which would knock out a number of steps, that is to say produce wider steps by knocking out some of the steps in the existing scale. I repeat that my mind is open, or at any rate partly open, on the subject. I am not committing myself to putting down such an Amendment, but as a matter of Order that would be the way to proceed.

In view of the fact that the right hon. Gentleman's mind is open I am sure he would not object to some of my hon. Friends trying to fill it for a short time.

I am afraid that I cannot agree to the Chancellor's suggestion to defer any consideration of this matter, partly because I do not agree with the whole business, and also because I want to ask him a specific question. I notice that in his Budget speech he said:

"I have received a good deal of conflicting advice."—[OFFICIAL REPORT, 23rd October, 1945; Vol. 414, c. 1888.]
I have no doubt a Chancellor of the Exchequer always gets a lot of conflicting advice, but what I want to ask him is from what quarters he has received it, because I make no secret of the fact that personally I deplore the decision in this matter from beginning to end. I am convinced that if we adhere to the horsepower tax in any shape or form, even although disguised as a cubic capacity tax, we shall be condemning the British motor car industry to a permanent status of inferiority in comparison with the American, and shall prevent British motor cars from playing that part in our export trade to which the Chancellor, I know, looks forward.

I do not know whether many hon. Members had the same doleful experience that I have had of seeing British motor cars trying to compete with American motor cars in various parts of the world, even in the comparatively sheltered markets of the British Empire. Up to now the whole position has been perfectly ludicrous. At this time last year, when I was in Trinidad, I made inquiries about the postwar possibilities for British motor cars. One of the dealers to whom I spoke said, "Come down to my garage and let me show you something." He showed me a 12 horsepower British car and a 30 horsepower American car, both at the same price, and remarked, "Do you ever imagine that the British car is going to compete in those conditions?"

What we are continuing to do is to subordinate sound engineering to a purely arbitrary factor like taxation, and to place the British motor car industry under a handicap from which it has hitherto never recovered. This has led to a multiplicity of models. One never sees American motor car manufacturers turning out eight or ten or a dozen models, as our manufacturers do. It means that we are throwing away in advance most of the advantages of mass production. We are designing a car which is not based upon sound engineering principles but designed merely to dodge the Chancellor of the Exchequer. The other handicap from which our industry suffers is that we have to produce a special model for export. I hope the right hon. Gentleman realises that if we produce a special model for export only, and cannot rely upon the great home market, we can never compete with the United States. He is going to find that out when it comes to the question of Purchase Tax—and the effect of which will be that he will not get the volume of production which will enable us to compete economically in the markets of the world. Our industry has always suffered from those two handicaps, and under the existing system of taxation apparently it is to go on suffering indefinitely.

3.45 p.m.

But the question I wish to ask, and to which I hope either the Chancellor or his hon. Friend will reply, is: From whom was the advice received? He has certainly not received it from the users of cars, as represented by the A.A., R.A.C., and the Scottish R.A.C., who are unanimously opposed to the continuation of the horse-power tax and are in favour of the Chancellor adopting a system of a fixed licensing fee, plus a tax on petrol. He has certainly not received that advice from the Motor Agents' Association, who have to sell the cars, and who again are entirely opposed to this idea. He has certainly not received it from at least two of the largest manufacturers, and he has certainly not received it, I imagine, from the trade unions.

I do not know whether the Chancellor of the Exchequer was in the House less than six months ago, when his right hon. Friend the Foreign Secretary made an illuminating speech on this subject. It was on 4th June, 1945, and this is what he said:
"I carefully estimated that, if this thing were revised and put on a proper basis, as I have submitted to the Chancellor over and over again, nearly another 500,000 people would be permanently employed in the motor car industry of this country."—[OFFICIAL REPORT, 4th June, 1945; Vol. 411, c. 579.]
We have never learned to associate the Foreign Secretary with wild or irresponsible statements, and I assume that, when he made that statement, he was not merely voicing his own ideas but putting forward the view of the great trade union movement of the country and especially of the Transport and General Workers' Union. Is the right hon. Gentleman going to entirely ignore a recommendation of this sort, which shows that another 500,000 people could be employed in the motor car industry if this tax were adopted in that form?

From whom, then, has the Chancellor taken advice? Is he referring to the Passenger Carrying Vehicles Association, or bodies of that sort, because I want to tell him—and he is probably not aware of it—that in the last few days or weeks, these bodies have at last got together. I would be one of the first to admit that the motor car industry has suffered in the past from the fact that these people did not get together and present a united front. I have reason to believe—I will not put it any higher than that—that if the Chancellor is still prepared to keep an open mind on the whole basis of taxation, he may, in the course of the next few weeks, receive representations from all branches of the industry which will show him that they are in favour of the abolition of the horse-power tax, in any shape or form, and the substitution of a licensing fee, plus such additional tax on petrol as is necessary to make up the same revenue.

I want to ask the Chancellor two questions. First, would he tell the House what advice he has listened to, and if he is to ignore the voice of the trade union movement in this matter; and, secondly, whether his mind is still open to representations on the alteration of the whole basis of taxation?

One part of the speech of the hon. and gallant Member for Hornsey (Capt. Gammans) cannot be allowed to go unchallenged. The hon. and gallant Member said, I believe, that we were not producing, in our motor cars, a sound engineering job. I feel that that ought not to go out of the House unchallenged, because I am satisfied, and I know a little about the industry, that we do produce, from the point of view of design, a really sound engineering job and a really well-constructed job.

Possibly, I did not make it clear. I certainty did not want to give the impression that the British motor car industry was incapable of producing a sound engineering job. I said that they were in the unfortunate position of having to subordinate sound engineering principles to taxation.

When the hon. and gallant Member spoke of subordinating sound engineering principles, the implication is that we have not produced a sound engineering job. I say that the British car is a sound engineering job, in spite of the limitations of the horsepower tax, and I am satisfied that we do produce a good job. What is rather interesting to me is that the hon. and gallant Member was unable to convince his side of the House, when they had overwhelming power, of the urgent necessity of this change. Presumably, the manufacturers would have supported him—and that side of the House. Now, he expects this Government and the Chancellor to make that alteration at a time when it is obvious, from the taxation point of view, that it is most undesirable to do so. There is, at the present time, a restriction on the use of petrol. What sort of tax would there have to be on petrol to produce the amount of revenue which the Chancellor would lose? Surely, that is a satisfactory answer to the hon. and gallant Gentleman at this stage. It seems to me that the Chancellor has gone as far as we could reasonably expect him to do at this particular juncture, and, on another occasion, when an opportunity presents itself, when the level of taxation that may be raised from motor cars may be of such a volume as will justify the alteration being made, I hope we shall find that the Chancellor's mind will be just as open as the hon. and gallant Member expects it to be at this time.

I should have been quite willing to have followed the Chancellor's advice and left this question for further discussion when the Finance Bill comes before us, but the hon. and gallant Member for Hornsey (Captain Gammans) has raised one or two points which I think must be dealt with now, for fear of creating some misapprehensions. The hon. and gallant Member asks where the Chancellor got his information, and he stated that private car users are in favour of a tax on petrol. That is correct; they have been for the last 20 years, to my knowledge. The hon. and gallant Member also mentioned that manufacturing interests, or rather two manufacturers, were also in support of it. He did not tell the House that they are in a minority of two, and that the rest of the motor car manu facturers support the method which has been suggested by the Chancellor.

The motor manufacturers put their views to the late Chancellor and I have no doubt that they have put them to the present Chancellor, and suggested that the R.A.C. rating, which takes notice only of the bore and ignores the stroke, should be dropped in favour of a rating based on cubic capacity. But they did agree that, if the Chancellor was willing to accept any other method of taxation, they would not press their objections, but that that was their view as to the best method. The Chancellor has accepted this method of taxation, and the motor manufacturers, therefore, naturally feel satisfied, with the exception of two dissentients, that it is the best method under the circumstances. As I stated during the Debate on the Budget, this will make no real difference. So long as we are going to tax motor cars to the extent that we do, so long are we going to have small motor cars. There is no mystery about it. Even under the taxation before the war, which was lower than it is today, 90 per cent. of the cars produced were 12 horse power and under, and something like 80 per cent. between eight and ten horse power. I am speaking without having the exact figures in front of me.

Would my hon. Friend agree that, if 90 per cent. of the cars produced were under 12 horse power, this type of British car is quite unsuitable for export, and, therefore, so long as the Chancellor is hoping to increase our export of motor cars, that system, whatever we may call it, is not suited to the policy he has outlined?

I was only trying to make the point that, under any system of taxation, where you are going to make motoring expensive, you are going to have the public asking for small cars. Other countries produce larger cars, but petrol is much cheaper, and registration fees are not as high. They do not regard transport as a means of raising revenue, but rather as a means of life. We have always regarded motor transport as being a rich man's hobby and, therefore, to be taxed. As I have said before, and shall continue to say, we shall never get our share of the world's motor car market until we tax the motor car as a transport vehicle and not, like whisky or beer, as a means of raising revenue. If we could free motors from high taxation, we should be making motor cars cheaper and should get bigger cars. For that reason, if the Chancellor accepts, as the motor car industry will accept, this basis, they will then say to him, "Neither a tax on cubic capacity nor any other change will produce larger motor cars for export. The only way to produce larger cars is by reducing the amount of taxation, and that the Government is not prepared to do at the present time."

We say, therefore, that, if you are going to have this method of taxation, let us have it in the smallest steps possible. The hon. and gallant Member for Hornsey talked about eight and ten different models, but the hon. and gallant Member is thinking about body styles. The British manufacturer, and the foreign manufacturer, do not manufacture a large number of different engines, but they have had a habit in the past of making their engines 11·9, 13·9 and 15·9 horse power—always getting the highest possible level they can under the taxation. Under this restricted method, you would get the same thing over and over again. If a manufacturer is to have four steps, you will get four in that way, but, if he is told that he can have 10 steps, he will not make 10 different cars, but will reckon up the weight of the chassis, how much it will cost in taxation, and, if necessary, add another 100 cubic centimetres, and so he will produce a better car. The short steps will give him more scope in which to design.

I would have reserved these remarks for a later stage but for the remarks put forward by my hon. and gallant Friend, and I do not want the House to be under any misapprehension as to where British motor car manufacturers stand and why they stand there. We shall not get bigger cars under our present system of taxation. I can assure hon. Members that they will find some countries where you can sell small as well as large cars; there are other countries besides this where economic motoring is essential, as it is in this country, and those are the countries where we shall have to sell our cars.

The principal argument seems to me to be that mentioned by the hon. Member who has just sat down. It is becoming clear that the taxation, in any form, of motor cars leads to reduction in output. I would like to obtain from the Chancellor some definite statement on why the Government want the same amount of money out of the taxation of motor cars as they have had in the past. I remember when the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) said he would consider a suggestion put to him, but mentioned the necessity of having the same amount of revenue out of cars. It is becoming clear that, if we keep motor car taxation high, people will not buy cars. They cannot afford them. If, according to the views of the hon. and gallant Member for Hornsey (Captain Gammans), we transfer the tax to petrol, there again the people who have large cars will have to pay high annual chargesin taxation in buying their petrol. Both aspects of the tax militate against the production of large cars and their export overseas. It is quite true, as the hon. and gallant Member for Hornsey said, that people abroad will not look at the small-powered English car as compared with the high-powered American car, and there is no hope of selling it. The distances are great, the roads are dusty and often bad, and a high-powered car is needed in order to overcome the difficulties and strain of long distances. Can we have from the Chancellor some definite statement about why it is necessary to keep on this taxation, and does he admit that, while he keeps it on, there is no prospect whatever of securing a very large output for British cars overseas?

4.0 p.m.

I do not pretend to be an authority on the engineering side, but I have listened with interest to the economic arguments put before the House this afternoon. I have always regarded the taxation of cars as not the cause of all the ills of the industry but as the effect. Taxation on cars in this country has been levied in a certain way because fundamentally the problem is to maintain our home market. That is, as I see it, one of the tremendous difficulties facing an industry like the motor car industry—the narrowness of the home market. The British home market relative to the home market in America is indeed a very small one. I remember very well being on a committee dealing with the subject of films, and masses of technicalities were brought up in the course of the discussions, but we were up against the same problem as we are up against here, the relative largeness of the American market compared with the British market. Therefore the Chancellor has a very difficult job to synchronise the industry to the needs of the home market and the export market. We are so placed in Britain that the demands of the home market generally do not synchronise with the demands of the export market, and to keep the home trade we have been compelled to have relatively low-powered cars. That, as I see it, is one of the great problems facing the Chancellor.

I would like to ask the hon. and gallant Member for Hornsey (Captain Gammans) and other hon. Members this question:They want a certain form of taxation in this country—they want to take away the horse-power tax and put a tax on petrol, thereby giving a chance to the industry to capture the export market. Do my hon. Friends include also the lowering of the tariff on cars imported into this country in order to cheapen the running of cars? Will they open the floodgates? Will they expose us to the competition of American industry? Let us have cheap motoring, let us have big cars—I have no doubt that big cars are better than smaller ones and are more conducive to safety. We shall have safer roads if we have bigger cars, but are my hon. Friends prepared to go so far as not only to deal with the motor taxation itself but to remove the tariffs? They cannot argue for cheap cars and cheap motoring unless they are prepared to remove the tariffs. Fundamentally, we are up against the big unit of production that exists in America, we are up against the gigantic power of American production and no tinkering, as I see it, with the horse-power tax, and so on, will meet the gigantic problem that lies before this country.

I intervene for one moment to impress upon the Chancellor of the Exchequer the point that he will impose this tax in small steps. I understand that the motor industry are quite unanimous in urging that small steps are desirable in the interests of the industry in imposing this tax. I understand also that they feel it would give greater elasticity for development of design, greater opportunity for using high octane petrols, as and when they become available, and I also understand that it will not mean multiplicity of design as has been suggested. Small steps will really help the motor trade, not only for the home market but for export, and I hope that the Chancellor will give most earnest consideration to the representations he has received, or will receive, from the motor trade when he decides upon the way in which he will impose this tax.

I merely wish to stress thatthis is a very important issue which is before the Chancellor today. After all, he has a very great opportunity, and if we make a mistake in this House now or during the course of the Finance Bill, we may do very great injury to a most important industry which we want to see developed still further. It comes back, I think, to something really fundamental and to a point which the right hon. Gentleman made in his Budget statement, of which I will give this sentence:

"…it is claimed by some that the total weight of taxation on motor vehicles, however assessed, should be reduced. I cannot agree to this at present."—[OFFICIAL REPORT, 23rd October, 1945; Vol. 414, c. 1888.]
So the Chancellor lays it down that whatever happens there can be no reduction in the amount of money coming into his coffers from motor cars. Is he absolutely right to take that line today? I have not had an opportunity of asking my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) but even if he said that six or 12 months ago, that was in a time of war when there was no question of making any motor cars at all, whether for home or for export, because we were not exporting in the latter war years. So it is really irrelevant, in my submission, to cast back to what any previous Chancellor may have said. This is the opening of a new era, possibly, in motor car manufacture in this country. The right hon. Gentleman the Chancellor of the Exchequer has told us several times that it is the opening of a new era in other directions—let him not overlook the opportunities that lie in front of him in this connection. I could see more strength in the argument that we must under no circumstances lose any revenue out of motor taxation if the old system still existed of linking up motor taxation with the expenditure on the roads, which is really where it all started—the introduction of the Road Fund, and so on, which has long since been swept away, was, I think, part of the reason why the taxation of motor cars in those days was so high, but of course there has been a complete change in the world since then and the motor car is, as the hon. Member for Aberavon (Mr. Cove) pointed out, no longer a luxury—

:The hon. Gentleman may say that, but I will quote what the present Foreign Secretary said recently when this was being discussed. He said:

"…why should we perpetuate the misery of any artisan or member of the lower-paid middle class having to ride in a car with his knees in his mouth."—[OFFICIAL REPORT, 4th June, 1945; Vol. 411, c. 579.]
I agree that is a most undesirable attitude to adopt, and evidently the Foreign Secretary envisaged the possibility of lots of people having motor cars and the more the better. I should certainly subscribe to that myself. It is a form of enjoyment which we hope may become as extensive here in due course as it is in the United States of America. I do not know how our roads will stand up to it, but that is another question.

How does that apply to those who are redundant and are only to get 24s. a week?

I understand that will not last any longer in the new world which is just beginning. I merely put it to the right hon. Gentleman that this original link, partly a luxury link and partly a Road Fund link, has now entirely disappeared. He has this great opportunity of so moulding the taxation on motor cars as to bring about not only a great increase in this country but—again in the words of my hon. and gallant Friend the Member for Hornsey quoting from the Foreign Secretary—of seeing a great development of the industry here. In our search for vital exports it may very well be that by right design—and so far as that is due to taxation, by right taxation—the motor car industry has a very great future. I am not competent to go into the details of the steps. I have no personal knowledge of the general economics of the industry as have my hon. Friends, but I would urge upon my right hon. Friend that if the hon. and gallant Member for Hornsey was right in the opinion he expressed—that the right hon. Gentleman might get completely united representations on this subject—that his mind should not be closed. I know it would not be, from what he said, but I would like to be quite certain that by passing the Resolution in this form we would not prohibit him from adopting any new suggestions.

May I put it the other way? Very often it is only after the production of the Resolutions that real discussions start with all concerned, and if he found subsequently that agreement could be reached upon some other basis, I hope he would not hesitate to come down to the House again, and, if necessary, introduce a different Resolution covering any agreement which was completely unanimous on the part of all concerned. It may be rather Utopian to think that is possible, but my hon. and gallant Friend the Member for Hornseyhas, I think, some reason for putting that point of view, and therefore I hope that no difficulties of a procedural nature would make it awkward in acceptance. However, I still would urge my right hon. Friend that, if he does not think this is the right moment, he would bear in mind that he may not be quite right in saying it is impossible to sacrifice any revenue out of motor taxation.

As I see the Resolution, it apparently envisages the possibility that when the new scheme of taxation comes into effect, whatever it may be, there will be two different kinds of licence charges running—existing motor cars will be charged upon the present basis and new ones upon another basis—

That may be a little awkward administratively, but possibly it is the only way out. I hope the right hon. Gentleman will look into the problem still further, because it is of vital importance that we should, if we can, go ahead in the export market in motor cars.

4.15 p.m.

As the right hon. and gallant Gentleman opposite has just said this is a matter of very great interest to almost everyone. We have, however, to remember the situation in which we are placed today. This Resolution is the one which the ex-Chancellor, the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) introduced with his April Budget, and this one, an interim Budget, carries forward and implements the Resolution as he laid it down. As to agreement among the manufacturers, even supposing it were possible for this Resolution to be withdrawn now, I doubt whether we could get agreement among them. As the hon. Member for Edgbaston (Sir P. Bennett), who speaks with great authority on this subject, has already said, the manufacturers were divided. The majority of them were in favour of this Resolution, that is procedure by small steps and there were others too, I believe, who wanted something else. What all manufacturers and users of cars would be agreed about would be that we should abolish taxation on cars altogether. Obviously, that is not possible. The ex-Chancellor said in his April Budget that he wanted revenue, and my right hon. Friend, as he said last week in introducing his Budget, cannot make any changes now. But that does not mean that at some future time something cannot be done. I think it is quite likely, as expenditure goes down, that something can be done.

Does the hon. Gentleman recognise that this is a great moment for doing something, because at this stage designs for post-war cars are coming out?

That, of course, is fully realised by my right hon. Friend. Now is always the great moment, but I would not quarrel with what the Noble Lord has said. The fact is, however, that the Chancellor cannot do without this revenue and the only other way of raising it at the moment would be on petrol. My right hon. Friend, I think, carried the House with him the other day when he said that it would be inadvisable, to put it no higher than that, to let this charge fall on petrol users. It would cause a good deal of difficulty, assist the gentlemen who make their living in the black market, and it would add to the cost of living. It is, therefore, undesirable both on those and other grounds I have not mentioned. Some semi-humorous play has been made in the Debate of a previous speech of my right hon. Friend the Foreign Secretary. None of us likes to sit anywhere with our knees in our mouths, and if we could get more room in cars we should all be delighted. But the speech my right hon. Friend made was not a speech against this proposition as such. It was in favour of the wider steps as against the narrow steps, and on that point my right hon. Friend the Chancellor has still an open mind. It may well be that before the Resolution becomes embedded in the forthcoming Finance Act his mind which, at the moment, is open will be still more widely open.

