HC Deb 17 November 1947 vol 444 cc829-941

Question again proposed: That—

  1. (a) interest at three per cent. per annum shall be payable on unpaid excess profits tax;
  2. (b) paragraph (a) of this Resolution shall be deemed always to have had effect, except that interest shall in no case begin to run before the first day of January, nineteen hundred and forty-eight; and
  3. (c) any Act of the present Session giving effect to this Resolution may contain provisions consequential on or incidental to any of the provisions aforesaid."

3.42 p.m.

Sir John Anderson (Scottish Universities)

By the time the Chancellor of the Exchequer had completed his speech last Wednesday, it had become clear to me that when my turn came I should have to devote myself rather to what was not in the Budget than to what was in it, and that has become clearer in the light of subsequent events. I had expected that the Budget statement would be a sort of financial supplement, if I may so put it, to the statement on the economic situation made during the Debate on the Address by the right hon. and learned Gentleman who was then Minister for Economic Affairs and has now succeeded unexpectedly to the office of Chancellor of the Exchequer, but at the end I confess I was left wondering why we had had all the pomp and circumstance of a first-class Budget Debate for so little. The contribution of the increased and additional taxes proposed in the Budget towards the restoration of our economy will be, at best, trivial. The new taxes may be expected to have some anti-inflationary effect. The resulting Budget surplus, if a true surplus does in fact result, will in my submission be much less valuable than an equivalent surplus achieved as the result of real economies in expenditure setting free much needed additional resources for increased production.

I do not know whether there is really any doubt in the mind of any hon. Member as to the importance still to be attached to increased production. I have noticed a disposition in some quarters to suggest that our production having, as it is asserted, already reached a higher point than before the war, there is no pressing need for anything more—

Mr. Edward Porter (Warrington)

Who asserted that?

Sir J. Anderson

It was suggested in the course of the Budget Debate. [HON. MEMBERS: "By whom?"] It was referred to by my hon. Friend the Member for Scarborough and Whitby (Mr. Spearman). Anyhow, if hon. Members do not agree, no one could be better pleased than I am. Really, interruptions are beginning very early. I would merely say that it must be obvious that having regard to the heavy loss we have suffered so far as our invisible exports are concerned, having regard to war damage, arrears of maintenance and all that is covered by the rather ugly term "disinvestment," we still require a very great further increase in production and we cannot afford to disregard any means of achieving it.

As to the taxes themselves, I have practically nothing to add to what my right hon. Friend the Member for West Bristol (Mr. Stanley) had to say. I would, however, like, before passing to other and, I think, more important matters, to say just this about what is proposed in regard to the cost of advertisements in relation to Income Tax. I think the result of the proposal made by the late Chancellor, if it stands, will be very unequal in its incidence and grossly unfair. The proposal involves an unprecedented departure from sound principles of taxation. I believe I am right in saying—and I speak with some little experience on this—that till now, for purposes of Income Tax, all bona fide expenses incurred for the purpose of making profit, have been allowed as a deduction in the assessment of Income Tax. It is perfectly true that in relation to Excess Profits Duty the allowance of expenses has been qualified in the past by the insertion of the word "reasonable." That has never been the case in regard to Income Tax, and while there might be an argument in favour of limiting what is allowed to reasonable expenses, if that could be administered satisfactorily, that would have no bearing at all on a plan by which expenses incurred in a particular connection, however modest, however small in amount, however related to past practice, will only be allowed to the extent of one-half. In operation that proposal will prove to be grossly inequitable, and it involves a most unfortunate breach in Income Tax practice and tradition. I hope the proposal will not stand.