Do I understand that even if all the interests representing motorists, whether manufacturing or users, came along, having reached agreement, the right hon. Gentleman would not be prepared to change the Resolution?

I said nothing of the sort. I was not talking about representative associations coming to see the Chancellor. I was referring to an entirely different thing. What I was saying was that manufacturers and other interests have seen my right hon. Friend and that, as he indicated frankly in his Budget statement, the views put to him were in conflict. As he had to come down on one side or the other he has come down, for the moment, on this side, but he has an open mind and is still open to convincement the other way.

Royal Assent

Message to attend the Lords Commissioners.

The House went; and, having returned

1. Consolidated Fund (No. 1) Act, 1945.

2. Indian Divorce Act, 1945.

3. Newcastle-upon-Tyne Corporation (Trolley Vehicles) Order Confirmation Act, 1945.

Ways And Means

REPORT [ 23rd October]

Mechanically-Propelled Vehicles Duty

Question again proposed "That this House doth agree with the Committee in the said Resolution."

It is not necessary for me to add much more to what I was saying when that interlude took place. All I can repeat is that my right hon. Friend has got his mind open on this one point as to the size of the steps which, I understand, is the main bone of contention between the manufacturers or, at any rate, between a few of them and the rest interested in this matter. I hope the House will let us have the Resolution now, and postpone any further discussion until the appropriate time.

May I, for one moment, be a voice crying in the wilderness? I do not want to take up much time, but I think something more ought to be said on this matter because not everyone agrees with the attitude and philosophy which has been expressed during this Debate. I am inclined to the philosophy of Mr. C. E. M. Joad and when the Chancellor was speaking, I interrupted to tell him, when he said that motorcars were not now a luxury but a necessity, that I would tell that to my constituents. I represent a constituency of 45,000 people, with a population now of about 100,000. I do not suppose one per cent. of them own a motorcar, or have any prospects whatever of doing so and I hope there will be some sense of proportion in this matter because the same kind of silly nonsense, as I think it is, was expressed during Debates on civil aviation, when it was said that soon everybody would own an aeroplane.

God help us when everybody owns an aeroplane and everybody owns a motor car. What kind of civilisation shall we have? [Interruption.] I do not know whether hon. Members would really like a country where everyone owned a motor car or an aeroplane. I should not. I think there is something to be said for a little more simplicity in life, and a little soul, as well as machinery, in our philosophy. I think we are going machine mad. I protest against that attitude. Let us realisethat there is something more in life than rushing about everywhere, under the aegis of the internal combusion engine, and high octane petrol. Good heavens, have we not more important things to do? Europe is facing starvation and famine; and we can talk about motor cars being a great necessity for everybody, and no longer a luxury. I suggest that they are a luxury. I am not saying, absurdly, that we should have no motor cars, and abolish them. But I do enter this word of protest against the kind of mind there is behind these discussions, and express the hope that the Chancellor will stick to his guns.

4.30 p.m.

The Chancellor of the Exchequer has told us that his mind is still open on the questions of the steps. I think he has shut his mind to the much bigger question of the amount of revenue which he must get from the motor industry. As these discussions proceeded, I found myself wondering whether the Treasury had considered the effect on employment of insisting on getting a fixed sum from the motor industry, in one way or another way. After all, what we want is expansionist economy. I disagree with the last hon. Member, who suggested that we should treat transport like whisky—as something we should deliberately tax in order to reduce its consumption. I am of the opinion that cheap transport is the basis of a better standard of life for everybody.

Does the hon. Member think it right to treat whisky in that fashion?

:I can only say that I like whisky. But when I wake up in the morning, after a day during which I have not had whisky, I do not feel any the worse for the lack of it. I, therefore, conclude that it is not a necessity of life. A fixed amount of money from one level of production of motor cars is a greater burden than if we can spread it over a much expanded production. Is the Chancellor of the Exchequer satisfied that, in sticking to the principle that he must get so much revenue from transport, he has taken into consideration the effect upon the volume of employment? And, secondly, is he quite sure that the export trade has been given its due weight? Can he assure us that this horse-power tax will not, in fact, prejudice our export trade? Has he looked into that very thoroughly, and come to the conclusion that the small cars are worth while which we are going to go on producing as a result of the total weight of taxation on transport described by the hon. Member for Edgbaston (Sir P. Bennett)? Is he sure he is not paying too much by way of the export trade in order to get this fixed sum from taxation into his coffers? My experience abroad, in recent years, makes me think that there is a much bigger market for the small British car abroad than there used to be, when the population of many foreign countries consisted mainly of very rich and very poor. Obviously, the very rich wanted big cars. But during the war primary producers have had their income levels very much raised, and I think that there is a large stratum of foreign populations today who will want small cars. I am not pessimistic about selling the British small car in countries where it would not have sold very well before. Has the Chancellor of the Exchequer taken all these things into consideration, or is he just following the old Treasury dictate—so many millions from transport?

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Purchase Tax

Third Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

I wish to offer a few observations to the House and, in particular, to the Chancellor of the Exchequer, on this Resolution. We, on this side, welcome these exemptions from the operation of the Purchase Tax. Our only complaint about them would be that the Table is not sufficiently extensive, and that there is still a considerable number—I think I might say a large number—of articles which come into the field of necessities, and which are still subject to the operation of the Tax. The Purchase Tax, of course, had two objects when it was imposed. The first was to produce revenue, and in that respect it has been a very useful tax, and has produced, I think, £100,000,000 a year. The second object was to act as a deterrent to spending by the public. It is not among the best of our taxes, because it weighs, undoubtedly, more heavily on the poor, than it does upon the more well-to-do. It is, therefore, desirable in the near future to achieve a substantial reduction, and a wider field of exemption from Purchase Tax.

At the same time, while we should all be agreed, I think, upon that, it is very important that the method by which the Chancellor proceeds, either to reduce the rate of tax or to make exemptions from the field of the tax, should not itself inflict injustice and hardship upon any section of the community. As the House knows, the Purchase Tax is leviedon the first sale of any article, as a rule, at the manufacturing stage, and it therefore follows that the stock in the hands of wholesalers and retailers includes in itself value in money which has been paid by way of Purchase Tax, and there is a danger that wholesale and retail traders may find themselves suffering a substantial loss upon the stocks that they hold, if the rate of Purchase Tax is substantially reduced upon any range of articles, without due notice. Moreover, not only may injustice be inflicted upon retailers and wholesalers, but inconvenience may be inflicted upon the general public, because, as the date of the Budget approaches, wholesalers and retailers may refrain from taking supplies, because of the fear of incurring a heavy loss when the reductions in tax are announced. In that way, the normal and smooth channels of distribution may be disturbed. There may be times, shortly before a Budget, when retail stocks are unduly run down, and there may be heavy purchases made immediately after the announcement of a reduction in Purchase Tax.

It may be said that wholesalers and retailers had an opportunity, when Purchase Tax was first imposed, of making a fortuitous profit, which should be available to meet any losses which may now fall upon them through a reduction in the rate of tax. But that, of course, is not so. As the right hon. Gentleman knows, price control regulations did, in fact, prevent retailers and wholesalers advancing their prices upon stock which they held at the time when the Purchase Tax was imposed, and it would, therefore, be a clear injustice if they were to be involved in heavy losses when the tax is reduced. It is not, as a rule, the sphere of the Opposition to suggest ways and means to meet difficulties. As a rule they are content to pose the difficulty, and leave it to the Government to find, if they can, a remedy.

4.45 p.m.

It is perfectly clear, I think, that it would not be possible to introduce a scheme of rebates to retailers and wholesalers to deal with this matter. Administratively, it would be far too complicated, and would involve an enormous amount of accountancy. Nor would it meet the case if long prior notice were to be given of impending reductions in the rate of Purchase Tax. A possible course the Chancellor might consider taking is, instead of maintaining the Purchase Tax at a high level and then suddenly, and without notice, reducing it or abolishing it altogether, he might devise a scheme by which the rate of Purchase Tax declined gradually over a period of, say, six months or a year. In that way the hardship inflicted upon traders would be mitigated, and the smooth channels of distribution would be maintained. This is a difficult subject. This case of hardship does not arise to any substantial extent in respect of the goods named in this Resolution, but it is bound to arise increasingly as the Purchase Tax is reduced over a wider field.

I would therefore ask the right hon. Gentleman and his advisers in this matter—I think they are the Board of Customs and Excise—to give careful consideration to what I have said, in order that all sections of the community, not only the retailers and wholesalers themselves, may be protected against heavy losses on their stocks, but also that the great purchasing public may be assured of getting a steady flow of goods. I hope therefore that the Chancellor, although I cannot expect him to give me a detailed answer this evening, will take carefully into consideration the views which I have placed before the House.

I understand that the Amendment to include wallpaper in the Table is not being called. I am sorry, because British wallpaper is admirable, and its inclusion would give pleasure. In the circumstances I and my friends wish to present to the Chancellor the case why the wall paper industry should meet with special consideration from him. I am a director of a wallpaper company, and therefore have an interest in this matter, which I would like the House to appreciate. That also gives me an opportunity of knowing something about it. [An Hon Member: "Not always."] I think in this case it does. In one of the broadcasts which may or may not have contributed something towards winning the Election, made, I think, by the right hon. Gentleman the First Lord of the Admiralty, he spoke of combines, and flourished the case of the wallpaper combine before the public. It struck me that he of all people might have kept silent about combines. The company I represent is not part of a combine but one of those small active personal British industries which have done so much to make our country rich, and to extend our export and home trade. There are many small companies in this industry competing with each other and with the big group, and no prejudice should exist against the industry on account of what the right hon. Gentleman said.

There seem to me to be two or three principles which should guide this question of taxation. One is the amount of money that will be obtained by taxing a particular commodity. By a coincidence the Purchase Tax was put on wall paper just about the time when wallpaper ceased to be manufactured. Wallpaper, together with carpets and certain other commodities, was completely put out of business by the war because it was not essential to the winning of the war. Because the machinery of the industry is not capable of being adapted to the manufacture of any other article, the makers had to embark on entirely new and strange methods of manufacture. They all did their best to help carry out war contracts and to make things strange to them. They did very well in their contribution to the war effort.

How much are they handicapped by comparison with other industries, which even when they went into war production, were making goods which they were accustomed to make, and retained the skill, knowledge and men necessary for them to start up again in peace time. This industry went completely out and had to make a fresh start. They have been helped by the enlightenment of the previous Government, which gave them allocations of paper, patted them on the back, and said, "Get on with the job. We want cheap wallpaper for the people at home, and we want you to get back in your export markets, which were valuable and could be much more valuable in the future." A further point is that wallpaper goes into houses, and the right hon. Gentleman may be interested to know that before the war 95 per cent. of all the houses in this country used wall paper. It is, therefore, a very widespread commodity, and a very popular one. Not only does it go into new houses but it is particularly adaptable in making bright and gay and clean houses that have been damaged, because it covers all the cracks and presents a smooth surface, which no paint or distemper can do. Rich people use paint, which involves a great deal more labour in preparing the surface.

Here is a commodity, now becoming available by the action of the previous Government, now entering on this fresh lease of life and hoping to compete in the world's markets, handicapped for the first time by what is, to this industry, new taxation. Wallpaper has not been taxed because there has been no wallpaper. The Chancellor is in fact putting a new tax on this industry at the time of its rebirth. I suggest that that is grossly unfair on grounds of equity. The rival of wallpaper is, of course, distemper paint, upon which there is no tax, nor was it prevented during the war years from continuing its good and valuable work. If the question of equity between one industry and another is taken into account, there is, it seems to me, a very strong case for this particular commodity about which I am speaking. The whole industry has got together and has been to see the previous Government about supplies of paper. The manufacturers, the distributors and the two trade unions concerned are equally in it, and today I speak for all them in asking the Chancellor to take into account what I believe are very powerful arguments why this particular commodity should be freed from this tax, which is to the industry a new tax.

I have a short and simple point to put. I make it entirely from the point of view of the consumer. We are sometimes inclined to forget that there are several million people in this country who have no gas or electricity in their houses, and are entirely dependent on the paraffin lamp to lighten their darkness. At the present time there is Purchase Tax still on lamp glasses, the ordinary glass with a bulge in it, which is used with paraffin lamps. The hundreds of thousands of people, particularly in rural areas and in bombed out places, are finding that having to buy these lamp glasses is a considerable item in their family budget, having, as those of us who use these lamp glasses know, to replace them rather frequently.

I regret, for several reasons, the omission of lamp glasses from the Table appended to this Resolution. First, I have been in correspondence with the Financial Secretary to the Treasury on the subject, and have received what I thought was rather a favourable reply, to the effect that the matter was being considered. I was surprised to see this omission from this Table, all the more so because it is quite clear, reading between the lines, that the purpose is to assist, in an ancillary way, the housing programme. All the other items mentioned are those which people will need when they start to fit out new houses which are to be built, or houses which have rather fallen out of supply during the war years. The fact that in many cases new houses are to be fitted with gas or electricity is no answer to the simple point I am making, for the reason that in many rural areas houses of a permanent nature will be built, we hope, without waiting for electricity lines to be brought to the particular spot where the houses are to be built. We shall, therefore, still have new houses in which paraffin lamps will be used. For those reasons I hope that the Chancellor will see his way to include lamp glasses before any finality is reached in regard to this Resolution.

I wish to support the case put forward by the hon. and gallant Member for Lonsdale (Sir I. Fraser) in regard to wallpaper. This is a commodity which will enter into poor homes. The Board of Trade can control the price and type of wallpaper, so if the Purchase Tax is taken off it will be a constructive move towards helping working-class homes. There must be millions of working-class people who take a pride in their home to the extent of doing their own redecorating. If wallpaper is cheap it will help those people, and give them an opportunity of brightening their homes. The object in removing the Purchase Tax from the commodities mentioned in the Table is to help in cheapening housing essentials. There are some hundreds of thousands of working-class homes which are badly in need of improvement and brightening. It is only fair that opportunity should be given to those people, either by direct purchase themselves, where that is the practice, or with the assistance of the landlords, to carry out this work, or have it carried out by the landlord.

The hon. and gallant Member for Lonsdale has pointed out the significant fact that distemper paint does not carry Purchase Tax. On the other hand, wall paper does, and I suggest that there is a degree of inequality there that should be removed. It is also significant that the wallpaper industry has been practically closed down since October, 1941, which means the same as saying that the Chancellor has not been deriving any financial benefit from the continuance of that tax. Therefore, on financial grounds, the removal of this tax can very well be afforded and on grounds of equity that action ought to be taken. In the interests of raising the standard of brightness in the homes of the common people, I submit that this is a proposal which merits the favourable attention of the Chancellor, and I hope he will give it effective consideration.

5.0 p.m.

I rise to request the inclusion of office machinery in this Table. Office machinery is, undoubtedly, an important factor in efficiency. I was Director of Organisation and Methods at the Treasury, and I am glad to say that under the Chancellor the Treasury has office machinery experts who are real leaders in this particular field. I would suggest that if the Chancellor wishes to know the degree to which office machinery, and what might be called efficiency systems and intelligence applied to the office, can contribute to the welfare of the common man, he only has to ask his own Department. Customs and Excise also possess the finest battery of office machines in existence anywhere. The other day there was published a report about the extremely efficient way in which the Civil Service was going to solve problems set them by the Royal Commission on population. If the Chancellor looks into that he will see the way in which literally years of man hours can be saved by a judicious use of office machinery. It seems to me that the distinction between productive machinery which is tax free, and office machinery which is subject to a purchase tax of 33⅓ per cent., is most difficult to justify. It may be that nowadays so many firms pay E.P.T. that, in point of fact, it does not matter to them whether they pay more for machines or forms than the real market price, but, as the hon. Member for South Cardiff (Mr. Callaghan) pointed out in a very able speech the other day, the one thing which the Chancellor does not wish to do is to encourage what might be called a "trigger-happy" attitude about E.P.T., but rather the reverse. I think he will agree that, on the whole, firms have played the game extraordinarily well in maintaining their standards of price. Let us also not forget that there are a lot of coming-up firms not earning big profits which are thinking and acting in terms of true price rather than of the price after taking E.P.T. into consideration, deterred by this extra 33⅓ per cent. being clapped on to an expensive item. If the Chancellor is making the point that we are seeking to avoid inflation, I think there is an answer to that because at the Board of Trade there is the Directorate of Office Machinery which allots the very great under-availability of machines to those who can genuinely show the biggest saving from their use. The Chancellor, therefore, need have no fears that by extending the availability of price of machines he will be increasing the quantity used. All he would be doing would be to make available the machines to the small as well as to the big firms according to their real needs.

At present in the Finance Act there is a differentiation between industrial use and office use. In practice this has led to some curious anomalies. If a man picks up a sheet of emery paper it is free of Purchase Tax, but if he picks up a sheet of carbon paper he has to pay tax. Time clocks seem to come into all sorts of anomalies. If you use them in the factory they are free of tax but if you remove them into the office and use them you have topay tax. Steel tables with special fitments for the proper sorting of papers are free of tax in one form, but if you use them in the drawing office you have to pay tax. A production control device like the Colourdex system is regarded as a production tool, although in point of fact it never leaves the office. Similarly, an ordinary production system of the Cardex kind in the office is treated like a lathe or any other production machinery. Time cards, although they originate in the factory—in fact all forms, whether they originate in the factory or in the office—are subject to tax. It seems to me that there is a mass of anomalies as well as a taxation on efficiency.

For those four reasons I think there is a good case for exempting from taxation of this kind the tools of the trade of the office as much the tools of the trade of the factory. It may be that the Chancellor can assure us that he will take it up at a later stage, but I would earnestly ask him to give the House an assurance that he will, either now or later, include some fresh categorisation for exempt items. I do not think that the categorisation at present in use is satisfactory. I do not think it would be difficult to get a new one. I suggest that we could get a ruling by the Directorate of Office of Machines at the Board of Trade which would be quite satisfactory. I admit that some people might want to sit on an office chair in their own homes, but nobody wants an enormous punched card tabulating machine in their bedroom. I think this problem is capable of being solved in a realistic way, and I hope the Chancellor will do so.

I endorse the plea which has been made by my hon. Friend on behalf of office equipment. I hope the Chancellor will take it to heart, as indeed he takes to heart all suggestions which have been made in this House. I wish to call the Chancellor's attention particularly to the grave effect of Purchase Tax on the sale of motor cars in this country—the car which the Chancellor wants to give to everybody in the country in the new era. The Chancellor knows more than anybody how much the export trade, which it is his positive purpose to develop and extend, depends on the ability to purchase in this country. Therefore, the cost of production in this country should be reduced as much as possible. Before the war, motor manufacturers in this country produced decent respectable cars, in which anybody would like to travel, for a cost of between £350 and £500. With the increasing cost of labour and of materials, and with the controls which the Chancellor and his colleagues are placing on production in this country, such a car would cost £800. If you add to that Purchase Tax, what chance has the manufacturer to assist in the export trade? I know the Chancellor has the best of intentions, and no doubt he wishes to do the best he can in the days to come, but I would suggest that he should consider the extent to which he can modify the Purchase Tax which is now a burden on the producer of cars in the home market, and which consequently affects the export trade.

I ask the Chancellor of the Exchequer to give sympathetic consideration to the remission of the Purchase Tax on London taxicabs. I hope that when I have put the case he will feel that there are good reasons for removing this tax. This Purchase Tax was imposed, as the Chancellor knows, and if I may be permitted to remind the House, by the Finance Act (No. 2), 1940, and it is one-thirdof the manufacturers' price of the vehicle. Taxicabs are chargeable with the tax in exactly the same way as private motor cars, but exemption is given in this Act to omnibuses and other classes of public service vehicles, and to commercial goods vehicles as well.

I submit to the Chancellor that the London taxicab is a very special class of road vehicle, and that it is easily distinguishable from any other vehicle, as I am sure the Chancellor will agree, having regard to the times which he has ridden in it. We all know that if a London taxicab strays into the country it is well recognised. No doubt, the same applies when one strays into Palace Yard. It is not easy for any other car to be mistaken for a London taxicab. The reason is that London taxicabs must comply with the Metropolitan Police conditions of fitness. These conditions produce a vehicle very different in many respects from the ordinary private motor car. I make this point because when this remission of tax was requested earlier this year, the right hon. Gentleman the former Chancellor of the Exchequer, in refusing to give this remission of tax, said that cars plying for hire are very often indistinguishable from cars in private use. He went on to say:
"Accordingly I could not exempt such cars as a class, nor could I contemplate special exemption from Purchase Tax of any limited class of special design, such as London taxicabs, which it might perhaps be possible to distinguish, while leaving the others subject to tax."—[OFFICIAL REPORT, 12th April, 1945; Vol. 409, c. 1998.]
But London taxicabs are subject to very strict regulations and the London cab owner cannot, as many provincial taxicab owners can, buy a second-class private car or limousine, license it and use it as a taxicab. It would not satisfy the strict conditions of the Metropolitan Police. Only new and specially-designed vehicles can be added to the existing number of London taxicabs. The demand for these vehicles is small, and consequently manufacturers' prices are high. The reasons are twofold. First, as we all know, because numbers are small, production cannot be great, and it is great production which tends to reduce cost. The second reason is that police conditions require a vehicle which would cost more to build than an ordinary private car, even though the builders had an order for an equal number of vehicles. Those points are worthy of consideration.

5.15 p.m.

Before the war, the price of a London taxicab was about £400. I understand that it has now increased, without Purchase Tax, to something like £750. To put Purchase Tax upon a vehicle of that type brings it to about £1,000, which is a high figure for a small man to have to pay. Many ex-Servicemen may come back wanting to run their own taxicabs, and we ought to give every encouragement to the small man to do so, rather than to big organisations. For that reason the Chancellor of the Exchequer ought to consider favourably remitting this Tax. The amount of money obtained from the Tax is very small, but the disadvantages of obsolete taxicabs, the effect in raising the fares, etc., far outweigh the small amount of money which the Chancellor gets from continuing this tax. We want new designs. We want our London taxicabs to be the best in the world, but if the Purchase Tax is maintained upon them it will hinder that objective from being achieved and will be an obstacle to the small man owning his own cab. I suggest that it is not in the general public interest that this tax should be continued. I hope that the Chancellor will consider with sympathy what I have said and, when the proper time comes, remit this Tax, for the general public benefit.

I rise to support the plea which has been made from both sides of the House with respect to wallpaper. If one looks at the list of articles to which the Chancellor is ready to apply this most welcome concession, they all appear to support the rehousing problem, of which we hear so much and see so little. Wall paper would seem to fall within that category. The dialectical skill of the Chancellor is well known, and I shall be interested to see whether he is able to establish any differentiation in principle between wallpaper and the articles to which he is prepared to extend the concession. They are all actually required for the rehousing programme of which we hear so much and see so little.

An hon. Member has already mentioned distemper paint, which is free of Purchase Tax. Generally speaking, this paint is used in what one might describe as the luxury house, but wallpaper is more often used in the houses of the poor. It would be a trifle strange if in this first Socialist Budget hon. Members were not to support a proposal which was designed to soak the poor [Interruption]. I hope the hon. Member opposite will consequently support out appeal. It is in the light of that consideration that I would ask the Chancellor of the Exchequer to consider this matter. Wallpaper is a commodity which, if the housing programme develops, will require to be very freely used. In his academic days the Chancellor was very fond of referring to first principles. The first principle of the Purchase Tax is to limit and discourage consumption. It will be interesting to hear whether the right hon. Gentleman desires to discourage consumption of the articles required for rehousing. If it were so, it would cast an illuminating, if somewhat sombre, light upon the prospects of our people getting the houses which they so desperately need.

Lieut.-Commander Gurney Braith-waite: When the Chancellor last week announced this range of concessions to the Purchase Tax payer, I confess that I fell under his rhetorical spell, and I did not forbear to cheer, but there has since been time for reflection—sober reflection. After somewhat uneasy nights, considering the proposals made by the right hon. Gentleman, I have come to the conclusion that, not for the first time in my life or in the lives of other hon. Members, we have been witnesses of a performance such as used to delight and mystify us in our early days, by the late Mr. J. N. Maskelyne, who was an expert in sleight of hand and illusion. The Chancellor will find himself portrayed with unerring accuracy in "David Copperfield," in the illustrations by Phiz. I do not know whether the right hon. Gentleman remembers when the hero of that book, young David Copperfield, was on, his way to school, and stopped at a country inn where his dinner had been ordered for him. The waiter, after placing before him mutton chops and a glass of beer, whisked them away from under the boy's nose, on the ground that they were injurious to the young, but perfectly suitable for consumption by the waiter himself. The Purchase Tax Resolution comes within the same category.

Yesterday, the right hon. and gallant Member for West Bristol (Colonel Stanley) described the business which we have before us now as not so much a Budget as a prophecy. The Chancellor of the Exchequer, he said, had laid before us certain hopeful eventualities in April next. This Resolution covers a concession, however, which we are going to receive here and now. The right hon. Gentleman made a great deal of the fact that Purchase Tax was now to be removed from certain articles essentially connected with the housing problem. I have had the opportunity of going through the Schedule, and I am able to congratulate the Chancellor of the Exchequer on the generosity which we always associate with Socialism, since he has swept away the whole of the Purchase Tax upon the unobtainable. It is a gesture. I do not know whether it is part of the tonic which is supposed to be applied to our national spirit, but there it is. The housewives of Great Britain will be able to place their hands on their hearts after they have read the report of this Debate tomorrow, and say unanimously to the right hon. Gentleman, "Thank you for nothing." Much more might have been done in removing the Purchase Tax upon essentials. Various suggestions have been put forward. My hon. and gallant Friend the Member for Lonsdale (Sir I. Fraser) and others have stressed the importance of wallpaper. I expected some hon. Gentleman to follow with a plea for linoleum, which is a very similar commodity. My hon. Friend the Member for Bath (Mr. Pitman) pleaded for office machinery and my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) put in a plea for the removal of Purchase Tax on London taxicabs, another commodity almost unobtainable. At any rate, here is a fairly wide range of suggestions. I know what the right hon. Gentleman will say in reply. I can anticipate the reply with reasonable accuracy. It will be that, worthy as all these suggestions are, and though without exception they have struck a sympathetic chord in the heart of the right hon. Gentleman—whose intentions are strictly honourable—yet the financial situation prevents him from making any further concessions.

I think I shall be in Order if I suggest a method by which much more could have been done in the way of easing our burdens, if the Government had concentrated not so much upon the incomings as upon the outgoings. Reduction of expenditure should have been tackled with the strenuousness with which some of these concessions are being made. The right hon. Gentleman will be familiar with demobilisation, yet we are holding unnecessarily in the Services many young men and women. That is one of the things which might be tackled between now and next April. Let it be done. When the right hon. Gentleman comes before us next April he must not have this Maskelyne and Devant attitude towards our burdens. The vanishing lady performance must vanish. Nobody can very well oppose this Resolution, because it contains nothing, and it is difficult to divide against nothing. I hope that we shall leave the world of illusion next April and that the Chancellor will then give us the substance instead of the shadow.

This Debate ought to be subject to Entertainments Duty. Those who opposed the Purchase Tax on the necessaries of life had very little support from hon. Gentlemen opposite, who have spoken in this Debate appealing for various concessions. The last hon. and gallant Member said, "Thank you for nothing." It is obvious that if things have a Purchase Tax on them, it is not so easy for manufacturers to produce them. In spite of what has been said, these articles are necessary for housing, and the removal of the Purchase Tax will stimulate production of them and a flow of them in the country. It will also make things cheaper as well as more speedily available. I do not know that the average housewife is particularly concerned about wallpaper and motor cars, but I suggest that my right hon. Friend might consider removing the Purchase Tax from austerity crockery, which, merely because it is not called "utility," still carries the Purchase Tax. It is no use providing hot water in houses, unless there are vessels in which to carry it. One of the anomalies is that because this crockery is not called "utility" it is subject to tax. There is no justification for continuing this tax because most of the people who have to pay this additional charge on the necessaries of life are those who were subject to the blitz or young people who are coming back from the Forces and who want to get married and furnish their homes. I understand that such an exemption could be covered by an Order, and I hope that the Chancellor will make one.

I cannot conclude without paying my tribute to the Chancellor who, in spite of all that has been said on the opposite benches, did a valuable service to house wives when he was President of the Board of Trade by elaborating that system of controls which put on the market various ranges of utility goods which were liberated from the Purchase Tax. I hope that he will now listen to the pleas that have been made to him to extend the principle of removing the burdens on necessaries of life. In doing so he will have enthusiastic support not only from behind him, but, if one may judge from the tenor of the Debate, from those who confront him on the Opposition benches.

5.30 p.m.

:I want to express the distress with which I listened to the Chancellor say not only that he did not intend to remove the Purchase Tax from cars, but that he had no intention of doing so for many years to come. I do not speak from any kind of interest in the manufacturing industry and I have no solicitude for it. I am sure that it does not require any, and that it can quite well take care of itself. I am, however, deeply impressed with the social value of the cheap car, the realisation of which the Chancellor now proposes to banish for several years. The cheap car before the war was an important social institution. The means of transport, particularly transport from town to country, was brought within the reach of many persons with comparatively small incomes who derived from it benefits of many kinds. I have in mind various classes of my constituents, particularly university lecturers and professors. I imagine that even the Chancellor will have a soft place in his hard heart for that meritorious and ill-remunerated class. There is another meritorious and ill-remunerated class in nurses, district nurses and persons of other types to whom the ownership of a small car makes an immense difference.

Then there is the family value of the car. I live in a beautiful country at a distance from a railway station. With the innate selfishness common to human beings, I would prefer to see that solitude remain a solitude, but when I observe the family parties that used to come in their cheap cars on Saturdays and Sundays, I realise what a contribution the cheap car has made to the happiness and health of large sections of the population. I believe that there will be a great sense of deprivation, which is not industrial or economic, in the prospect of the absence of the cheap car, not for one or two years, but, as the Chancellor in his minatory manner has intimated, for a great many years to come. I do not wish to hold up to my right hon. Friend the example of Adolf Hitler, but it will be remembered that some years before the war we had the spectacle of Herr Hitler introducing the idea of "the people's car" to the German people. The thing was a fraud from start to finish, a characteristic fraud of that perverse personality, but it was an intuition that struck home, as so many did. The response of the German people to the idea of a cheap car which would carry them from their homes to work and to the country was such that it met with general acceptance.

I view with great regret the prospect that for some years to come the motor car will be the rich man's luxury and an appanage of the well-to-do. It would be a national advantage if the small car could be brought within the reach of salary earners and the higher wage earners. In the United States the wage earner expects to have a car to take his family about at the weekends, and that is an advantage of which we are deprived here. Although I am certain that no appeal of mine will move the right hon. Gentleman, I would ask him at least to consider whether he can reduce the term of the Purchase Tax on cars. Could he modify a little the heavy sentence he passed in his Budget speech which banished the most desirable attainment of the return of cheap cars for a number of years to come. If he would tell us that he will keep his mind open until next April, and let the arguments which have been voiced tonight sink into his mind, the distress which weighs so heavily on me will be lightened.

I wish to associate myself with the observations made by my hon. and gallant Friend the Member for Lonsdale (Sir I. Fraser) who opened the Debate on this Resolution. My hon. and gallant Friend and I had an Amendment on the Paper with regard to wallpaper. It has not been selected, but we still wish to address some observations to the right hon. Gentleman on the matter. While I in no way wish to derogate from the cases that have been put forward by my right hon. Friends for the freeing of articles and things in which they are particularly interested, I submit that the case of wallpaper is peculiar, particular and unique and worthy of the right hon. Gentleman's special consideration. This Debate has ranged over the question of the Purchase Tax on cars, crockery, glass for paraffin lamps, linoleum, office machinery and other matters. I want to refer to some of the observations which the right hon. Gentleman made in his Budget speech when he dealt with the Purchase Tax. He said:

"The Committee will have observed that all the principal taxation changes which I have mentioned so far will not come into force until next year. But there is one relief which I propose should take effect forthwith, and this lies in the field of the Purchase Tax. I propose to abolish the Purchase Tax completely over a certain range of articles of special importance in connection with the housing programme."—[OFFICIAL REPORT, 23rd October, 1945; Vol. 414, c. 1901.]
It is my claim and the claim of my hon. Friends who support me in this matter that wallpaper is of particular importance in the housing programme. I have no financial interest in wallpaper concerns, although if the right hon. Gentleman is familiar with Darwen—nearly all his friends in the General Election were because we increased our majority—or if he were as familiar as his Friends in the Government are, he will know that it is the home of the wallpaper industry. In the bad years of the cotton industry the wallpaper industry kept it going. We in Darwen, therefore, are gravely concerned about this matter. The mills which manufacture wallpaper were closed in 1941 and no wallpaper has been manufactured during the war. War contracts are now beginning to terminate, and the industry has to restart its economic life. It will play a great part in the rehousing programme and it will be grossly unfair and unjust if wallpaper is to be subject to Purchase Tax of 33⅓ per cent. while paint and distemper, the two main alternatives for finishing rooms, are subject to no tax.

The Amendment put down by my hon. and gallant Friend and me was on the Order Paper yesterday or the day before, so that it will have come to the notice of the right hon. Gentleman that we intended to raise the question. No doubt he will have ascertained what revenue would be lost if this concession were granted, and I shall be grateful if he will inform us what the sum is. I hazard a guess that not a very large sum would be lost to the Revenue if it were made. My main claim is that wallpaper which is used in 90 per cent. of the homes of the country, particularly the poorer class homes, is an essential for the new rehousing programme. As the right hon. Gentleman said that the concessions in the Purchase Tax were to help the housing programme, it would be in the interests of that programme that this concession should be made. It would be interesting to know whether the Chancellor has consulted the Minister of Health as to his view. It may well be that the Minister of Health would welcome any assistance he could obtain even in a small matter like this.

The second basis on which we put our plea is that this industry has been severely penalised during the war because it has had its production completely stopped. Our plea is not put on any profit basis, however; it is put on the basis that there will be discrimination against it if this concession is not granted. I am grateful to my hon. and gallant Friend the Member for Kingston-upon-Thames (Major Boyd-Carpenter), who supported our Amendment for drawing attention to the fact that this alone, of all the matters which have been mentioned in this Debate, is vital to the rehousing programme. If the right hon. Gentleman must refuse the concession, I hope he will be able to give good reasons why he deems it in the national interest to do so. Wallpaper is in the homes of the poor. There may be different kinds of wall paper, but we claim this concession in the interest of the rehousing of the ordinary people.

I wish to support my hon. Friend's plea, but only partially, because I cannot see his point that all wallpapers should be exempted from Purchase Tax. Some wall papers are expensive and are undoubtedly luxuries, and my hon. Friend has not made a case for their exemption. Most wallpapers sold, however, are for working-class homes, and I suggest to the Chancellor that he should consider, in conjunction with the President of the Board of Trade, whether there cannot be some small utility range of wallpapers at fixed prices which should be exempt from Purchase Tax. If that could be done, most of the points raised will be met.

5.45 p.m.

I merely want to make one simple and largely sanitary plea, and that is for baths. One of my hon. Friends accused the Chancellor of a desire to soak the poor, but here is his chance to soak us all. Almost every household and building appliance is to be exempt from Purchase Tax except the humble bath. Every method of heating water is exempt, very properly, from Purchase Tax, but once the water gets into the bath it has to pay through the nose as much as ever. I need not keep the House long on this point; although the Chancellor may often say that he sympathises with a particular plea, it is clear that he nevertheless has to find a certain amount of money and must therefore harden his heart. But obviously there is no sense whatever from the financial point of view in charging Purchase Tax on a commodity which is to form part of something which is going to be subsidised. I appeal to him to round off his case and make it entirely logical by allowing us to have our baths again.

We have had a long and interesting Debate on this Resolution and a number of very persuasive speeches have been made on behalf of a large num ber of different commodities. All those who have pleaded for the Purchase Tax to be taken off that which they would prefer it to be taken off would nevertheless agree, I am sure, that at this stage of our financial history it would be quite impossible to accede to all the requests that have been put before me, and I hope therefore that I may have the support of many hon. Members who have spoken in resisting the claims made by others of their number. Broadly, the position is this: as I sought to explain in my Budget statement, a great inflationary danger is at the moment hanging over us. It is essential that people should not have more money until there are more goods to buy. Every reduction of Purchase Tax is in some degree, large or slight according to its importance, an inflationary operation. Every reduction in the price of articles now taxed releases part of the money that would otherwise have been spent on those articles to run after other goods. That is why I have reached the conclusion that at this moment I must confine the Purchase Tax reliefs to a very narrow range of articles and a very small sum of money, and that was why I concentrated the proposals for relief upon this small but clearly denned group of articles—domestic cooking, space heating, and water heating appliances, together also with refrigerators.

I consulted some of my colleagues on the matter and made it clear that I could only make a limited concession now, and it is the view of the Government as well as my own view that this concession is best concentrated, in the interests of the housing programme and of the community, on this particular group of articles. It is of course perfectly true that many other things go into a house besides a refrigerator and an electric stove, and some of those things are subject to the Tax, I admit. There is a very large range of articles entering into house construction, or rather into the proper equipment of a house when built, and the total of those articles goes far beyond the present possibilities of remission which I can offer to the House.

At the moment I cannot agree to any extension of this list, and indeed I am not quite sure whether I have not perhaps gone a little too far in making this early beginning with Purchase Tax remission. This, however, is an interim Budget, there will be another before long, and between now and next April I will most certainly consider with very great attention at any rate those articles in regard to which it is easiest to make a strong case for the total remission or abatement of the existing rate of tax. I shall be disappointed if, when April comes, I cannot move a little further. I do not want to commit myself in detail, it would be wrong to do so now but I hope it will be possible to move a little further along the road of reducing Purchase Tax over a selected range of articles, and in deciding what that range, if any, shall be, I will naturally consider those which have been proposed for remission by various speakers today. In regard to wallpaper, the hon. and gallant Member for Darwen (Captain Prescott) asked how much we got from it now, and one speaker, advocating the remission of the tax on wallpaper, said he doubted whether we got anything.

:I think one hon. Member did say that I was getting nothing from it, and it was even said that no wallpaper was being made. But this year we are getting close on a quarter of a million pounds from the Purchase Tax on wallpaper when, admittedly, the rate of production is very low. I hope and believe the wallpaper industry will increase its production very quickly in the course of its reconversion from war to peace work and with the release of workers from munitions and from the Forces.

:I am answering the question as to what I am getting now, and the answer is that in the financial year 1944–45 we got £225,000. This year we shall certainly get more than that, and next year we shall get more still, assuming the tax remains, because we shall then be swinging back in the direction of full production. This only illustrates how one small article can help to feed the Revenue, and I wish to say quite bluntly that I can give no undertaking to sweep the whole Purchase Tax away. That would be a piece of financial stupidity of which I am sure the House would not wish me to be guilty. If we are to balance our accounts, if we are to meet necessary expenditure, whether in the field of social advancement or in the field of defence, we must keep this tax in such a way as to bring in a very substantial revenue, and that revenue must be obtained from those articles which can not be described as being the necessities of life. That, however, does not exclude the possibility of looking forward a little to a substantial extension of the field of complete remission on the one hand and of reduction on the other. I will consider all the cases that have been put forward with every intention to do as much as I can next April, having regard to the needs of the Revenue and the danger of inflation, which will not have wholly disappeared next April but will still remain.