Passing from this subject of taxation, I, like many other hon. Members, looked in vain in the Budget statement for a review of the financial aspects of our economic position leading up to a discussion of measures in the financial field designed to promote recovery. Such a review, together with such a discussion, has been a prominent feature in all Budget speeches for many years past, and its omission on this occasion is, to say the least of it, astonishing. It is not the business of anyone on this side of the Committee to repair that omission, but I shall offer a few observations. To my mind the first essential step towards re-establishing our economic position must be the restoration of confidence both at home and abroad. Our present plight is not, as I have seen suggested, merely the natural and inevitable result of the exhaustion of five or six years of war and rising costs in overseas markets. I believe the extent to which the recent dollar drain, which has caused so much anxiety, is due to lack of confidence in sterling as an international currency has not been sufficiently realised or emphasised. I believe it will not be difficult to restore confidence because, despite everything, we still have great prestige, if we show courage, determination and faith. The objects upon which we ought to concentrate can be simply stated.

We must aim at a genuine and a maintainable Budget surplus by real economies rather than by increased tax burdens on an already over-taxed community. I and other hon. Members have stressed the importance of that in every Budget Debate. The late Chancellor of the Exchequer admitted explicitly in his speech that there was great scope for such economies. I think his words were that he was "working for a solid reduction." He gave no details, and I should like to have some details. A Budget which includes a provision of no less than £1,900 million for current expenses, apart altogether from Defence and the service of the National Debt, should offer great scope for reduction by pruning. The Chancellor himself admitted that there was great scope.

If hon. Members look at the details of the Estimates they will see many pro visions that invite inquiry. [An HON. MEMBER: "Where?"] In my view— and this may be what underlies the question, "Where?"—no one need or should contemplate a cut in social services. [Laughter.] I expected that. I have never suggested a cut in social services. [HON. MEMBERS: "Oh."] I have been grossly misrepresented—I had been pre pared to believe, unwittingly misrepresented, but I am beginning to be not so sure. [An HON. MEMBER: "Tell us why."] Yes, I will. Why should I suggest that? I have contributed, I claim, as much as any right hon. or hon. Member of this House to the development of the social services. Would anyone like to challenge that? What I did was to say in the course of a factual review of the causes which, in my opinion, had contributed to our present inflationary situation, that certain developments in the social services had been mistimed. I adhere to that; indeed, I think it is obvious. I did not speak in a censorious way; my statement was purely factual, as it will be today. We added to purchasing power at a time when it was already excessive. That is very different from saying—

Mr. Alpass (Thornbury)

Does that apply to old age pensions?

Sir J. Anderson

Yes, to old age pensions, too. A great many people became entitled to old age pensions who did not need them, but never mind—[HON. MEMBERS: "Oh,"] Oh, yes; hon. Gentlemen leave out of account altogether the provision already made for supplementary pensions. However, I will not go into that in detail; it is not part of my argument. What I said was very different from saying that, having once given these things, we should then cut them down. I believe that only in the face of dire national calamity could reductions in social services already provided be contemplated—except perhaps by my hon. Friend the Member for Orpington (Sir W. Smithers). In fact it is not so long since I said in this House, sitting opposite, when I was challenged by the hon. Member for Orpington as to whether we could afford the increases in social services provided for in Bills prepared let me point out, by the Coalition Government that I had come to the conclusion as Chancellor of the Exchequer that we could not afford not to give them. That is on record. [An HON. MEMBER: "When?"] Just before V.E. Day. I do not want to dwell on this—[HON. MEMBERS: "We do."] Do you? [HON. MEMBERS: "Yes."] Very well—[An HON. MEMBER: "Change of front."] Not at all, there is absolutely no change of front. Hon. Members can read for themselves what I said in the course of a balanced statement, and I adhere to every word of that statement.

I have only dwelt on this because my statements have been misrepresented, not, let me say at once, by right hon. Gentlemen opposite, with one exception, to whom I shall refer; not by the more responsible Members of the Socialist Party; and they have been misrepresented for the purpose of attempting to embarrass hen. Friends of mine on this side of the House. That is all I object to.

Mr. Alpass

It is in your speech—

Sir J. Anderson

I will not give way. I do not mind in the least what is said about me in this House. I say what I think, and what I believe, without too much regard for whether it will be popular or not. It is just as well that there should be some people who can do so. However, I was greatly surprised when the right hon. Gentleman the Foreign Secretary in a platform speech at Southport was betrayed into giving some countenance, as it seemed to me, to the misrepresentations to which I have referred. I have told him that I would raise this today. He said according to a newspaper report: "I have to ask Sir John Anderson whether he agreed to what was in the White Paper on Unemployment for the purpose of placating his Socialist colleagues, with the intention of going back on it all at the first opportunity." That is the substance if not the exact words of the report. That was rather a serious thing to say and, as I have said, I was greatly surprised because the right hon. Gentleman is not only a personal friend of mine but is a very fair controversialist as everyone knows.

I have here the White Paper—it is called the White Paper on Employment Policy, Cmd. Paper 6527, issued with the authority of the Coalition Government. Socialist Members of that Government are just as much responsible for it as Conservative Members. It is a long paper which merits close study. There are three things clearly brought out in that paper to which I wish to refer. The first is the grave danger of inflation during the transitional period. The second is a statement about food subsidies to which I will refer in more detail later, showing that they must be linked inseparably with stability of wage levels. Then there is a suggestion that social insurance might possibly be used for the purpose of adjusting the balance of our economy. I say that the Socialist Government have done exactly the opposite. They have failed to deal effectively with inflation. They have failed to treat price and wage stability as correlatives and have used social insurance to aggravate the distortion of our economy. I take my stand on this White Paper, and it is not I who have departed from it.

I think it may be convenient here to deal in somewhat greater detail with the question of the cost of living subsidies. I feel I have no option but to do so in view of the late Chancellor's attempt, if I may so put it, to incriminate me. In the OFFICIAL REPORT there are four columns of his speech dealing with this matter. He began, as hon. Members will recall, by quoting, I think in a rather accusing voice, certain passages from two speeches of mine, one in April of this year, and one in August of this year in the Debate on the state of the nation. The quotations were not quite complete, as I shall show, but I accept them. I thought that, coming from the right hon. Gentleman's lips, they sounded very impressive. I was not in the least ashamed of them. He thought, I believe, that by quoting those passages he was putting hon. and right hon. Friends of mine on this side of the Committee in a position of some embarrassment. I do not know whether the reaction he got gave him any satisfaction.

In order to make my position clear, as I think it is my duty to do, I must go back a little over the history of this matter. I should first like to refer to HANSARD of 25th April, 1944, c. 660, when I recalled what my predecessor. Sir Kingsley Wood, said when in April, 1941, he introduced the system of cost-of-living subsidies, in full agreement with his other colleagues, including his Socialist colleagues. He said, and it is important to keep it in mind, because that is when the policy was initiated: I put this forward as a most important development of policy, and I hope we may thus create conditions which will enable the wages situation to be held about where it now is. It is clear that persistence of the tendency toward rising rates, which necessarily increase costs of production at every stage of the productive process, would compel abandonment of the stabilisation policy."—[OFFICIAL REPORT, 7th April, 1941; Vol. 370, c. 1322.] That was the view of Sir Kingsley Wood at the time of the initiation of the policy, and that, I am entitled to say, was the view of his Socialist colleagues, because this Statement was made after full discussion and full agreement with them. As regards subsequent developments, the late Chancellor twitted me with having allowed the cost to double itself. I do not think I can fully agree with the figures he gave, but that does not matter. What he did not say was that when I found the cost increasing I did something about it. I have the quotation here of what I said in my first Budget statement of April, 1944. I said: I am afraid we can no longer regard a cost of living figure of 25 per cent. to 30 per cent. above prewar as sacrosanct, for the conditions laid down by my predecessor"— in the passage I have just quoted— as necessary to the maintenance of this particular figure are now being imperfectly fulfilled."—[OFFICIAL REPORT, 25th April, 1944; Vol. 399, c. 660.] I went on to announce on behalf of the Government as a whole, that is, with the full agreement of my Socialist colleagues, that I was going to allow what had been a range of 25 per cent. to 30 per cent. above prewar in the cost of living to rise to 30 to 35 per cent. I thus made my position perfectly clear. That is, in fact, the difference between the late Chancellor of the Exchequer and myself. When I saw the thing going wrong, I tried to do something, but the late Chancellor failed to do anything. Not only that, but in his first Budget two years ago—the autumn Budget of 1945—he made a most astonishing declaration, for which I reproached him at the time. He said then that he was determined, no matter what might be the course of events, to hold the cost of living where it was. It was a very reckless statement to make.