I was asked about the administration of the tax. Here ofcourse I am dealing with an inheritance; the whole Purchase Tax is inherited from the late Coalition Government, and that is true of the administration as well as of the rate of the tax. My right hon. Friend who used to be Financial Secretary to the Treasury, who put these points, will be aware that now, as when he was at the Treasury, there is provision whereby traders are able to charge tax-inclusive prices on tax-paid stocks. We do not propose to change that, but we will look into it and see whether the present arrangements, which are designed to prevent injustice to traders consequent upon a reduction of the tax, can be improved.

The point I was trying to make was this. When goods become more plentiful and it is announced that the Purchase Tax is either reduced or abolished over a certain range, the public will expect to buy the articles straight away at the reduced prices. The system which my right hon. Friend has just mentioned will not in fact be able to be operated under those conditions.

I am not sure that it will not, but I undertake to look into it. I should have thought that this was a desirable provision in the interests of the traders, and to remove this safeguard would be widely held to be unjust. After all, it will not take very long for stocks held by traders on which tax has been paid to be cleared, it cannot be more than a matter of a month or two, and I should have thought that the present arrangement would have met future requirements. I will however see whether it can be improved in any way. I do not think I should be justified in going into detail on the various cases that have been put, except that I should like to speak about motor cars. I have tried my best to please the motor industry. I sought their views, I longed for unanimity and I got divided opinions. I have to exercise my own judgment upon recommendations which are not unanimous. But on one thing they were unanimous: they said they wanted to know where they were about the Purchase Tax, they would much rather have a definite statement. I have tried to oblige them, and I have told them that so far as cars for home use are concerned it is not possible for me to take off the Purchase Tax yet. Cars which are exported of course pay no Purchase Tax. I was asked to give a definite statement and leave the motor industry in no doubt—

Has the right hon. Gentleman paid quite as much attention to the desires and wishes of the community as a whole as he has to those of the motor industry?

I thought it best to say, quite frankly, that I do not rate the Purchase Tax on motor cars to be used in this country as at all high in the list for consideration of relief. There are a great many other things I would sooner take the tax off than motor cars. In speaking frankly about it I hope I have met the wishes of the motor industry and others who have made representations to me. It was better that I should say that I do not see my way now, and do not expect to do so for some while to come, to remove the Purchase Tax from motor cars, and I repeat that so far as the Purchase Tax in general is concerned I regard it as being, for the future, a most necessary and I hope a most prolific source of public revenue.

What it has brought in up to now is very little compared with what it may well bring in when we resume our production on a large scale, even if I am able, as I hope I will be, substantially to extend over the period that lies ahead the range of complete exemption and of reduction on the existing rates. I hope I shall be able both to reduce the tax and to get substantially more revenue, but for the moment I hope the Committee will not press me to make any further changes as far as the remaining few months of the present financial year are concerned, since I give an undertaking that I will carefully and hopefully go into the matter between now and next April.

6.0 p.m.

While hon. Members on this side are grateful to the right hon. Gentleman for the manner of his reply, we are frankly disappointed at the matter. I quite agree with the right hon. Gentleman that this tax as a whole is one that it is quite essential to maintain, and I sympathise with him in the rebuke which he administered to his hon. Friend the Member for Mossley (Mr. Woods) for a suggestion which the right hon. Gentleman rightly described as great financial imprudence.

May I point out that I did not advocate the complete abolition of the tax at this stage? All that I suggested was that it should be removed from those things which can truly be described as necessary and not from luxuries such as motor cars.

That was my understanding of what the hon. Member said, and I am sure that when he has read in Hansard the report of the right hon. Gentleman's remarks, he will point out how mistaken that rebuke was.

There is, I think, a difference between agreeing that the tax as a whole must remain and agreeing that under no circumstances at this moment can there be any further alteration. We on this side feel that the right hon. Gentleman having agreed to certain alterations, neither the amount of purchasing power which has to be mopped up nor the balancing of this year's Budget can be estimated so precisely that it is possible to say that the addition of one or other commodities, for which good reasons can be advanced, could upset that balance. I can quite see that when it is a question of motor cars, a big point is raised which would be likely to upset the balance. I appreciate the reason why the right hon. Gentleman made a very definite statement that motor cars would not be removed for some time. I realise that with the uncertainty a number of people who might otherwise have bought cars were holding off, and the situation was made extremely difficult. Therefore, I should not press for motor cars to be removed now. All that worried me was the argument advanced by the hon. Member for West Islington (Mr. Montague), an argument to which I hope the right hon. Gentleman will not listen. The hon. Member said that he did not like motor cars, that he thought the increase in the number of motor cars was a bad thing, and for that reason he did not want the tax to be taken off.I am sure the Chancellor will not be influenced by that opinion, even when it comes from an hon. Member who has for so long represented in the House the views of the party opposite upon civil aviation.

But I think these considerations are rather different when we come to the commodities that have been mentioned, wallpaper and possibly utility frocks, or what an hon. Member called austerity frocks. I am today wearing a pair of what I have hitherto called utility socks, and certainly I shall refer to them in future as austerity socks. We on this side feel that a very good case has been made out for wallpaper, which is an essential part of our rebuilding programme, to be included in the list, and we feel there may be other commodities in that category. We do not propose today to take this matter to a Division owing to the fact that the Amendment has not been called. If we were to press the matter to a Division, we would have to divide against the omissions, of which we are all in favour; but I give the right hon. Gentleman notice now that when we come to the Finance Bill we shall move Amendments on which we hope the right hon. Gentleman will prove more yielding than he has been today and which we certainly shall press to their logical conclusion.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Fourth Resolution agreed to.

Tax-Free Payments

Fifth Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

The House will be aware that under the Finance Act, 1941, it was enacted that when a fund had to pay a beneficiary an annual or other payment free of Income Tax or free of Income Tax and Surtax, it should be proportionately reduced according to a specific ratio in order to avoid the burden upon the trust fund being made too heavy because of the increase in Income Tax and Surtax above prewar rates. Suppose that a fund of, say, £400 had to pay a tax-free payment or a payment tree of Income Tax and Surtax, the result might well come about, owing to the great increase in the rate of Income Tax and Surtax which took place when the war began, that the fund could virtually not stand the amount necessary to pay the tax-free annuity or other payment; that is to say, to pay the same amount free of tax as you had to pay before the tax rates were increased, you would have to pay such a large sum that the fund itself might not be adequate to pay that increased annuity or other periodic payment. In order to prevent that coming about, Section 25 of the Finance Act, 1941, was put into effect.

Briefly, that Section provided that the trustee of the fund should be entitled to reduce by a certain proportion, which in point of fact was worked out at 20–29ths, the amount of the annuity or other periodic payment which he had to make out of that fund. The result was that, in effect, the annuitant or beneficiary had himself to bear the increased incidence of tax upon his annuity. In terms that Section applies only when tax is at 10s. in the £. The Resolution proposes to enable the Finance Bill to include a Clause which will provide a sort of sliding scale so that the reduction in the annuity can be altered according as the tax is reduced. By that I mean that when the tax is at 10s. in the £ the trustee can reduce the amount that he has to pay by way of annuity or periodic payment to 20–29ths of the amount which he had to pay before. When the tax goes down to 9s. in the £, it is obviously fair that he should pay rather more in respect of that annuity than he had to pay when the tax was at the higher rate of 10s. in the £.

It is proposed to introduce into the Finance Bill a sliding scale which will operate in this way. With the tax at 10s. in the £, the trustee has to pay only 20–29ths of the amount that he had to pay before the tax was increased above prewar rates. With the tax at 9s. in the £, each pound of the trust fund will be available to a larger extent to pay the same annuity. Therefore, the annuity should be proportionately increased. When tax is at 9s. in the £, the sliding scale will operate with the result that instead of the trustee paying 20–29ths of the prewar annuity, he will pay 22–29ths. Roughly speaking, the fraction is worked out in this way. You increase the amount of the annuity which the trustee has to pay according as he has more of each pound of the trust fund available to pay that annuity. With the tax at 10s. in the £ he has only 10s. available; with the tax at 9s. in the £ he has 11s. in each pound available to pay the annuity. The Finance Bill will include a sliding scale which will be necessary to provide that as the tax decreases trustees shall have to pay a gradually increasing amount of the prewar annuity or other periodic payment which has to come out of the fund.

Let me put it in this way. Suppose that a trustee has x pounds in hand and as a trustee his obligation is to pay a periodic payment which I will call y pounds a year. When the tax was at 5s. 6d. in the £, the trustee had available on each pound of the trust fund £1 less 5s. 6d., in other words, each pound could provide 14s. 6d. of the annuity. When the tax went up eventually to 10s., the result was that instead of having 14s. 6d. of each pound to pay the annuity, he had only 10s. of each pound available to pay it. The object of Section 25 of the 1941 Act was to enable the trustee, instead of paying the whole of the annuity that he had to pay before, to pay only 20–29ths of it; in other words to pay a proportion which was equivalent to the proportion of each pound that he had of the trust fund after deduction of tax. The Clause which it is proposed to introduce in the Finance Bill this year simply introduces a sliding scale.

6.45 p.m.

At the moment the 1941 Act provides what is to happen when the tax is 10s. in the pound. It obviously would be undesirable to pass an Act each year according as income increased, so it is proposed to introduce in the Autumn Finance Bill a sliding scale which will bring it about automatically. As tax decreases, so the fraction of the annuity which the trustee has to pay will increase. The result being that when the tax in 9s., the fraction will be 22.29ths, and when it is 8s., it will be 24.29ths, until at some distant day, I hope, if not too distant, the trustee will be under an obligation to pay 29.29ths. The object is simply to introduce new machinery which I do not think really introduces or touches upon any matter of principle. It is simply a matter of legal machinery and nothing else.

In thanking the hon. and learned Gentleman, may I say that his explanation is equal to that which might have been given by a mathematical master at a public school.

Could we have as clear an explanation of how this affects the question of Surtax? Here we have the case where the Income Tax goes down and Surtax goes up. Have the Government a formula for that as well?

Yes, practically the same formula applies. The Act of 1941 provided that where the trustee had to pay the annuity free not only of tax, but also of Surtax he would have to pay 20.29ths of the amount necessary to pay the annuity free of tax. In addition to that, he had to pay 20.29ths of the amount which had to be paid or which would have had to be paid in order to discharge the amount necessary to pay Surtax at prewar rates. The burden again was transferred from the trust fund to the beneficiary. There again, as tax gets lower, the trustee has pro tanto more of each pound in the trust fund to pay not only Income Tax but Surtax. After paying the Income Tax he has to find a further amount in order to pay Surtax. Before he had to pay 20.29ths and as tax goes down the fraction will go up. [An HON. MEMBER: "Surtax is going up."] The tax will vary either up or down. As Income Tax goes down the payment will necessarily go up because there is an increased amount of each pound after deduction of Income Tax to pay the Surtax whatever it is.

I expect that I am missing a point which ought to be obvious to me. If so, I apologise to you, Mr. Deputy-Speaker, and to the House, but I wonder if the learned Solicitor-General can enlighten me. Is the arithmetical problem at all affected, leaving out the Surtax business, by the amount of income either of the trust, or of the beneficiary? It would seem that there may be beneficiaries, and that there might even be trusts, which would come below the level at which tax is paid at the normal level of 10s. or 9s. in the £ as the case might be. Unless there is an inference, which escaped me, the point was not made clear by the explanation.

I am sorry that I did not make myself clear. Suppose you have a trust fund which has to pay annually, a small annuity which would involve a return of tax, you have to ask what the annuitant was entitled to receive before the war, so as to give him his annuity free of any deduction of taxation. You have to find out what the fund had to pay him, in order to make sure that he got that amount of money without any deduction of tax. Let that amount be x. You find in the hands of the trustee certain money. If the trustee had to pay x at prewar rates and if the rate of tax has gone up, you have again in that case, and in the same way, to apply the same fraction. You apply the fraction which represents the amount of money that he has out of each pound available to pay the annuity reduced by the increase in Income Tax.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Appointed Day For Certain Purposes

Sixth Resolution read a Second time.

Motion made, and Question proposed, "That this House does agree with the Committee in the said Resolution."

I want to ask the right hon. Gentleman why it is necessary to have an appointed day dealing particularly with the purpose of Part IV of the Finance Act, 1944. As I read it, this particular reference is to the allowance made in future to money spent upon scientific research, and under the Act referred to no refund will be payable in respect of any expenditure made for the purposes set out in that Section connected with scientific research if made before the appointed day. This provision was introduced as far back as the Budget of 1944 and I cannot for the life of me understand why it is necessary to fix the appointed day so late. It means that anyone who has some scheme for expenditure on scientific research has every incentive not to push it through as quickly as he can, but to put it off until April, for it is only after April that he will be able to claim the allowances referred to in the Resolution. I cannot understand why it is necessary to have an appointed day and I shall be grateful for an explanation.

The explanation is that this again is a "slop-over," if I may use the phrase, from the last Budget. This Resolution appeared there and also in the Income Tax Bill and the date was fixed by the then Chancellor of the Exchequer, who is a member of the right hon. and gallant Gentleman's party. [An Hon. Member: "No, he is not."] He sits on that side of the House. As the right hon. and gallant Gentleman very properly said, this writing off of allowances for Income Tax purposes of various kinds is to meet capital expenditure by productive industries, and the legislation was embodied in the enactment mentioned in the Resolution in advance of the end of the war on the full understanding that it would not come into effect until the war was over. It was felt—and in my view quite properly—that industry was entitled to know what it might expect and, therefore, this legislation was passed on the very proper understanding that it would not be possible, as it was a contribution towards modernisation and new equipment, to put this into effect until after the war. That being so the allowances should not become available and payable until then. The war with Germany finished last May and the war with Japan some time later in the year, and that being so the obvious date from which these allowances should begin to run is 6th April next, and that is the date which has been fixed in the Resolution.

I think that this is a very unsatisfactory reply indeed. As the right hon. Gentleman has pointed out, firms now will be wanting to decide upon expenditure on scientific research from this day onwards. They will be considering building and equipment and new processes and are they not to be allowed to set off against Income Tax any of this expenditure? I did not understand from the right hon. Gentleman's explanation why the Government have not appointed a day already. It was considered in the Finance Act of this summer and, surely, it would have been possible to fix a day, say, 1st September or the 1st of this month, from which such expenditure would be allowed. It is altogether an unsatisfactory reply and I think that the right hon. Gentleman can expect those of us suffering on this side of the House to take some action in the matter.

Perhaps it will save time if I give an undertaking to look into it. It is a matter which, as my hon. Friend properly said, we have taken over from my distinguished predecessor, who I am told is not a member of the Conservative Party but who remains my distinguished predecessor none the less, and this was his idea. As to the timing, I will undertake to look into it and see whether there are any difficulties, as there may well be, in advancing the date.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Income Tax On Excess Profit Tax Refunds

Seventh Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

If I understand this Resolution aright an anomaly is likely to arise under it. Under this Resolution all sums which are to be refunded under E.P.T. are to be treated as income for all purposes of the Income Tax Acts. That means that these sums will, in the case of private individuals and partnerships, be assessable to Surtax. In the case of limited companies, these sums have been collected for a period of six or seven years, but if they are to be paid in one year, they will aggregate for Surtax purposes, and will bear a very much higher rate of tax than they would have done had Surtax been at 90 per cent. and the final 10 per cent. had been retained in the hands of the firm or individual. As these refunds are primarily for the purpose of re-equipment, it seems that there is a great deal of inequality in taking income for six years and then aggregating it for taxation purposes; also it is rather defeating the purposes of the fund in using it for Income Tax purposes instead of for the purposes of equipment.

I would like to support what the hon. Member for Chesterfield (Mr. Benson) has said and I hope that the Chancellor will extend these repayments for Surtax purposes over the same period of years as they would have been it paid at the time. There is a point I want to raise and I hope that the Chancellor will be able to make it clear. It may be that I ought to understand it, but I do not. Is the Income Tax which is to be charged on the sums repaid to be at 9s. in the £, or at10s. in the £ at which it was when the E.P.T. profit was earned? It would be helpful if the House could be informed what is intended on that point and I should be grateful if the Chancellor could give an answer.

6.30 p.m.

I want to reinforce the observations of the hon. Member for Chesterfield (Mr. Benson) and of my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) that this may result in very considerable injustice to the taxpayer. He might be liable, taking Income Tax and Surtax together, to pay 15s. in the £ and it rather looks as though there will be a large sum of money which will remove him into an entirely different category of taxpayer. By the Chancellor's action, and not by any action of his own, he may have his tax put up from 15s. to 19s. 6d. I ask the Chancellor to reconsider this matter, and to allow the taxpayer, if he elects to do so, to spread the repayment over a six-year period, or the equivalent period over which he has paid the tax concerned. The Chancellor has not told us anything, so far, about the basis of charging tax on these sums at all, and I would like him to justify that basis. It seems to me that there is no real ground for what is really a capital levy being taxed as income in this way. The same principle is observed in the payment of post-war credits. They, as I understand it, are now to be subject to Income Tax although they represent money taken from the taxpayer compulsorily during the war. When repayment is made, the taxpayers receive only half of what is due to them. The same principle is implied here, and I would ask the Chancellor to justify it, if he can. It was said many times in the Debate the other day, that there are instances when the Chancellor gives with his right hand and takes away with his left. I do not believe the Chancellor has a right hand at all. He appears to me to have two left hands, but I would like him to justify this proposal if he can.

I would like to deal first with the point about the repayment of the Excess Profits Tax. The Act of 1941 specifically provides that payments of Excess Profits Tax are to be allowed as deductions, in arriving at the annual profits of the firm on which it is assessed to that, naturally, they must come in as trading receipts. The Chancellor of the day did, in point of fact, use these words:

"The amount of the 20 per cent. Excess Profits Tax repaid, will, of course, be fully treated as a trading receipt, and thus come under the charge for Income Tax, so that the tax available to industry on this concession will be the 20 per cent. less whatever Income Tax is due."
I think that meets that particular point.

Then there is the point made by an hon. Member on the question of Surtax. My right hon. Friend is very conscious of a possible injustice and also the effect it might have on trade by rendering a trader suddenly liable to a large Surtax payment. In order to avoid that the tax payer will have the following option. He will be entitled, if he wishes, to have the repayment spread over six years during which it was collected so that it may come into his yearly accounts for those six years as a trading receipt. That will, I submit, avoid any injustice on that score. Then the question was asked as to what—

Yes. Then the point was raised as to the rate at which it would be assessed for tax. As to that, I have to state that the tax will be deducted at source. The repayments will take some time to effect, and the bulk of them will be made during the 1946–47 accounting period. It would, it is thought, be unfair to treat them in that period as income on which tax is deducted at source, where the amount received, if it fell to be taxed in the succeeding year, that is to say, 1947–48, would benefit by a reduction of tax. Therefore, my right hon. Friend offers these two options to the taxpayer; either he can have the amount spread over the six years which preceded the option I referred to a moment ago, or he can, if it serves his interest better, when he receives the money, even though he receives it in the year 1946–47 with tax deducted at source, treat it as a trading receipt taxable for the ensuing year. There will be a cross-account so as to compensate him for any reduction of tax which would be available to him during the succeeding year. Of course, it would not apply to a trader who would not be liable to tax in respect of the year 1947–48. For example, a trader who was not trading, who had gone out of business, or something of that sort, would not have the option. The two options would be there and, therefore, there would be no injustice upon the taxpayer in that he would not be liable to Surtax unfairly nor deprived of any advantage he might have in respect of the provision.

When the hon. and learned Gentleman talks about the Chancellor giving the taxpayer an option does he mean they will be statutory options?

It is difficult to say. The taxpayer will be given the opportunity of saying which he would prefer. It will be made clear to him what is the option, and he will be asked which course he prefers. But he will receive the money, in the first place, after suffering a reduction of tax at source, so it will be a question of accounting after payment has been received by the Exchequer, and there would, presumably, be a repayment to the taxpayer, but it depends on the circumstances.

Might I ask one question? In Section 11 are the words "at whatever date." Is there no limit during the stage when we can go back to 1946–47?

If I understand the hon. Gentleman correctly, his question is: "Is there to be no limit to the time when the payment is to be assessed and made"?

The answer is that the assessment of 100 per cent. E.P.T. liability is a process which must necessarily take a considerable time. I think the only answer I can give is that it is being done as soon as possible. It is a difficult thing to do, and the assessment has to cover a period right up to date. In the event of its having to take some considerable time, where the affairs of any particular undertaking are such that the ascertaining of the figures required take months or years, particularly in the case of a concern which has not been run quite honestly, the assessment of the E.P.T. liability, and the ascertainment of the amount of refund to the taxpayer, may take a long time.

A limitation will be brought about in the natural course of events, that is to say, it cannot take more than a certain number of years to assess E.P.T. liability. Naturally, the revenue authorities want to get their hands on what is due to them at the earliest possible moment, so it is in the interest of those authorities to get the thing cleared up as soon as possible. The provision is merely to allow time to ascertain the exact circumstances. It may take some considerable time, but it will be done as soon as possible.

I am afraid, from the very nature of the problems with which the assessing authorities are concerned, it is utterly impossible. It is much easier in the case of a concern whose affairs are conducted honestly. It is a matter of the computation of figures. Even then, in certain cases, contingent liabilities and contingent values have to be assessed which sometimes are difficult to assess at their proper figures. In the case of firms whose transactions are not recorded in their books, or who may have resorted to some sort of subterfuge to avoid E.P.T. liabilities, it is bound to take some considerable time, as all cases do not involve an exact computation of figures from books properly kept.

This is not a cross-examination. We are not in a Committee stage; these are speeches which are being made now.

May I say there are some wider aspects of this problem than the one my hon. and learned Friend has made. This is not only a question of dealing with firms of dubious honesty. Is there no risk of a sheer physical difficulty in determining E.P.T. liability as long as you have so many points of principle to settle? There are also questions of fact. For example, this issue of deferred repairs. Many hon. Members will know about the shortage of materials which means that, at the moment, it is impossible for a firm to put repairs into effect. The consequence is that the Revenue authorities cannot assess the amount of E.P.T., and, if the shortage of materials continues, it may well be a matter of years before repairs are put into effect, and the exact liability can be determined. In those circumstances, I suggest that this is a very wise precaution.

May I make my point? While I quite agree that the Revenue, on their side, should have the opportunity to take up things like repairs, there is also the aspect that the taxpayer needs some provision against the unnecessary spinning-out of procedure, so that he does not get taxed for years and years. Are we really having to live all these years with this thing hanging over the heads of the taxpayer?

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Eighth Resolution agreed to.

Relief From Double Taxation

Ninth Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

I do not know whether this would be the appropriate occasion for the Chancellor to say something about other negotiations which may have taken place, apart from those with the United States, of which the House has had full information, and whether, if they have taken place, or are expected to take place, they will be on the same lines; or, again, whether the Chancellor anticipates that a different treatment will be adopted, as between other countries, from that followed in the case of the United States.

I am glad to respond to the right hon. and gallant Gentleman's question. There is not much I can say further than that we are now engaged in negotiations, notably with several of the Dominion Governments. These negotiations are being conducted with good will on both sides. They are complicated, and I would prefer the House to be informed of them when they reach conclusion. I do not think I could usefully say more than that at this stage, but we will keep the House fully informed, and I am sure that the more of these agreements we can conclude the better it will be for our trading prospects.

6.45 p.m.

This Resolution obviously has two great merits—the quality of mercy, in that it blesses him that gives and him that takes, and also the merit of continuity. We have heard this afternoon some of the rather more doubtful Resolutions. This admirable Resolution obviously springs from the right hon. Gentleman, and I have no doubt that the Chancellor will admit the fairness of it.

It is of very much greater importance than may be realised. It is perfectly clear that we are living in a closed economy, and that not for many years will the tariff walls be broken down as easily as is imagined. Looking at this Resolution, not only from the point of view of the relief to the shareholder, but from the more important one of the indication of assistance to themanufacturer and to our export trade. I think it will the realised that we should have as many of these Agreements as possible. They will assist our unfavourable export trade almost more than anything else. Imagination is the pilot of enterprise, and, with a little imagination, we can see the great effect on our exports. Our experience of these Agreements with America has shown us how reciprocally good they are.

There is, however, one point attaching to this blessing which I am now giving to this Resolution, and that concerns the need for great precision in making such Agreements and also of arriving, as far as possible, at a standardised form. We have heard a good deal today on the subject of motor cars and on the merits and demerits of producing as few models as possible. I know the difficulties which there will be in negotiations with other countries, but, if we can arrive at a standardised form, it will be of great assistance to industry. Where an industry is contemplating opening a subsidiary in any other part of the world, one of the first things it must do is to compute what the taxation will be, and, if we can get an assurance from the Chancellor that he will bear in mind the need for simplifying and standardising these Agreements with other countries, it will be of the greatest assistance.

I was disappointed that the Chancellor made no reference to the countries of Western Europe now in the sterling area. Some of us on this side of the House feel that we are not getting on very fast with any kind of comprehensive trading or financial agreements with them. We have one currency Agreement so far, and I think it would be a great satisfaction to the House if the Chancellor said that, in principle, the Government are in favour of applying these Agreements to those countries.

:May I ask the Chancellor whether the rules which I understand the Government are going to make about the way in which people can dispose of this relief, will come out in time for this financial year? It is already the end of October, and a company with a big branch business in the United States, whose financial year corresponds with the calendar year, will want to know how it can dispose of the relief which it is to get. I think the Chancellor will agree that disposal of Dominion relief to the shareholder is not very satisfactory. We want this relief to encourage enterprise, and it would be best if rules could be made so that the preference shareholders do not participate in it. Can the right hon. Gentleman give industry any assurance that these rules will come out before the end of this year?

The hon. Member for Bury (Mr. W. Fletcher) called attention to the urgent necessity for some kind of uniformity, and I can assure the House that one of the objects of the Resolution is to enable conditions to be inserted in the Bill which shall do something in the way of bringing about that uniformity, and I think that will also meet the point made by the last speaker with regard to the rules, so that industrialists shall know where they stand. At the moment the legislation in this country is rather of a piecemeal nature. One of the Sections deals with reciprocal relief so far as the Dominions are concerned, and includes India. There is also one provision which deals solely with shipping, another which deals solely with air transport, and another which regulates the position in the case of companies trading through agents and branches. The net result of it is that there is only a piecemeal attempt to introduce into the British legislative system anything in the nature of a comprehensive scheme for bringing about, or enabling the Government to put into operation, agreements in common form with countries throughout the world, and one of the primary objects of this Resolution is to enable the Bill to include something of that nature, so that, as and when agreements are negotiated, as far as possible, they will be in standard form, because the common object aimed at is to enable the Government to give effect to these agreements, as far as possible, on a uniform system.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Tenth Resolution agreed to.

Extension Of Time For Making Assessments In Certain Cases

Eleventh Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

I hope we can have some idea from the Government of what they have in mind here about the extent of time. How long?

I would like to ask a question about this. It appears to accept the principle of opening matters which are already settled, and I have always understood that that is not a principle which commended itself to the Treasury. I remember having some correspondence with the Treasury some months ago on an analogous matter, and the way they defeated me on my point was that they said it would result in opening up settled accounts. I thought it was rather a good point, and I gave way and did not continue the argument. This now appears to be the very opposite case, and it appears that, as usual with the Treasury, they win either way. I would like an explanation of what principle is involved here.

The Bill proposes to introduce machinery to enable persons to apply for adjustments of E.P.T. and National Defence Contribution liability without limit of time. In as much as anything which is repaid to them in respect of their liability will fall to come into their accounts as a trading receipt, the Treasury would be a loser if there were not also powers enabling them to reconsider the Income Tax assessments as and when those receipts come into the accounts of the trader. No doubt the House is aware that, at the present time, the limit is six years, and, in the case of estates of deceased persons, three years. It is proposed to extend that period to be co-terminus with the period which may elapse while operations for adjustment of E.P.T. and National Defence Contribution liability can be entertained, so that the answer which the Government make is that it is intended, with regard to Excess Profits Tax liability and National Defence Contribution liability, to extend the time, at any rate for the moment, without limit, during which taxpayers can apply to readjust their liability in respect of these two taxes. That also involves, as a matter of necessary logic, that there should be an equal extension with regard to the adjustment of Income Tax consequential on the adjustment of E.P.T. and National Defence Contribution liability. In other words, there is no limit to the time which is proposed for these applications.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Twelfth Resolution agreed to.

Excess Profits Tax

Thirteenth Resolution read a Second time.

Motion made, and Question proposed, "That this House does agree with the Committee in the said Resolution."

I am afraid I shall detain the House rather longer than other speakers have done, but, having waited for 17 years since I last addressed the House, I think, perhaps, I may be excused for trespassing longer on its time. If I cannot, in such circumstances, ask for the indulgence which is accorded to a maiden speech, perhaps I can ask for that degree of toleration which I think the House would be willing to accord to a such a Rip Van Winkle as myself.

The Resolution now before the House is from the immediate point of view much the most important part of this Budget. Other aspects may be more important in the long run, but the immediate effect of the proposed changes in E.P.T. take pride of place, at any rate so far as industry is concerned. Everyone will agree with the Chancellor in wishing to be rid of this tax. It is the greatest dead weight on efficiency which industry has to bear. It is a tax which has always been full of unfairness and anomalies, and which grows worse as it grows older. Everyone will rejoice if it has become odious to the present Government, and certainly no one is going to object to its being cut by 20 per cent. I hardly think that the Chancellor expects to be congratulated on this decision. The absolute necessity for such minimum action has become universally apparent. In this connection, however, I should like to ask the Chancellor why the Resolution before the House contains no direct reference to the proposed reduction. No doubt there is some technical explanation, but, before the House passes the Resolution, which will presumably govern the scope of the discussion on the Finance Bill when it comes on later, I would like to know whether it sets any limit upon subsequent discussions regarding abolition or reduction of the tax.

7.0 p.m.

When I come to look at the specific proposals of the Chancellor regarding Excess Profits Tax, it seems to me that there is a good deal which has been omitted, and some things to be included, which will have to be considered very carefully before we raise a cheer for the right hon. Gentleman as the saviour of British industry. In the first place it is proposed that deficiency payments shall cease absolutely after December, 1946. I have studied this Resolution, the White

Paper and reports of the speeches of the Chancellor of the Exchequer and the Financial Secretary in this connection, and I still find myself in complete doubt as to what is actually proposed. The Resolution is in perfectly general terms. The White Paper says:

"It is proposed that deficiencies as from the 1st January, 1947, will not rank for set-off against excess profits for other periods."

Nowhere can I find any definition of "deficiency." There does not appear to be any qualification or limitation of the term "deficiency." Does that mean that any deficiency whatsoever which first appears in the balance sheet of a business after December, 1946, will be completely ruled out for ranking as set-off against payments of Excess Profits Tax previously made? If this is the intention, I submit that it will not only be unfair, but a very serious breach of public faith.

The whole scheme of E.P.T. has been to treat the period of the emergency as a whole; it is not properly an annual tax at all which can be varied at will from year to year. It is rather a scheme of attempting to ration profits over a whole abnormal period. If this is so we cannot in fairness just shut down on the scheme when it suits us to do so for purely financial purposes. We cannot say to the business concerns affected, "You threw all your resources into wartime production and we appreciate that for that very reason you are now left with an expensive period of reconstruction, but the war is over, so why should we care?" That seems to be the attitude which we should be adopting if the word "deficiency" is not to be qualified. We should be saying to these businesses, "You can go and stew in your own juice"—or rather "You can go and stew without any juice, because we have seen to it that all the available juice has been drained off." I do not believe that that is the attitude of the Government to these concerns. Many of them are concerns of small enterprising men who put everything into getting the greatest possible output during the war without the slightest prospect of any financial advantage to themselves. They were relying on the clear promise inherent in this scheme that their wartime surplus would be available to cover them against the losses which were bound to follow their wartime activities. I am not now speaking of the 20 per cent. refund; that was to be repayable in any event for what may be called industrial rehabilitation.

My point is that the essence of this scheme was that industry was given to understand that it could shape its plan to cover the whole period of war production, including the terminal period. Many concerns drastically altered the course of their production for war purposes, knowing that such alteration would require heavy expenditure and loss before they could reconvert for peace time production purposes—often much more than their 20 per cent. refund. It seems to me to be indefensible that we should suddenly bring down a guillotine upon the emergency period, whether or not the E.P.T. system is to be continued generally after 1946. I am not suggesting that E.P.T. should be kept on indefinitely; indeed, I would like to see it abolished right away now. I am merely asking the Chancellor that he should give special consideration to a special class of deficiency. Common fairness requires that deficiencies which can be proved to be due to the war period, at whatever date they actually appear in the balance sheets of the firms concerned, must be capable of being set off against those surpluses which were wholly taken away in respect of that period. I hope the Chancellor will be able to give some indication of the Government's intentions in this respect this evening. It is certainly a matter of urgency that industries should know how they stand in this matter. Will he reassure the House and the country that deficiencies which are genuinely attributable to war service—if I may adopt the phrase from another context—are not to be ruled out by his proposals?

I would like to say a word on another aspect—the 20 per cent. refund. Here, again, there is a great deal of disquiet in many quarters, and very little comfort is to be found from an examination of the Government's statement on this subject. I represent a North London constituency in which there are many people concerned in small industrial undertakings, particularly engineering undertakings. Often these small businesses have been built up by the skill and initiative of one or two men who have sunk practically all their capital in the business. During the war the greatest possible pressure was exerted upon these concerns by Government Departments to increase their output. They responded fully and gener ously—particularly generously, because, owing to the incidence of the 100 per cent. E.P.T., they could not stand to derive a halfpenny worth of benefit out of their efforts.

In order to meet demands which were made upon them it was essential to have the use of increased capital. They could not plough back into their businesses any substantial proportion of the profits which they were making, because practically the whole of those profits were being taken in taxation. I believe that E.P.T., the National Defence Contribution and the War Damage Contribution together took away over 90 per cent. of the total profits of this class of industry. Far and away the largest part of that was in respect of E.P.T. But the tax is not payable until the year after the year in respect of which it is assessed, and so many firms found themselves in the position of having substantial cash assets represented by unpaid E.P.T. The result was inevitable. Under pressure, that unpaid E.P.T. was used for the purposes of expansion. I do not say that that was sound or wise, but at any rate it enabled the country to get the production which it so urgently needed. I think it is impossible to say that there was anything ethically wrong in what these people did. So long as wartime conditions existed, gross profits continued high, and so there was usually cash available to keep the Inland Revenue wolf from the door or, if not from the door, at any rate from the larder. Now that profits are allowed to drop heavily there will be no liquid resources available to help them meet last year's E.P.T.

The House will understand that the money which should be available to pay this tax has not been squandered, that it has not been spent by the owners of these concerns upon themselves. It is merely represented by assets which are available not in liquid form, but in the shape of stock, tools and the like. If the present law were strictly enforced the inevitable result would be wholesale liquidation of many of these firms. This would be a disaster not only for them, but for the country as a whole. In this connection I have two questions which I would like to ask the Chancellor. The first is whether he will consider some special arrangement so as to ensure that when a concern is in arrears in respect of E.P.T., in the circumstances I have described, it will be allowed some definite period to enable it to meet its obligations without embarrassment. Could he say that they might perhaps be allowed five years—perhaps paying interest at some reasonable rate over that period—in order to find the money which they are willing to pay, and certainly ultimately will be able to find? The second question is more directly concerned with the actual proposals of this Budget. Will the Chancellor ensure that any instructions or conditions for the refund of the 20 per cent. will enable such refund to be made as a set off against unpaid arrears of E.P.T.? I do not think there should be any such compulsory set off, but there is the possibility that payment of those arrears would not be regarded as coming under conditions within the meaning of those that he might issue. At any rate, there should be an option given to concerns that are affected in this way to use their arrears for this very proper purpose if they choose to do so. If the Chancellor can say something about this I think it would go far to alleviate the very great fears of a large and deserving section of the community, and would certainly enable many small concerns to get going with their plans for peacetime production.

7.15 p.m.

I would like forcibly to endorse the practical and constructive speech which has just been made by my hon. and gallant Friend the Member for South Hendon (Sir H. Lucas-Tooth). I am sure that the Chancellor himself has realised by now that to fix the end of 1946 as the date for the completion of all deficiencies that will arise in relation to resettlement of a refund of E.P.T. is to fix an impossible date from a practical point of view. Small manufacturers, particularly, will be put into a very difficult situation. Although I do not think he was in the House at the time, I am sure the Chancellor will remember what happened after the last war. Firms were placed in the same difficult position in the winding up of their affairs following the close of that conflict. It was not a question of adjusting their difficulties and arranging with the Inland Revenue for the discharge of their obligations in the course of one year; the matter extended over three or four years.

The Chancellor indicated in his Budget speech—which I, who have a great per sonal regard for him, appreciated very much—that he had no love for E.P.T. He made an admirable propagandist speech. Two million taxpayers, he said, were to be relieved next year from tax. He further said that E.P.T. ought to be wiped out at the earliest possible moment from our whole system ofpublic finance. Curiously enough, he made no reference to what happened in America where, after the defeat of Japan, E.P.T. was wiped out from the industrial organisation of that country. Why did not the right hon. Gentleman, coming fresh to his great responsibility as director of the finances of this country, take his courage in his hands and do for Britain what the Chairman of the Finance Committee of the United States Senate did for America? Anyhow, he has not done it, and we have to wait until his next Budget to see in what respect he can modify the incidence of this tax. I want to put a question to the right hon. Gentleman. Where the reduction of 60 per cent. comes into operation, and deficiencies have to be adjusted for the preceding year, will the full allowance of 100 per cent. contribution be made instead of the adjustment being made on the 60 per cent. basis? I think we ought to have a clear assurance on that point for the benefit of industry.

We ought to know a little more about the limitations imposed by the Chancellor on the application of the refund to the purposes of industry. Of course, if the right hon. Gentleman says that the refund applies only to putting machinery back, and to refurbishing old plant, then that is a limitation which ought to be helpful to industry as a matter of cold, hard fact. Most industries, during the last 12 or 18 months, have had under constant consideration their post war reconstruction plans. Much work has been put into the organisation of research and the extension of productive capacity for peace purposes. They must be free on a much wider basis to apply the refund to which they become entitled under the arrangements made by this Resolution to the exploitation of markets, the development of business, and the encouragement of research, all of which must be done if our industries are to assert their competitive power in the world. I suggest that the Chancellor should take a more generous view of the extent to which the refund will be employed in the rehabilitation of industry. I would like the Chancellor of the Exchequer to realise that there are a great many firms which, following upon the war, will need fresh capital. Will the Chancellor allow the refund to be employed for capital purposes in the development of business enterprise, when it comes back to a particular firm? When one looks over the whole field of industry—[Interruption.] I am not consulting the interests of the hon. Member for West Fife (Mr. Gallacher); he has views all his own, on all these financial questions. Some £250,000,000 has come out of industry. Will the Chancellor tell the House that he will refund this money, spread over the whole of industry, so that it can be employed on a wider field of research, market exploitation and agencies abroad, and not merely confine it to the refurbishing and conditioning of necessary machinery. We have to face very acute competition in the near future from the United States. Controls were taken away there immediately the war was over. Two hundred were removed almost at once.

:I could sometimes wish that the hon. Gentleman were added to the happiness of that land. In America, during the war, the productive capacity of the country has been increased twenty-fold, and we have to compete against that in world markets. We have to face a vast organisation created by America during the war. I am sure that the Chancellor sees, from time to time, reports from Congress of the immense work which is in progress to convert munition production to peace production. Those of us who are concerned with the progress of industry in this country are a little staggered by the vast amount of effort made in the United States to collar the markets of the world. If rumour is to be trusted, something is being done in the United States which may embarrass enterprise in our Dominions and in our own country.

I do not want to press the Chancellor of the Exchequer too hard. He has a difficult row to hoe, and great responsibilities, but so long as taxation in this country stands at its present level—and even with the reduction of one shilling—our power to compete in the world markets against the United States will be very largely frustrated. We know that in the great Midland areas, numbers of small firms are looking to the Chancellor to make such concessions as he can, and to arrange, in his next Budget, relief, particularly for these small firms, so that the taxation falling upon them may be as little as possible, and that they may be enabled to compete and hold their place in the markets of the world. In Birmingham, we are manacled by controls.