The extent to which we have, in fact, departed from the basis laid down by Sir Kingsley Wood, and reaffirmed by me on behalf of the Coalition Government as a whole, can be seen very clearly from the fact that when the policy was established in 1941, the wage level was approximately 10 points below the cost-of-living index figure, and the level of wage rates has now risen to 40 points above. Only now do we get, for the first time, a declaration on the part of His Majesty's Socialist Government which adopts, at long last, the attitude that I asked the Chancellor to take up in October, 1945.

The case for some cutting down of cost-of-living subsidies is, I believe, quite overwhelming. Of course, it cannot be done all at once. I made it perfectly clear in my two speeches on this subject, from which the late Chancellor quoted, that the reduction would have to be a gradual process. I am sorry to have to trouble the House with quotations, but I must try to make the point perfectly clear. On 16th April, 1947, I referred to— … a determined effort to bring down those subsidies."—[OFFICIAL REPORT, 16th, April, 1947; Vol. 436, c. 202.] Again, in August, 1947, I said that the Chancellor should make a determined effort to deal with the running sore of the food subsidies. It is not a thing that can be dealt with simply by a stroke of the pen. There would have to be compensatory adjustments."—[OFFICIAL REPORT, 7th August, 1947; Vol. 441, c. 1703.] Why were those words not quoted by the late Chancellor? In view of what I have just said, when I contrasted the wages situation when this policy was introduced on a clear understanding made known to this House, with what it is today—then 10 points below cost of living, and now 40 points above—is it really going to be said that nothing can be done with these subsidies except at the cost of some increase in wages?

Mr. Warbey (Luton)

The right hon. Member for West Bristol (Mr. Stanley) last week, in reply to an interjection on this point, said that there might have to be negotiations on wage questions.

Sir J. Anderson

Of course. That is how one does things here. One does not decide without negotiating, and does not begin by assuming that the people with whom one is going to negotiate will be unreasonable.

Mr. Warbey

In other words, the right hon. Gentleman accepted the necessity for an increase in wages if the food subsidies were reduced?

Sir J. Anderson

I also listened to my right hon. Friend the Member for West Bristol. I did not gather that impression at all. Naturally, there would have to be negotiations. There are a great many agreements in operation now which link up wage rates with cost of living. They cannot be scrapped without negotiations. What I have said, and say now, is that the Government, faced with this situation, ought to have the courage to go to the people and put the facts before them, and ask them to agree to what any reasonable person with a full knowledge of the facts would think right in the national interest.

Mr. Sidney Silverman (Nelson and Colne)

So that the right hon. Gentleman may not be further misrepresented, will he make clear that this is what he means; that food subsidies ought to be reduced and wage rates, in some cases, should be increased, and that that is his remedy for inflation?