We are dealing with Excess Profits Tax and not controls.

Excess Profits Tax is intimately related with this question of controls, and I could not help bringing them in. I am grateful to the Chancellor of the Exchequer for the concessions which he has made, but I hope that his conduct will improve in the future. I know that his sympathy is with the progress of industry, and I know the affection which he entertains for private enterprise. On all these grounds, I hope that we shall have, in the Budget next year, a fresh outlook, and that, surrounded as he is by people of experience in the Treasury and other Departments, and with the advice of the President of the Board of Trade, he will introduce a new ray of hope.

I feel that I cannot let this point pass with regard to the closing-down of rebates for Excess Profits Tax. We have in our large cities, particularly in places like Sheffield, numbers of small engineering works which have reconditioned their plant solely for the purposes of war production. They have had 100 per cent. E.P.T. taken from them, and they are now being told that the Government are going to shut down on repayment of E.P.T. on 31st December, 1946. In other words, the Government have taken from them 100 per cent. of their profits during the active war years, and are now giving them 12 months in which to put their house in order. I agree with the Chancellor of the Exchequer that he must fix a date, and not give too long for these repayments, because I remember, after the last war, the period was extended, and E.P.T. became an acute liability on the then Chancellor of the Exchequer. But I feel that he is shutting down too quickly now. I would point out—and this concerns every Member of every party in this House—that he may cause unemployment by shutting down and not allowing people to reclaim after a year, because they cannot bring their businesses up to date within that time, in order to compete in the export market.

I appeal to the right hon. Gentleman to give a last moment's thought to this, and extend that period at least for another year, if not for two, and I should like to see it three. I think that even two years would give these people a much better opportunity of putting their house in order. Twelve months is far too short. I know his difficulty, but in the interests of all small engineering businesses, which have contributed a great deal to the war effort, I would ask him to bear in mind particularly places like Sheffield, where there are dozens of these small businesses. He should extend the period and give them an opportunity of getting back a second year's rebate. I make a special appeal to the Chancellor not to make this period too short, otherwise he may ruin many of these businesses.

7.30 p.m.

May I respectfully agree with what was said by the hon. Member for Hallam (Mr. Jennings) that the Government, at some time or other, have to put a term on these payments. It is not as if one could afford to be generous. One has to be strictly practical, and having regard to the other concessions in connection with Excess Profits Tax, amounts and repayments, I respectfully impress upon the House the view that the traders referred to by hon. Members opposite have not been too badly done by. I should join willingly in what they say about the excellent work done by the traders who uncomplainingly submitted to the tax. I would not like to derogate from the extremely useful and valuable service they performed throughout the war period. All credit to them, and all credit to everyone else who made sacrifices in this way, or in life and limb. At some time or other one has to take the problem practically in one's hands, and say, "Here must be the stop. Here must be the guillotine."

I submit that the point at which the guillotine has been applied in this case is far from an unreasonable one. It ought to allow those concerned enough time to get on their feet sufficiently to meet the post war period, it being conceded that that is a problem which will affect every single citizen in this Empire—it will present him with difficulties and require strenuous effort on his part. The hon. Member for Moseley (Sir P. Hannon) was anxious lest the Chancellor's rules should, in some way, interfere with the ploughing back into industry of the Excess Profits Tax repayments. I can assure him, on the authority of my right hon. Friend, that the whole object of the rules which he proposes to introduce are precisely to ensure that the repayments are, in fact, ploughed back into industry, and in the most advantageous form in which that can be done. The object is to prevent their being distributed unnecessarily in dividends. The whole point is to see that these repayments are sensibly used when they come into the hands of the traders to whom they are due.

The hon. and gallant Member for South Hendon (Sir H. Lucas-Tooth) was anxious whether the repayments could be set off against arrears of Excess Profits Tax. That, I take it, is a matter for negotiation between the trader and the Treasury. I am sure that hon. Members will agree that in one's Income Tax or Surtax dealings one always finds them extremely reasonable when a case is fairly and squarely put to them. I, for one, do not apprehend that any trader will find any difficulty in coming to a satisfactory arrangement over the appropriate set-offs if he finds himself in a difficulty which can be alleviated by using Excess Profits Tax repayments for that purpose.

May I take it that undue pressure will not be brought to bear for arrears of Excess Profits Tax, in the sort of case illustrated by my hon. Friend the Member for Moseley (Sir P. Hannon), when lack of liquidity has been brought about by the development of the business?

That question rather assumes the premise that undue influence is, in fact, generally brought to bear. I am sorry to be so legalistic.

Will proof of inability to pay have to be produced at the same time?

I would recommend traders to address themselves to the good sense of the persons whose responsibility it is to collect the tax, and to contribute their share of good sense.

Can the refund be employed where a shortage of capital in a business prevents that business from expanding?

They must not expend the money in dividends, they must put it back in the business, that is the answer to the question. The whole object is to see that the businesses are again got on their feet. I commend the Resolution to the House, and ask them to say that it is a Resolution which should be acceded to.

With the experience of the last war in mind, it is generally accepted that there should be a reasonable time limit in respect of the period to which Excess Profits Tax repayment should run. There is one point which I do not think has been raised at all in this Debate, and which I regard with great concern. It is this: The right hon. Gentleman has fixed the final date upon which Excess Profits Tax will be recoverable, namely, 31st December of next year. He will be aware that a considerable number and variety of commodities are still controlled by the Government both in regard to quantity and the price at which those commodities are and will continue to be handed over to the manufacturer. My concern is that it may well be, when we arrive at the end of the financial year ending 31st December next, that companies may have a quantity of raw materials which have been supplied to them by Government Departments, the price of which commodities is fixed by the Government. Should the Government determine to release the control upon those commodities, let us say in the closing months of next year, it would then mean manufacturers would find themselves in the following position. They would have a quantity of raw materials supplied to them, let us say, by the Food Controller or the Controller of Oils and Fats, at a fixed price. They may well find, indeed, with my experience, I will go so far as to say that they will inevitably find that during the first half of 1947, when the controls over these raw materials to which I have referred may have been removed, the company will be faced with the difference between the price at which they have purchased the raw materials from the Government Department and the prevailing price of the day ultimately realised by the manufacturer. I ask the right hon. Gentleman if he will consider—and this is a point of substance about which many of us are gravely concerned—whether he can find any means of elasticity whereby the Excess Profits Tax could be offset against the stocks of commodities which were carried over from the end of next year, until these particular commodities have been consumed by the manufacturer. Unless we have that assurance, the position will be that manufacturers in many industries of great national importance which I could name to the right hon. Gentleman—I do not wish to burden the House with the details—will have gradually to reduce their output so that they can be assured that on 31st December next they are more or less free of their stock. That would be to the detriment of the country as a whole, and since the prices of those commodities to which I refer are fixed by the Government, at would surely be grossly unfair that merely in the process of conducting their business these manufacturers would inevitably be faced with a loss over which they have no power or control, and which they have no means of preventing other than by closing down their mills and using up those stocks before the Excess Profits Tax repayment comes to an end. I would seek to prevail upon the right hon. Gentleman, if he is unable to say anything in this regard now, to promise to give it the attention which it merits.

The country will hear with concern the statement by the Solicitor-General that reconsideration is not to be given to the extension of these deficiency payments. On this side very reasonable and powerful speeches, supported with facts, have been delivered to point out the harm that will be done to the country, in particular from the point of view of employment, by giving such a short term for these deficiency payments. We all agree that after the last war the period was too long, and that such things as sales at which deficiencies, which existed because of past E.P.T., were used up, and that sort of thing which is not to the general public advantage, ought to be stopped.

What does concern us very much is that this deficiency shortage will mean unemployment when employment is needed. Hon. Members opposite are committed to a programme of full employment. We know that during the next year or so there will be a shortage of goods and plenty of employment, but the time when employment will be wanted will be in two, three or four years' time, and it will be possible to give full employment only if industry at that time is sufficiently equipped, particularly the small firms which have not great financial resources. In the event of a fire a wise firm has a loss of profit insurance policy. I suggest that this question of deficiency payments should be looked at in this light. Small firms have to re-equip themselves. They have to turn from war to peace production, but for a year or two they may have to work with obsolete equipment. Anybody in industry knows that deliveries cannot begin for perhaps two years. Machines have to go abroad for our export trade. If these firms are to re-equip themselves in 1946 the benefit of the turnover to these new machines and so on will not be felt until 1947 or 1948. There will be a time, perhaps in 1947, when deficiency payments will no longer be available and when they will be really needed. If these deficiency payments are not extended for another year, there may be real unemployment which could have been avoided at that time in 1947 or roundabout then, when we shall find the present shortage of the goods most urgently needed will be overcome.

There is one point which cannot be emphasised too often, and that is with regard to the position in the United States of America and Canada. There they have much more generous allowances for writing off machinery than have existed in this country. The machinery is newer, more up to date and more efficient. If we have to compete with products from America and Canada our industries, and particularly our small ones, must be equipped with the most up-to-date machines. It is only by having some cash resources which would be made available from these deficiency payments that the small industries can be so equipped in order to develop our export trade which, as the right hon. Gentleman knows, we must do, and by which we can only provide that full employment which we on this side are just as desirous of seeing achieved as hon. Members opposite.

7.45 p.m.

I hope the Chancellor of the Exchequer will reconsider this matter. If he likes, he can make it 31st December, 1946, but let him make some provision for the industries which can show good cause why they have been delayed in turning over, such as not having had the machines and so on, and let him provide some opportunity for really genuine cases so that they may put forward their position for consideration. I hope this point will be reconsidered. It is of importance to the common man. We on this side have to find work for thousands of people. It has been our duty to do it, and we want to ensure that conditions are created by the Government, whether it is a party different from ours or not, so that the common man may have a higher standard of living. It is for that reason, and for no other, that we are bringing forward these suggestions. We want to see full employment and good wages, and we are putting forward constructive suggestions in order to assist the policies in which we believe, just as the Chancellor and hon. Members opposite also believe in them.

:I desire to reinforce the appeal made by my hon. Friend. This is a very important point which we all regard without any party feeling at all. The hon. and learned Gentleman the Solicitor-General put the matter in a nutshell. He said that what we all want to do is to give these people enough time to get on their feet, and the sole question is whether a year is enough time to enable all of them to get on their feet. It would be unfair to fix a time so that some fortunate people, because of their location and the supply of labour and material in their neighbourhood, might get through, whereas others differently placed could not. If it were a question of the managers of these industries being able, as they were in peacetime, to call for the immediate supply of everything they needed, and if the restoration of their industries depended entirely upon their own energy and skill, I would say that a year would be ample for them, and then if they were unable to do it within those twelve months they should pay the penalty. But that is not the case today. However efficient they may be, and however well their plans may have been laid, unless they can get the machinery, the labour and the building materials they require, with all the will in the world they may find that they may not be able to restore their position within a year.

If the right hon. Gentleman says that twelve months is enough time for them to get on their feet again will he guarantee that within that twelve months, under the controls which the right hon. Gentleman is extending for five years, their reason able demands for labour, materials and machinery will be met? If the right hon. Gentleman will give that guarantee I think a great deal of our case falls to the ground, but if he does not give that guarantee our case is emphasised. We all appreciate the Chancellor's desire to fix this date. We all realise that a year, although we think it is too short, may be sufficient for some people. But we do appeal to him, if he does not feel it is possible for him to extend the date, that lie will consider the suggestion made by my hon. Friend and provide some degree of flexibility and some right of appeal for people who have not been able to complete within that date, so that they can say to the Government that it was due to no tardiness and no fault on their part, but to their inability, owing to the right hon. Gentleman's own controls, to secure those things which it is necessary for them to have if reconversion is to take place. If between now and the Finance Bill the right hon. Gentleman can give an assurance that he will think it over—I am sure he sympathises with the position—

:The right hon. and gallant Gentleman wants more than sympathy. The Chancellor has given him plenty of sympathy.

:Yes, I want more than sympathy, just as, when the hon. Gentleman got up at Question time yesterday to speak about the dockers, he attacked his own front Bench. He wanted more than sympathy but he did not get it.

That is when the right hon. and gallant Member supported them against the dockers.

:I am more hopeful that the right hon. Gentleman will try to meet a legitimate claim, in the knowledge that we on this side of the House are not pressing for something which would reproduce the conditions of the last postwar period.

I think we might bring this particular discussion to an end. It has lasted for some time. Gradually, as the discussion has proceeded, there has been a certain modification of the case put from the other side of the House. Earlier speakers began by saying that it was wrong, in view of all the circumstances, to fix the date as early as the end of December, 1946.Initially I was asked by speakers on that side of the House to extend the date, but, as the Debate has proceeded, the request has been modified, and the request now is, the date being accepted, that there might be some machinery for considering, what I gather it is admitted there might be, quite a small number of exceptional cases within the total.

That is a different proposition. I do not want to underestimate the administrative difficulties which, if we cannot solve them properly, will be very vexatious for the firms concerned and for the Inland Revenue who are seeking to administer. I know that we are all aware here of the difficulties that very often arise when a superficially plausible and attractive proposition is sought to be translated into forms of rules and Regulations that can be operated over a number of cases, the details of which cannot exactly be foreseen.

For that reason I do not want to give any commitment which hereafter I might be held to have violated. I say that I must hold to the date, end of December 1946, as the appointed day, but it has been generally recognised that at the end of the last war the deficiency payment became the greatest scandal and that the Revenue were robbed by all sorts of people many of whom adopted methods which were definitely dishonest. It as perfectly possible, under the deficiency arrangement, if it is allowed to run forward beyond the end of December 1946. I think I indicated that in my Budget Speech and it was pointed out in an article in "The Times" by one of those writers who write the turnover leader, He pointed it out, and I quoted it in my Budget Speech, and gave instances—his argument appealed to me and I think it was important—of a firm which might have a deficiency claim or could, so to speak, cook up a deficiency claim, by selling below cost and do severe damage to others in the industry. That is the sort of case against which I think it is obviously proper to guard.

No, because the greatest rascals often present the greatest simplicity of outlook. It is very often impossible in these gross cases to track the offender down. I do not suppose anybody here would find it easy to track down the kind of case that the "Times" writer and I have in mind, but we must prevent the possibility of the scandalous misuse of these deficiency payments.

That being said, I do not want to commit myself in any way, because it might be administratively difficult to do, and I must adhere to the end of December, 1946, as the operative date. The question is, Can we devise, and I will go into it and see whether we can—I want to be perfectly honest and I do not want to give a commitment if it is not possible to carry it out—devise any arrangement whereby, in quite exceptional cases, and they must be exceptional, it might be possible to have some possibility of appeal to some suitable body. I will look into the matter. I am not very hopeful that we can do it, but I will look into it in all good faith to see whether, in this case and the others which we have been discussing, anything can be done. The whole thing will be looked at again in a different form of procedure when the Finance Act is going through Committee, and then I will have an opinion either pro or con having looked into this matter. It will depend upon inquiries which I will make, and I will then make my statement to the Committee.

I have no quarrel with the date, 31st December, 1946, at all. The point is that where a commodity is controlled by the Government, the industry may be compelled to carry beyond the end of the period, December, 1946, a portion of such stocks. There should be some means of setting Excess Profits against the difference in price, which the manufacturer may have to take, i.e., the difference between the purchase price and the Government controlled price at the time of sale and the realised price by the manufacturer—after the control has been removed.

:I cannot give a commitment on a very special and rather complicated case of that sort. We will look into the whole thing, including what the hon. Member has said.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

National Defence Contribution

Fourteenth Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

I will not delay the House very long but I think that the National Defence Contribution is rather heavy, in view of its elder brother E.P.T. I think it deserves mention because it undoubtedly taxes the equity and the equity holder, and they deserve a very great deal of consideration from the Chancellor of the Exchequer. I have been looking at the Financial Statement, and I find that the Chancellor of the Exchequer said, on 23rd October, when discussing E.P.T., that under those conditions this tax worked against the incentive and against efficiency. Then he goes on to say just one sentence about N.D.C. He said:

"Meanwhile, I am leaving the National Defence Contribution unchanged."—[OFFICIAL REPORT, 23rd October, 1945; Vol. 414, c. 1898.]
The Chancellor was extremely lucid and I followed his Budget Statement with the greatest ease. I did think he might have said a little more about the National Defence Contribution. His two arguments are inconsistent. On the one hand he is out to encourage incentive and I believe that is his intention, and on the other hand he does not make the slightest change in N.D.C. That position ought to be put right.

I was looking at some old Hansards and I turned up one in 1937 where, instead of just one sentence on N.D.C., we read a whole peroration by theright hon. Gentleman on the subject of the National Defence Contribution and how it affects unemployment. He said:
"Any hon. Member who represents a special area could give the names of particular undertakings which are known to have been struggling on, many of them small undertak ings and others of moderate size, but representing between them an appreciable amount of employment. They have struggled on in spite of all the depression and the exceptional burden of local rates. Unless some additional power of relief is given to the Commissioner, this tax will be imposed on the top of all the other taxes and local burdens, and it might indeed be the last straw which will break the camel's back with regard to many of these undertakings."—[OFFICIAL REPORT, 1st July, 1937; Vol. 325, c. 2201.]
I think that that is consistent with the right hon. Gentleman, for he is always lucid on these points. Having tracked that down, I agree with him that it is necessary to encourage the small businesses and the equity holders. We can compare the National Defence Contribution with the Corporations Profits Tax, which was imposed after the last war by Lord Snowden, the First Labour Chancellor of the Exchequer. He said of the Defence Contribution:
"It was unloved by its parents. It was reviled by its subsequent guardians. It was condemned by every party, not least by the Labour Party."
I would ask the right hon. Gentleman to consider the early abolition of or some reduction in the National Defence Contribution because, not only is it a deterrent to private enterprise and the small equity holder and the small business, but it will, I think, give pleasure to Lord Snowden's ghost.

8.0 p.m.

The observations which were made by the hon. and gallant Member with regard to the National Defence Contribution are equally applicable, and have already been made, to the series of taxes that we have been discussing.

The Excess Profits Tax does not bear as hardly on the equity holder as the National Defence Contribution.

:I am surprised to hear that because the Excess Profits Tax is 100 per cent.—

No, the Excess Profits Tax has been 100 per cent. standard. It was reduced, in effect, to 80 per cent. by the grant of the refund. It will be reduced, if the House agrees to my proposal, to 60 per cent. A tax of 60 per cent. is something very different from a tax of 5 per cent., which is all that the National Defence Contribution is. There may be exceptional cases where the Defence Contribution represents a somewhat high proportion of the total earnings of a concern, but that will only be in very exceptional cases. Let me make it clear that, just as with the Purchase Tax on motor cars, I am giving no under taking—

On a point of Order. I would like to know which of the right hon. Gentlemen is addressing the House, the Solicitor-General or the Chancellor.

At this moment I am addressing the House. A special appeal was made to me by the hon. and gallant Gentleman to give my opinion, and I am glad to oblige him. My hon. and learned Friend was explaining with great lucidity a brief point and I am grateful to him, but I was specially asked to give my view. My view is that the Defence Contribution is a relatively slight burden in the great majority of cases, and I am not proposing to alter it in this Budget. Whether I shall alter it in the future I cannot yet say.

Question, "That this House doth agree with the Committee in the said Resolution" put, and agreed to.

Finance (Collectors Of Taxes)

Resolution reported:

"That, for the purposes of any Act of the present Session relating to finance, it is expedient to authorise the payment out of moneys provided by Parliament of annual allowances by way of compensation to any such collectors of taxes, collectors of land tax or other persons as may be designated by the Treasury, being collectors or other persons whose appointments are determined by the Commissioners of Inland Revenue after the thirty-first day of March, nineteen hundred and forty-six, and who were employed in and about the collection of income tax or land tax in the division of the City of London immediately before the passing of the said Act."

Resolution agreed to.