Sir J. Anderson

I certainly did not say anything of the kind. I think hon. Members had better read HANSARD tomorrow and see what I have said. I have made myself perfectly clear—

Mr. Wyatt (Birmingham, Aston)rose

Sir J. Anderson

I cannot give way again. In order that there may be no doubt, I ought to say at once that when I talk about reducing cost-of-living subsidies, I have not at all in mind such items as those to which the late Chancellor referred, when he spoke of issues of milk or vitamin substances for nursing mothers and school children, or free milk in schools, and that sort of thing. That is not the kind of cost-of-living subsidies I had in mind, any more than those dealing with animal feedingstuffs, or acreage grants for ploughing, I am dealing with straight subsidies, the contribution in aid of the livelihood of every man, women and child in this country, which is not a social service at all, but a financial expedient, an economic expedient, and nothing more nor less.

Mr. S. Silverman

Will the right hon. Gentleman make it perfectly clear? He is definitely in favour of some reduction of general food subsidies; that, I think, we all now understand. What we do not now understand, because he cast so much doubt upon it, is whether or not he thinks-that ought to be accompanied by some increase in wages.

Sir J. Anderson

Why should I commit myself on that point? If we are to have-negotiation, a good deal depends on the-spirit in which the parties enter negotiation. I have really said quite enough about this. In my view there is no real difference in what my right hon. Friend the Member for West Bristol said on Thursday and what I am saying now. In my opinion, in a healthy state of society people earn a living wage, pay their own expenses, and make a proper contribution, according to their resources, to the common services of the community.

Mr. Wyattrose

Hon. Members


Mr. Wyatt

This is a very small point.

Sir J. Anderson

Hon. Members want to interrupt, but I want to make my case clear and I am prevented from doing so by constant interruption.

Hon. Members

What is the case?

Mr. Wyatt

I want to be fair.

Sir J. Anderson

Hon. Members will have no difficulty and they will find it is quite clear when they read HANSARD tomorrow. The cost-of-living subsidies were conceived as a financial expedient to achieve a certain purpose which was clearly stated.

Several Hon. Membersrose

The Temporary Chairman (Mr. Butcher)

If the right hon. Gentleman refuses to give way, hon. Members have no right of intervention.

Sir J. Anderson

I am much obliged. I do not believe a perpetual dole for everybody will have any place in the life of this sturdy community. I believe effective action in this matter will do as much as-anything to impress our friends abroad' with our determination to put things; right, and to stop further inflation. It will have that effect, because action, as is quite clear, will be unpopular and difficult [An HON. MEMBER: "What action?"] I was once in a position, standing at that Box, to say what I would do about these things.

Mr. S. Silverman

The right hon. Gentleman is in a position to do so now.

Sir J. Anderson

No, it is not my business. [HON. MEMBERS: "Oh."] I believe the right hon. and learned Gentleman who is now Chancellor of the Exchequer will look at this matter in the light of the views that are expressed on this side of the Committee, and will not be lacking in the courage necessary to take even unpopular steps if he is convinced they are right in the national interest. I say, let us do these things. Let us deal with the problem of food subsidies. Let us have a real Budget surplus. A real economy. Let us take adequate anti-inflationary measures. Let us give evidence that we are expanding our production still further on competitive terms. I believe that then we shall quickly see the effects of our policy in a general readiness to hold sterling all over the world, and we shall then be justified, as in my view we should not otherwise be justified, in accepting help from our friends abroad.

The restoration of confidence abroad will have its correlative at home. I need not here enlarge on the influence of political events, but I must take up what the Financial Secretary said last Thursday in what I thought was a deplorable speech. I did not hear it, but I have read it. He cast a most unfair aspersion on hon. Members on this side of the Committee in respect of their attitude towards the savings campaign. The Financial Secretary and his colleagues have not far to look for the reasons for the comparative failure in recent months of the savings campaign, which the late Chancellor rightly deplored. I was responsible for two years for the savings campaign. I never ceased to emphasise, speaking for all my colleagues, the determination of the Government to do everything possible to maintain the value of the people's savings. As I say, I had the full authority of my colleagues for what I said. I say to the House very frankly that I have been greatly troubled by the fate that has befallen those declarations that I personally made. Incidentally, that has been one of my main reasons for wishing to look closely at the whole history of this matter to see how what has happened came about.

Of course, it was quite inevitable that there should be some loss in the value of the people's investments. Higher costs overseas themselves made that inevitable, but I would emphasise that the importance of maintaining the value of people's savings is as great today as it ever was. For that reason, we must do everything we can to avoid further inflation. Moreover, we must do everything we can not only to avoid further inflation but to restore, so far as it may be practicable, to such limited extent as may be possible, the values that have been lost. On that point I certainly hope that we may have a forthright declaration from the right hon. and learned Gentleman. I hope, also, that we may have a declaration on cheap money. I hope that we shall be told that there is to be an end of the ill-starred effort to stabilise long-term interest rates at 2½ per cent.

Grave though the situation undoubtedly is, I am not pessimistic as to the ultimate outcome. I am bold enough to believe that the present Chancellor of the Exchequer can be relied upon to discharge his responsibilities with courage and devotion, pursuing the course which he has already embarked upon in another capacity and bringing people face to face with hard reality. I am sure that then the people will show the same rugged qualities with which they have met other crises in the past. I have just one thing to add: However well adapted may be the measures we take for the solution of our own problems, they cannot have full effect while the economy of so many other countries is in a chaotic condition. That is another problem not for discussion today.

4.23 p.m.

Mr. Shackleton (Preston)

Hon. Members on this side of the Committee thoroughly enjoyed the speech of the right hon. Gentleman the Member for Scottish Universities (Sir J. Anderson) because he has finally and irrevocably let the cat out of the bag. There were a number of points which I had hoped to make in the short speech with which I was going to burden the Committee, but I feel that we cannot let the speech of the right hon. Gentleman pass without a few comments on what he has said. Although he left us in no doubt about what he really meant, he persistently refused to say in specific terms what he was proposing. It is meaningless to talk about holding the cost of living and, at the same time, reducing inflation, unless specific proposals are made. I am sorry to pursue the right hon. Gentleman and I hope he will give me the courtesy of listening to what I say, because it may be that he would wish to contradict some of my remarks.

The right hon. Gentleman left us with a clear impression that the only way he can see of meeting the situation is to reduce food subsidies and then increase social services. Further, he mentioned an increase in wages. That is a curious statement in view of his earlier remarks about social services and his suggestion that our actions were too hasty. I can only suggest that those sort of proposals lead to disaster. They will increase the very inflationary pressure which we are so anxious to avoid. The arguments in favour of maintaining food subsidies are extremely strong. Primarily, they are that, only by maintaining food subsidies can we prevent further inflationary pressure, and the action that will be inevitably taken by the workers to hold their position in the world when things are not too abundant and wages are not too high, to buy the things which are really essential.

If I had time, I would like to quote some of the statements made by the right hon. Gentleman on a previous occasion. I am sure that it is within the recollection of the Committee that he left us in no doubt that what he inferred was that this Government had been too hasty in introducing its new social services. Although he said today that there was no condemnation in the way he put it, that strikes me as being a definite condemnation. It is right that we should know where he stands on that point. If I am misinterpreting him, I hope that he will say so, but I think that the position is clear and that it will be clear in the country. I hope that it will be made clear, also, to the electors of Gravesend and other places where we are trying to put before the people the determination of this Government to do their best in these difficult times to hold the cost of living steady and to avoid a return to the disastrous policies which would follow a violent form of deflation.

I have a number of other points which I would like to make. The Government have been attacked on the ground that they have failed to state specifically what is the inflationary gap. It is impossible to make an accurate estimate in terms of a volume of money. I note that hon. Gentlemen opposite lately have shown a most touching belief in the writings of Lord Keynes. At last they have discovered this great man whose writings on economy are so well known and have had a proper influence on Socialist economics for over 10 years. They say they believe it possible to give a quantitative measure of the size of the gap. I submit that the former Chancellor of the Exchequer was perfectly right in not attempting to estimate. Obviously, it is becoming a very large gap and it is highly desirable that such steps as can be taken should be taken to reduce the pressure of too much money chasing too few" goods. Accepting that fact, as the Government rightly do, it is clear that it is out of the question to close that gap satisfactorily without touching food subsidies.