Finance (Payment Of Excess Profits Tax Refunds)

Resolution reported:

"That, for the purposes of any Act of the present Session relating to finance, it is expedient to authorise
  • (a) the payment out of the Consolidated Fund of any sums required for making payments of, or on account of, sums payable tinder Section twenty-eight of the Finance Act, 1941 (which provides for the repay- ment after the war of certain excess profits tax);
  • (b) the borrowing of money under the National Loans Act, 1939, for the purposes of providing the sums so issued."
  • Resolution agreed to.

    Ways And Means

    REPORT [ 25th October]

    Resolutions reported:


    1. "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."


    2. "That—

  • (a) income tax for the year 1946–47 shall be charged at the standard rate of nine shillings in the pound and, in the case of an individual whose total income exceeds two thousand pounds, at rates in the pound which respectively exceed the standard rate by the amounts specified in the second column of the Table below;
  • (b) all such enactments as have effect with respect to the income tax charged for the year 1945–46, 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 1946–47.
  • Table
    For every pound of—



    the first five hundred pounds of the excess20
    the next five hundred pounds of the excess26
    the next one thousand pounds of the excess36
    the next one thousand pounds of the excess46
    the next one thousand pounds of the excess56
    the next two thousand pounds of the excess66
    the next two thousand pounds of the excess76
    the next two thousand pounds of the excess86
    the next three thousand pounds of the excess96
    the next five thousand pounds of the excess100
    the remainder of the excess106."


    3. "That no sums shall be credited under Section seven of the Finance Act, 1941, in respect of any tax for the year 1946–47 or any subsequent year of assessment."

    First Resolution agreed to.

    Charge of Income Tax for 1946–47

    Second Resolution read a Second time.

    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

    May I raise a point of Order? It was the intention of some of my hon. Friends and I and, I think, of the right, hon. Gentleman, to say something at some stage on earned income allowances. I think that it would be in Order on either this or the Third Resolution. We obviously do not want to have two Debates on the same subject, and if the Chancellor prefers it, we could have it on the Second Resolution, but I do not want to let it go by and then be told that I have lost my opportunity.

    I would be happy if we could come to an agreement on the matter. If a discussion is desired on earned allowances, it might be taken on the Resolution dealing with Income Tax postwar credits.

    If the House is agreeable, there will be no objection to that.

    I want to make a comment on the Resolution now before the House and call attention to the fact, which should be recorded, that in the forthcoming Finance Bill there will, as I understand it, as a result of our passing earlier in the day the Fourth Resolution of 23rdOctober, appear two separate sets of charges of Income Tax and Surtax. We have to put in the Surtax of 1945–46 which was in the Fourth Resolution, and now we are putting in the standard rate for next year and Surtax as well. They are linked together, but, as far as I know, no Finance Bill has hitherto had that double series of impositions laid out. I may be wrong in that, but if it is not unique it is very unusual.

    It is nothing to do with having a Labour Government. I know that the hon. Member would wish to ascribe all things, good and bad, to that, but it has nothing to do with this question. It is due to the notice which is necessary in order to get the various codes and documents drawn up to collect the tax weekly on the lower ranges of income. That makes me wonder whether, in point of fact, it will not always be necessary to have this procedure and to have a second Budget. It will not necessarily be so unless the Chancellor in the autumn has anything special he wants to tell the House, but he may be very chary of making a statement. We have already had that position in the last few weeks on other matters. Does he anticipate that it will be possible to devise any machinery which will prevent this? I do not know. I very much doubt it as things are and as they are likely to be for some years to come. That being so, it is worth the House noting the fact that this is the beginning of a new era in dealing with the financial details with regard to Income Tax and its imposition. Whether it will be in the long run a good thing that people should know so long ahead of changes in taxation, time alone will show, but on this occasion it seems to be necessary to do it. I therefore take no exception to it being before us, and I fancy that it will not be the last time.

    This point arises in two different aspects. In the first place, as the right hon. and gallant Gentleman has said, it is necessary under the existing arrangements for P.A.Y.E., which I inherited from my distinguished predecessor who is not a member of the Conservative Party. Under this arrangement which he devised, time has to be taken for the recoding and the working out of the Tables and so on. In my view—and I speak as a member of the Government which had a collective responsibility for this reform—P.A.Y.E. is much fairer to the Income Tax payers than the arrangement which preceded it. The principle underlying it is essentially sound and it was demanded for many years by hon. Members in all parts of the House. None the less, it has necessitated, in its first stage at any rate, the making of a very complicated administrative machine. We had to have a trial trip to see how it could be done. For a long time Chancellors of the Exchequer were advised that it was totally impossible, but gradually it has been found possible, and in this connection I should like to pay a tribute to the Inland Revenue staff, who have worked extremely hard at it and have shown very great ingenuity and flexibility of mind.

    The other day, in reply to a Question, I mentioned that I was going into the matter to see whether we cannot simplify it still further as we get more fully acquainted with the problem, and I do not give up hope that we may be able to make a very substantial simplification and there by at any rate shorten very much the period which now must elapse, from the point of view of administrative efficiency, between determining a change of Income Tax rates and its actual going into effect. We are working on that now, and in due course it will be my duty to inform the House of the result of our inquiries. That, however, is not the only reason why in this particular case there is a period of time which must elapse between the determination by the House of the new rates and their going into effect. There is the further reason, as I said in my Budget speech, that we must be exceedingly cautious and gradual in the relaxation of taxes, because between now and April we shall be in a period when production will not yet have picked up fully and the danger of inflation will therefore be great. In any case I should not have thought it right at once to give away the Revenue involved in allowing the lower rate to operate immediately. The new Surtax rate is also postponed because of the year of charge coming a year later.

    I am anxious to be merciful. What I have said, I hope, answers the right hon. and gallant Gentleman's point. We are going into it, and although at the moment we are in some difficulty, perhaps we shall be able to break out of it a little later.

    Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

    Income Tax Postwar Credits

    Third Resolution read a Second time.

    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

    8.15 p.m.

    We have already had some discussion on this matter, and in so far as this Resolution says that no more postwar credits should be created after the tax year 1946–47 or any subsequent year's assessment, I should imagine that everyone would agree with it as a general proposition, because whatever one may say about it—and I notice that the Financial Secretary to the Treasury had very little good to say about it the other night—it still remains a fact that the post war credit system was introduced during the war as a set-off for the withdrawal of certain allowances and the reduction of others. As the Chancellor has pointed out, postwar credits already amount to something like £575,000,000, with £225,000,000 more to come before the story is ended. Thereby, as Sir Kingsley Wood so often said to the House at the beginning of this affair, is created the difficult problem that there is this large amount of pent-up spending power on which a great number of people want to get their hands, in order to spend it. It is a problem of very great difficulty, with which the Chancellor has to deal and not I, or hon. and right hon. Gentlemen on this side of the House, but even if we grant that it would not be wise to continue the postwar credit system—and I have never heard it suggested in any quarter that it should go on in peace time, it was thought to be a war arrangement—we stilldo not feel that the right hon. Gentleman has dealt quite fairly with the persons from whom those allowances were taken and for whom postwar credits were set up, in the changes which he has made in his financial statement. There were three elements: the increased personal allowances, the raising of the exemption limit—these two the right hon. Gentleman has done—

    Never mind whether it is more than done at the moment. He increased the personal allowances, and therefore that element in the postwar credit has been restored—whether more or less is another matter; he has raised the exemption limit and therefore that element is back—whether more or less is irrelevant; but the element of the earned income allowance he has not given back. He said when he wound up the Debate on Thursday night that in his view there was no kind of pledge that what had been taken away would be given back exactly, but he did say also that there was a reasonable understanding that there should be some "comparable lifting of the allowances"—there I use his own words. It is very difficult to argue about the interpretation to be put upon what, I suppose, we in this House and the taxpayers concerned thought was a general understanding, but my recollection is that the idea was that when the post war credit system came to an end things should be put back as they were before, and then from that position additions or subtractions would be made as circumstances allowed. The right hon. Gentleman does not accept that. He says, "So long as I put in the same amount"—or, as he has fortunately been able to do for some people, more—"I have done all and more than was expected of me." In his argument, one of the advantages in taking that line has been that he has been able to give benefit to 2,000,000 people, whereas if he had put back the situation as it was there would have been only 1,600,000. Therefore 400,000 more people have benefited to some extent or another, and we must not mind about the people who are worse off, if any.

    The hon. Member for South Cardiff (Mr. Callaghan) said the other night that it would be quite wrong for it to go out from this House that on the whole people will be worse off as a result of this Budget. It all depends on what you mean by "on the whole"—on the whole, or in the hole, perhaps, because it is undoubtedly true that by the non-return of the earned income allowance element in the postwar credit some people will be worse off. There has been some argument on that. Some of my hon. Friends pointed that out during the Debate the other day, and one hon. Gentleman opposite—I cannot remember if it was the hon. Member for South Cardiff or not—brought out the tables and said, "There you are—everybody is going to have a less charge during the year to which these tables apply than before, therefore how can they be worse off?" That sounded like a complete destruction of the argument put by some of my hon. Friends, but what the hon. Gentleman forgot, and what these tables do not in fact disclose, is that no account whatsoever is taken of the value of the postwar credit, which ofcourse is, and must be assumed by everybody to be, worth its full value. If it is not worth that, the whole of our financial system has in fact gone astray, because we all stand behind the fulfilment of the State's obligations, and no one has been more strenuous in saying that than the present Chancellor of the Exchequer.

    I have some figures which I think are correct. Take the case of a married couple, with one child, earning £500 a year. According to the table, the charge at present is £101 2s. 6d. and the proposed charge next year is £72 15s. Look ing at that in its simplicity, it would appear that that man will be saving £28 7s. 6d. a year in tax. But at the moment that particular man is receiving £31 10s. postwar credit. [Interruption.] He is being credited with that amount. I hope that is not so different. He is not getting it in pounds, shillings and pence at this moment, but he is getting a credit which is supported by the whole of this country's credit, and that postwar credit is worth and I trust always will be worth, its face value. Next year, the £31 10s. credit will not come to him, but instead he will get a tax relief in pounds, shillings and pence—out of his own pocket—of £28 7s. 6d. The difference between those two figures is £3 2s. 6d., and to that extent he will be out.

    It is true that in one case there will be actual coins of the Realm which he will not be giving to the tax collector, and that in the other case it is a figure on a piece of paper which is drawn upon the credit of the nation and which will be repaid at some time. Therefore, it is true that such a man is to the extent I have mentioned worse off. Hon. Members may think differently, but it remains the fact that if you take the whole of the liability and the whole of the receipts and count, as I am sure the taxpayer should be entitled to count, the postwar credit as the equivalent of cash to be paid at some future date, that man will be worse off to the extent I have mentioned, and he will be worse off for one reason only—because the right hon. Gentleman the Chancellor has not put back the earned income allowance. I shall be very glad if I am proved to be wrong, and so will my hon. and right hon. Friends, but we have no reason to suppose that we are all poor mathematicians. [Interruption.] The hon. Member for West Fife (Mr. Gallacher) has not been here all day listening to the Debate. He simply flits in and out and makes noises. I should be glad if he would take an interest in these financial matters and adorn our Debates on financial matters.

    The right hon. and gallant Gentleman is missing a fact. If he is discussing this from the point of view of finance, surely it is an understood and recognised feature in all finance that if you leave a sum of money in the hands of the Government for a period of time, you will get interest, along with the original sum. Therefore, if the man to whom the right hon. and gallant Gentleman is referring gets the money now instead of leaving it in the hands of the Government, he will not get the interest that is included in the postwar credit.

    That is so "recognised" that it has nothing whatever to do with the matter. There is no interest attached to the postwar credit, and never has been. It would have been much better if the hon. Member had listened to some of these Debates, not only this year but in years past, and then he would have known what the situation was. Quite apart from the fact that in certain cases there are people who will not get so much relief as the Chancellor appeared to indicate in his speech, there is a second point to which we on this side attach some importance and about which I hope the right hon. Gentleman will be able to give us some information. Throughout his statement the Chancellor kept on repeating that the idea was to give some incentive. The biggest incentive that could be given would be to increase the earned income allowance. Anything that will induce people to earn more, to work more in order to earn more, must be to the good of the nation as a whole. Everybody is agreed that if we are to catch up with the world at large, if we are to recreate our trade and get out exports going again, we must work hard. Employers and trade union leaders alike have repeatedly urged people to put their backs into it and to work hard in order that we may return to something of the standard of life which the masses of our people enjoyed before the war started. Why at this particular time the Chancellor should not have put back that element in the postwar credits which was taken away, why he should not have improved the allowance for earned income is beyond my understanding. I very much hope that the right hon. Gentleman may be able to make some concession and that he may be able to indicate what is in his mind on the subject. I feel he has made a misjudgment in this matter. He would be very fortunate if he got through the whole Budget without making any misjudgment. I feel this is the weak point, and I should be very happy if he could give us some encouragement and tell us that he has not entirely closed his mind on this subject.

    This is largely, if not wholly, a question of arithmetic and the interpretation to be placed upon figures. It is not always easy to be clear in these matters, but I will endeavour to be as clear as I can. Certain points are not in dispute. In the Finance Act, 1941, the postwar credits were instituted, and co-incidentally with that certain changes were made in the exemption limit, in the personal allowances and in the earned income relief. Those were the only three changes held to be associated with the postwar credits. It would have been possible for me—and I considered it carefully when preparing the Budget—simply to have restored the status quo. I did not do that. I have created a different system of allowances, and I will explain how they differ. I consider I have done much better for the community at large—I will deal with exceptional cases in a moment—by what I have done than I would have done if I had simply restored the status quo. The exemption limit was reduced in 1941 from £120 to £110. I have put that back. I have put them back; that is as it was, and I have nothing further to say about it.

    8.30 p.m.

    The single person's allowance was reduced in 1941 from £100 to £80 a year. I have not only put back that allowance from £80 to £100, but I have gone further and have put it up to £110. I will emphasise what that means. As far as the married couples' allowance is concerned, I have not merely put it up from £140 to £170, but have put it up another £10 to £180 a year. I have altered that allowance, and I observe that as a result of doing so I have conferred a much greater benefit upon a large number of people near the bottom of the Income Tax paying scale than I would have done if I. had reconstituted the arrangements of 1941. If I had reconstituted those arrangements exactly as they stood we would have cleared 1,600,000 persons from paying Income Tax, but I have cleared 2,000,000 persons from paying Income Tax, and I believe, apart from acting in fairness to those people who were not really in an economic position to pay Income Tax without depressing their necessary standards of life, it is a much better incentive to get them off paying Income Tax. I am sure that the right hon. Gentleman opposite would find it so if it happened to him. He would find a tremendous incentive in taking Income Tax off these people altogether preferably to dealing with the arrangement of our allowances. Therefore these two particulars, in which I have gone beyond the 1941 Act, have, I submit, been justified in their objects by reaching a larger number of persons at the lower end of the scale.

    That is not all that I have done. I have also regraded the standard rate apart from reducing it. I have instituted something which was not operating in 1941; I have instituted a specially reduced rate of tax at only 3s. in the £ next year on the first £50 of taxable income after all allowances have been made. That will have a very beneficial result on persons in the lower strata of those who are subject to tax. I emphasise the 3s. in the £ only on the first £50 of taxable income. In addition I have reduced the standard rate by 1s. That is a bonus in the terms of this arrangement. There was no undertaking when Post War Credits were created that, when they were stopped, we would get a reduction of the standard rate, and, therefore, the reduction of the standard rate is a substantial concession.

    I have deliberately not altered in this interim Budget—and I emphasise "this interim Budget"—the earned income allowance. I reserve full liberty to do that on a future occasion. It is what we would all like to see done and what I would like to do, but it does not come within the first priority in this Autumn Budget. The result of this group of changes that I have made is completely and sufficiently shown as far as next year is concerned, and that is all that the White Paper purports to show. What is shown in my White Paper is exactly what is intended to be shown. The tables show the difference between what is being paid now and what will be paid next year when the changes take effect and show that every person from the top to the bottom of the scale, and in all scales, will be better off next year as a result of what I have done.

    The Post War Credits are not shown in these tables because there is no assurance that—indeed, I am pretty certain it is the other way—Post War Credits will be paid back next year. They will be kept. The people are credited with those Post War Credits and the exact date when they can be repaid, as I indicated, depends on the general situation with regard to production and the danger of inflation, which would be very great. If we allowed a substantial part, if not the whole, of the £800,000,000 locked up in Post War Credits to be paid back, there would be a great danger of price control being overrun by an inflationary flood and none of us want to do that. If you look at what is to be done next year, and the White Paper tells the truth and nothing but the truth, the calculations which the right hon. and gallant Gentleman has been going into are all based on fallacy. It is the case of a person who it is said will be worse off by reason of relief of Income Tax next year because the relief is less than the Post War Credit which would have been credited to him if it had not been terminated.

    It is a fallacy to argue that you can compare an actual reduction of taxation which is shown in everybody's pay packet, bank account and income, with the fact that you have been credited with a sum of money which you are not going to get next year but later on. By the time they get the Post War Credits we may have gone further—I make no commitment—considerably further with regard to reduction of taxes on certain groups of people. We very likely will. I would like none the less, pursuing the right hon. and gallant Gentleman's line of thought, to tell him the result of an inquiry we have made in the Inland Revenue. Assuming the basis of calculation is correct, which I do not admit, I repeat that next year everybody is going to be better off as a result of what I have done, including the people whose case he was taking. But suppose it is a reasonable presentation of the case to take it as he took it, and that you will deduct from the tax advantage which the individual person will get as a result of my Budget the Post War Credit which would have been credited to him if I had not brought the system to an end. Even so, what is the position? There are now, before my changes in Income Tax begin to operate, 13,000,000 people liable to Income Tax. I am going to clear 2,000,000 of them entirely, but even on the assumption underlying the speech of the right hon. and gallant Gentleman there will not be more than 1,250,000at the outside, and perhaps not more than 1,000,000 out of all these 13,000,000 people who, even on his basis of calculation, will be worse off as a result of what I have done. The vast majority, even on his basis of calculation, which I do not admit, would be better off as a result of what I have done.

    I have redistributed these allowances in such a fashion that I have conferred a substantially greater advantage upon an overwhelmingly large proportion of those concerned. Even the minority, on the basis of the calculation which he has taken, who are less well off on the unreal assumption that they would be getting their post-war credit at once, which they are not, are only at the outside one-twelfth of the whole Income Tax paying population and they do not include the millions of those most in need of this relief. At the lower ranges, even on the right hon. and gallant Gentleman's computation, they secure relief as a result of what I am doing.

    I do not know whether I have succeeded in making that clear. It is not altogether easy to make it clear, but it is clear in my own mind. Naturally, perhaps, I can understand it a little better than other Members, but it is the fact that I have taken a decision to the greater advantage of the greatest number and, repeating that earned income allowance is one which I should like very shortly to restore in whole or in part, I hope that the House will agree that we can go forward with general approval of what I have proposed. I make this further qualification about the earned income allowance. Some people speak of it as only a fraction of the earned income which is allowed.

    It is common to say that the earned income allowance was one-sixth and has now been reduced to one-tenth. But there is another element in the earned income allowance; there is a maximum amount of allowance that can be gained by any one taxpayer in any one year. It used to be one-sixth off, with a maximum of £250 per taxpayer. It is now one-tenth with a maximum of £150 per taxpayer. I make no undertaking that if I restore the earned income allowance in respect of the proportion, I will also restore the total maximum advantage gained by any taxpayer. If I were to restore it simply to the way it existed in 1941, I should, in effect, be giving a bonus of £100 under this head alone to all persons, however rich, who could claim that they had a certain quantity of earned income. I am not committing myself to do that, but I am anxious to do something to assist earned incomes in the lower ranges by some modification of the present plan which will bring us a larger differential in favour of earned, as against unearned income, but to restore the old earned income allowance just as it was is not, perhaps, a thing we should be wise to do. I hope I have succeeded in making myself plain to the House, and that my statement will be accepted as, at any rate, bringing a little clarification into the matter.

    As the right hon. and gallant Gentleman was good enough to refer to something I said, may I quote what I said in a nutshell? I base myself on what he said, that there is need for an incentive and that we must all work hard and put our backs into it. The question he should address to himself is whether it is really an incentive to make a man pay 7s. 6d. now, or to give him 7s. 3d. now and to say the 3d. we are taking is a discount for prompt payment. That is really the whole difference. The Chancellor is actually putting 7s. 6d. into the man's pocket. What the right hon. and gallant Gentleman was asking was that he should take it out of the man's pocket now, and say that in x years he should have the 3d. back.

    I do not think there are any Members at this moment who will not say that this is a Budget which we do not considerably approve of, but I think it is a great shame to finish by saying that the person whose income is not derived from investments, but is capable of earning £2,500—I think that is the right amount—shall have no alleviation in the future.

    8.45 p.m.

    I said I was not going to commit myself at this stage either to restore the income allowance to the exact form it was before, though I would like to do something to increase the differential between earned and unearned incomes, and that to restore the top limit just as it was was not a thing we should be wise to do.

    I should just like to repeat my remark that we wanted to have that quite clear so that no discouragement will be given to these people who also want to play their part in reconstruction through their own efforts.

    Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

    Bill ordered to be brought in upon the said Resolutions and upon the other Resolutions reported from the Committee of Ways and Means, and the Resolutions reported from the Committee on Finance (Collectors of Taxes and Finance (Payment of Excess Profits Tax Refunds), and agreed to this day, by the Chairman of Ways and Means, the Chancellor of the Exchequer and Mr. Glenvil Hall.


    "to grant certain duties of Customs and Inland Revenue (including Excise), to alter other duties and to amend the law relating to Customs and Inland Revenue (including Excise) and the National Debt, and to make further provision in connection with finance," presented accordingly, and read the First time; to be read a Second time upon Monday next; and to be printed. [Bill 28.]

    Purchase Tax (Copper Domestic Hollow-Ware)

    Motion made, and Question proposed,

    "That the Purchase Tax (Alteration of Rates) (No. 3) Order, 1945 (S.R. & O., 1945, No. 1202), dated 26th September, 1945, made by the Treasury under the Finance (No. 2) Act, 1940, a copy of which Order was presented on 9th October, be approved."—[Mr. Glenvil Hall.]

    I do not want to detain the House more than a few moments, but I am sure there are other Members in this House besides myself who would wish to hear from the Financial Secretary why, just at the present time when there are so many young families trying to set themselves up in homes, when these popular hardware utensils are coming on to the market it should be the policy of this Government not to exempt them from tax altogether, but only to make this negligible reduction in the Purchase Tax.

    What is being done is to reduce the Purchase Tax from 33⅓ to 16⅔ per cent. That reduction will mean a certain loss of revenue. If the tax had been taken off altogether, the Chancellor of the Exchequer would, of course, have included these in the list of articles in the Resolution which we have been debating today. As that was not possible, the Government have decided to make a reduction by this means, and I hope the House will accept it.

    Question put, and agreed to.

    Purchase Tax (Various Drugs)

    Motion made, and Question proposed,

    "That the Purchase Tax (Exemptions) (No. 2) Order, 1945 (S.R. & O. 1945, No. 1263), dated 9th October, 1945, made by the Treasury under the Finance (No. 2) Act, 1940, a copy of which Order was presented on 16th October, be approved."—[Mr. Glenvil Hall.]

    Again, I would like to ask the Financial Secretary two perfectly simple questions. There has been a great deal of feeling among the less fortunate people of the country that some of the more simple and household remedies should no longer be subject to the Purchase Tax. The two things I have in mind are camphorated oil and cough mixture for children. Perhaps the hon. and gallant Gentleman, the Financial Secretary, will be so good as to say whether these two articles, in common use in every home where there are children, cannot be exempted from Purchase Tax. [Interruption.] If the hon. Member will rise in his place and ask me to give way, I will do so with pleasure.

    :What I was saying was that cough mixture only poisons children. I am the father of seven, and we never had anything of the kind in the house.

    I conclude by asking the right hon. Gentleman if he will say whether these ordinary, simple and domestic recipes are still to be subjected to tax by this Government in its new found desire to assist the poor and the humblest in the land.

    The short answer is that, in so far as they are taxed now, obviously, that tax will continue for the moment, because this order deals only with the drugs which are mentioned, many of which have names which few of us would like to pronounce and probably would not know what they meant, in any case. In so far as the medicines mentioned by the hon. Member are proprietary articles, obviously, they are not exempt, in any case.

    Question put, and agreed to.

    Purchase Tax (Hand Made Carpets, Rugs And Mats)


    That the Purchase Tax (Alteration of Rates) (No. 4) Order, 1945 (S.R. & O., 1945, No. 1272), dated nth October 1945, made by the Treasury under the Finance (No. 2) Act, 1940, a copy of which Order was presented on 16th October, be approved.

    Expiring Laws Continuance Bill

    Bill read a Second time, and committed to a Committee of the Whole House, for Monday next.

    Expiring Laws Continuance Money

    Considered in Committee under Standing Order No. 69.

    [Major MILNER in the Chair]


    That for the purposes of any Act of the present Session to continue certain expiring laws, it is expedient to authorise—

  • (a) the payment out of moneys provided by Parliament of such expenses as may be occasioned by the continuance of Part I of the Coal Mines Act, 1930, and the Cotton Manufacturing Industry (Temporary Pro visions) Act, 1934, until the thirty-first day of December, nineteen hundred and forty-six, and of the Debts Clearing Offices and Import Restrictions Act, 1934, and the Pensions (Increase) Act, 1944, until the thirty-first day of March, nineteen hundred and forty-seven, being expenses which, under any of the four last-mentioned Acts are to be defrayed out of such moneys; and
  • (b) the payment into the Exchequer of such receipts as may be occasioned by the continuance of the Debts Clearing Offices and Import Restrictions Act, 1934, until the said thirty-first day of March being receipts which under that Act are to be paid into the Exchequer.—(King's Recommendation signified)—[Mr. Dalton.]
  • Resolution to be Reported Tomorrow.

    Bank Of England Bill

    Motion made, and Question proposed,

    "That the Committee do consist of six Members, four to be nominated by the House and two by the Committee of Selection."—(Mr. Dalton).

    8.55 p.m.

    I want to ask the Chancellor of the Exchequer what are the precedents with regard to the numbers of members to be selected by the House and by the Committee of Selection. The Motion provides for four to be nominated by the House and two by the Committee of Selection. I am informed that the rule, generally, has been, in the case of hybrid Bills, to have three members nominated by the House and two by the Committee of Selection. I want to ask what is the particular reason for adding twice the number nominated by the House as by the Committee of Selection in this case, and whether it would not be more appropriate to have three members nominated by the House and three by the Committee of Selection.

    8.57 p.m.

    So far as my information goes, we are following practice, and there is no departure from practice in this case. I understand that, in the case of a hybrid Bill, it has to be examined by a Select Committee before returning for the normal Committee Stage here, and, so far as my information goes, there is no departure from past practice in this arrangement. There is, of course, the alternative whereby the Bill may go to a Select Committee of this House, and, at a subsequent stage in its progress, to a Select Committee of the other House, or to a Joint Select Committee of both Houses, but it appears to the Government to be better for it to go to a Select Committee in this place, and that would mean that their Lordships might appoint a Select Committee later on.

    Question put, and agreed to.

    Motion made, and Question proposed,

    "That all Petitions against the Bill presented at any time not later than seven clear days after the Second Reading of the Bill, be referred to the Committee;"

    This is the first hybrid Measure to come before this House for many of us, and I was struck by the fact that four Members of the Committee should be nominated by the House—

    Question put, and agreed to.


    "That Petitions against the Bill may be deposited in the Committee and Private Bill Office, provided that such Petitions shall have been prepared and signed in conformity with the Rules and Orders of this House relating to Petitions against Private Bills;"


    "That the Petitioners praying to be heard by themselves, their Counsel, or Agents, be heard against the Bill, and Counsel or Agents heard in support of the Bill;"


    "That the Committee have power to report from day to day the Minutes of Evidence taken before them."—[Mr. Dalton.]

    Motion made, and Question proposed, "That three be the Quorum."

    :I was going to refer to the question of three being the Quorum, but the House has decided that the Committee should include four Members nominated by the House, and it would seem to be necessary that half its number should form a Quorum. The usual practice is for a Quorum to be four, not three, and I think attention should be given to this matter and that the number of the Quorum should be raised to four.

    In these matters, we desire to be most conservative and to follow the best established use, and I would like to assure the hon. Member, who has just recently arrived from Edinburgh, that, in supporting three, he is in the best sense conservative.

    Question put, and agreed to.

    Bank Of England Money

    Considered in Committee. [ Progress 29th October.]

    [Mr. HUBERT BEAUMONT in the Chair]

    Question again proposed,

    "That for the purposes of any Act of the present Session to bring the capital stock of the Bank of England into public ownership and bring the Bank under public control, to make provision with respect to the relations between the Treasury, the Bank of England, and other banks and for purposes connected with the matters aforesaid, it is expedient—
  • (a) to authorise the Treasury to issue to holders of capital stock of the Bank of Eng land (hereinafter referred to as 'Bank stock'), in exchange for Bank stock held by them, such an amount of stock (hereinafter referred to as 'Government stock') bearing interest at the rate of three per cent. per annum that the sum payable annually by way of interest thereon will be equal to the average annual gross dividend declared during the period of twenty years immediately preceding the thirty-first day of March, nineteen hundred and forty-five, upon the amount of Bank stock held;
  • (b) to authorise the charge on the Consolidated Fund of the principal of and interest on the Government stock, and any expenses incurred in connection with its issue or redemption and any remuneration payable in respect of its management;
  • (c) to authorise the Treasury, for the purpose of providing any sums required to redeem the Government stock, to raise money in any manner in which they are authorised to raise money under the National Loans Act, 1939;
  • (d) to authorise the payment into the Exchequer of sums paid by the Bank of England to the Treasury in lieu of dividends on Bank stock, and to authorise the issue out of the Consolidated Fund of sums so paid into the Exchequer and the application of sums so issued in payment of interest otherwise payable out of the permanent annual charge for the national debt."
  • 9.0 p.m.

    On Tuesday last we had a discussion on the First Reading of the Bank of England Bill and in the course of the speech which I had the privilege of making to the House I asked if the Financial Secretary to the Treasury, when he was replying to the Debate, would state the amount of the reserves of the Bank of England. It was quite clear at the conclusion of his speech that he was not going to reply to that question, and therefore I venture to intervene. I asked:

    "Would the Minister be good enough to answer the question which I asked him earlier this evening? What is the amount of the Reserve Fund of the Bank of England?"
    The hon. Gentleman replied:
    "The answer is that that question is quite irrelevant."
    which I am afraid caused a considerable amount of amusement to the other side of the House. However we did get one statement afterwards when he said that the price to be paid had been based on the market price of the present stock, but that did not answer the question I put to him. My right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank) subsequently joined in this Debate, together with others on this side of the House, with the result that the Chancellor got up and immediately showed himself to be very annoyed and very bad tempered. He said:
    "If hon. Members want the answer, I will give it; if not, we will take the vote."—[OFFICIAL REPORT, 29th October, 1945; Vol. 415, c. 189–195.]

    I would remind the hon. Member that we are now in Committee, this is not the Second Reading. Will he kindy relate his remarks to the Motion that has been made?

    That is what I am endeavouring to do, Mr. Beaumont. I thought I was able to give the reason why, when this Motion, now in Committee, came before the House as unopposed business on Tuesday night, I should object and carry it forward so that we might debate the matter further tonight. The reason was because the Chancellor himself had not given an answer to the question, which was, what are the reserves of the Bank of England? After all, although the Chancellor uses the word "I" all the time—he did in his Budget speech and he has done so in various speeches tonight—

    The hon. Member is again wandering away from the matter under discussion. Would he kindly relate his remarks to the Motion?

    I wanted to point out that this is a matter—if you will allow me to go two sentences further, Mr. Beaumont—which concerns the House of Commons. However often the Chancellor of the Exchequer may say, "I am giving this allowance," "I have made this bargain," it is not he who is doing so, it is the nation who are doing it. We want to know, therefore, whether a good and fair bargain has been made in the purchase of these Bank of England shares. There are Members on the opposite side of the House who spoke in the Debate on Tuesday, and who said that in their opinion the price was too high. But there are those on this side who think that the price is too low. [Hon. Members: "Oh."] If Members will examine what every responsible man in the Labour Party has said in the past about nationalising industry they will find that it has always been said that compensation shall be at a fair price.

    It depends upon what the hon. Member means by "fair."

    I quite agree. The hon. Member's idea and my idea as to what is fair are the same.

    At the moment, nobody, because nobody knows the facts. If there is £14,000,000 worth of stock in the Bank of England at the moment the stockholders are being paid £58,000,000 for it. I have reason to believe that the reserve funds of the Bank of England are sufficient to enable the stockholders, if they wound up the company, to obtain a far greater sum than £58,000,000. There can be no business in this country that could be more easily liquidated than that Bank. Theyhave their investments, which could be realised, and their loans to the joint stock banks and to others, all of which could easily be called in. I believe that if the stockholders called a meeting and put the Bank into liquidation they would obtain for themselves a division, pari passu with their stock holdings, of considerably more than £100,000,000, as compared with the £58,000,000 which they are now being offered by the Chancellor.

    Why is the Chancellor keeping this dark? Why does he not tell us? I am sure he is not going to tell us that he made a bargain with the directors of the Bank of England to buy their stock for £58,000,000 without seeing the balance sheet, the list of investments, and particulars of the whole of the assets. He must know what are the reserve funds of the Bank and the value of the net assets—that is, the difference between the value of the gross assets, less the liabilities of the Bank—compared with the amount which he is paying to the stockholders. So, I ask him now, as I asked the Financial Secretary the other night, and as my right hon. and gallant Friend the Member for Gainsborough asked the Chancellor, to tell us what are the reserve funds of the Bank of England.

    I make no apology for opposing this Financial Resolution. Yesterday, after Question Time, the Leader of the House said he understood that it had been agreed officially with the Opposition that this Resolution should go through. I do not know exactly what he had in mind, but I should imagine that at any rate any understanding there might have been was no longer binding after the Chief Government Whip moved the closure before the end of the time available for Business on Monday. If any one should, none the less, criticise me for opposing this Resolution now, I would pray in aid what Mr. Speaker said on the occasion when he was called to the Chair, at the beginning of this Parliament:

    "I have been a back bencher for a long time, and when we saw the two Front Benches, Government and Opposition, putting their heads together, we always used to say, 'well, the back bencher is going to get a dirty deal'."[OFFICIAL REPORT, 1st August, 1945; Vol. 413, c. 8.]
    The reason why I oppose the Financial Resolution is that it is drawn much too tight. The particular part of it with which I am concerned are the words which deal with the question of compensation. I perhaps may be permitted to quote them, leaving out the unnecessary words:
    "…it is expedient (a) to authorise the Treasury to issue to holders of capital stock of the Bank of England…in exchange for Bank stock held by them, such an amount of stock…bearing interest at the rate of three per cent. per annum that the sum payable annually by way of interest…will be equal to the average annual gross dividend declared during the period of twenty years immediately preceding the Thirty-first day of March, Nineteen Hundred and Forty Five, upon the amount of Bank stock held."
    These terms are so tight that they will prevent in Committee, if I am right in my view, any Amendment whatsoever of the compensation provisions, except one. The only respect in which the Committee would have any discretion to amend the Bill would be in respect of the terms of redemption. I think that is really a very drastic proposition, which we have to face. What would be the use of a Select Committee hearing evidence presented on behalf of the petitioners, who themselves would be represented by counsel, who would argue their case upon the issue of compensation, if the Committee were quite incapable of introducing any Amendment into the Bill? I think it probable that the Select Committee would take the view that it was no use their hearing any evidence at all on the question of compensation, except upon the terms of redemption which should be attached to the Government stock. Not only the Select Committee, but, for the same reason, I submit, on the issue of compensation, all other stages of this Bill in this House would be reduced to a farce.

    The hon. Member for Harwich (Sir Stanley Holmes) made out a strong case why we should be told, at this stage, what is the value of the assets of the Bank of England. I wish we could be told that now, because it has a real bearing upon the question of compensation, and upon the question whether this Clause is drawn too tightly or not. What would be the use of that information being supplied to the Committee, if they have no discretion, whatsoever, after considering that information, to amend the provisions of the Bill. This is a question which was discussed in more general terms, in a most interesting Debate which took place in 1937, when the present Prime Minister, at that time Leader of the Opposition, made a very important speech. Hesaid this:
    "I deemed it to be my duty, as Leader of the Opposition, to call attention to what I consider to be the danger of Members losing their privileges in this House. There is no party issue raised…"
    He proceeded:
    "Look at what is happening today. Members get indignant. It is found, when a Bill comes forward in which they are interested, that the whole matter is dealt with in the Financial Resolution. With great care they draft Amendments, but those Amendments are out of Order. They find it is no good waiting for the Bill because the Bill is governed by the Financial Resolution, and the Financial Resolution having been passed, they cannot get their Amendments called. That is not fair to this House."—[OFFICIAL REPORT, 8th March, 1937; Vol. 321, c. 815, 819–20.]
    9.15 p.m.

    Those are the words of the present Prime Minister. In consequence of that Debate a Select Committee was appointed to consider procedure relating to Money Resolutions, and in the course of their Report these words appear. They recommend
    "that any detailed provisions which define or limit the objects and conditions of expenditure contained in a Bill should, if and so far as they are set out in a Financial Resolution, be expressed in wider terms than in the Bill, so as to permit amendments to the Bill, which have for their object the extension or relaxation of such provisions, and which do not materially increase the charge."
    This is an admirable case in point. This Committee should scrutinise very carefully the terms of this Financial Resolution, and if they come to the same conclusion as I do, namely, that it will leave no scope for Amendment of the Bill in respect of the compensation terms, they should reject the Resolution, and the Resolution should be redrafted and re-presented by the Government to this House.

    9.17 p.m.

    It might be for the convenience of the Committee if I said a few words on the two points that have been raised. If I may take, first, the second point raised by the hon. Gentleman the Member for Sutton Coldfield (Sir J. Mellor), I would say two things on the form of the Money Resolution. In the first place, there has been dispute, and the hon. Member has been citing examples of dispute in the past, as to what is the proper form of such a Resolution. This Resolution is in line with many which, in the past, the House has accepted on other Bills. This is a Hybrid Bill and, therefore, a new stage is interposed between the proceedings on the Second Reading, with the Money Resolution, and the resumption of consideration of the Bill in its Committee stage here. The Select Committee stage is introduced expressly with a view to enabling full consideration to be given to questions of finance, and in particular, to compensation in regard to this Bill. About half an hour ago the House passed a Resolution in which it was laid down that a Select Committee shall hear petitions through counsel and so forth; so that, in this regard, an additional stage is put in, which will enable the matter which the hon. Gentleman has in mind to be very fully considered by Members of this House, sitting as a Select Committee.

    That being so, I think we are justified in drawing this Money Resolution in the form in which it is drawn, and which is in line, as I have said, with the form of many similar Resolutions in the past. Had no Select Committee stage been interposed, it might strongly and powerfully have been argued that the Money Resolution was too narrowly drawn; but because there is the Select Committee stage, and we will be able to go into the matter more fully and to much greater length man this House would wish to do here in Committee, it appears to me that the form of the Resolution, in these circumstances, is appropriate. If the Select Committee should reach the conclusion that the terms of compensation contained in the Bill ought to be substantially amended, I do not commit the Government to accept the recommendations of the Select Committee, but I am prepared to give the undertaking that, if they did so report, we would, if necessary, bring in a fresh Resolution to enable their recommendations to be considered by the House, whether or not the Government would, at the time, accept them. I hope that undertaking will satisfy the hon. Gentleman that there will be no difficulty if the Select Committee recommend that some change should be made.

    While I am obliged for what the right hon. Gentleman has said, I would point out that that, of course, applies only to the Select Committee; but when the question comes back again to the House, Amendments to enlarge the compensation will not be in Order, having regard to the terms of the Financial Resolution. We could not even get our Amendments called.