Although attacking food subsidies may be a very convenient, and at first glance, attractive course of action from the high altitude from which an economist may look down on things, in fact it would be a completely disastrous policy. Further, I suggest that it is unreasonable to infer that food subsidies lead to a distortion of the economy. For many years there has been a large quantity of indirect taxation, which now runs at something like four times the size of the present subsidies. The new rates of Purchase Tax bring the level of Purchase Tax returns up to nearly the same figure as that paid out in the form of food subsidies.

Therefore, if food subsidies distort the economy, then Purchase Tax, and all forms of indirect taxation, which, in any case, are rather abhorrent to hon. Members on this side of the Committee, must also have that effect. Nevertheless, we must accept them at the moment. I would further point out that we must also set against the size of food subsidies the not inconsiderable sum which the Customs and Excise collect from taxation on certain foods. I believe that the actual figure runs between £50 million and £60 million. When the Chancellor of the Exchequer, in his Spring Budget, comes to consider pegging, or rather, refusing to increase the cost-of-living subsidies—if, in fact, the prices of food have gone up—I hope he will remember that certain items, such as sugar and tea, pay a return to the Treasury in excess of the subsidies granted on, them.

My point, in this particular aspect, is that there is nothing inherently unsound, in the organisation of our economy, in food subsidies. I hope, therefore, that we shall not regard food, subsidies as unsound, and argue that we must get rid of them. I see no reason why they should not remain a permanent part of our economy until we are properly organised on a Socialist basis. [Laughter.] Hon. Members opposite may laugh, but I would commend to their attention some of the achievements which have been attained in countries about which we, as democratic Socialists, may have some doubt, but in which they have tackled the problem of wages and the cost of living, not by increasing wages, but by a deliberate drop of some points in the cost of living, which is more logical.

I want to say a word about the taxes which the Chancellor of the Exchequer has introduced. I am extremely sorry with regard to two taxes, that on betting and that on advertisements—or, rather, the remission of the tax concession on advertisements—that they have not followed after proper inquiries. Hon. Members on all sides of the Committee will, I am sure, agree that there is a great deal of wasted resources and energy in advertising, but I suggest that it is an unfortunate way of dealing with it for the Government suddenly to slam on a tax. I suggest that it is time that some proper inquiry was made into this industry, and that we should attempt to establish some sort of principle with regard to advertising and betting. Some very interesting proposals have been canvassed for years past, and I think the Government should also consider—it may be that hon. Members on all sides of the Committee shy away from this subject—whether we should not let betting come out into the open and really regard its existence as a reality.

On the subject of the tax on whisky and beer, I would like to rebut the statement made by the hon. Member for West Renfrew (Mr. Scollan) who said that the beer served in England is only coloured water. In Preston, we are in a unique position in that there is a Labour brewery, which is owned by the Labour clubs. I am rather frightened of the effect which this tax will have, because that brewery not only supplies the Labour dubs, but occasionally coughs up quite a good cheque at election times. Furthermore, I would point out that it produces extremely good beer so far as the Ministry of Food allows and it is certainly better than coloured water.

I would now like to refer to some remarks made by the hon. Member for East Aberdeen (Mr. Boothby) on the subject of convertibility. This may or may not be entirely relevant to the subject of the Budget, but, nonetheless, it has been much canvassed in this House, and was also raised by the hon. and gallant Member for Central Glasgow (Colonel Hutchison). It is the question of how far, in fact, the convertibility clause was responsible for the drain of dollars. We had a very forceful speech from the hon. Member for East Aberdeen, but it is my humble opinion that the convertibility clause in the Loan Agreement was in no way responsible for the drain of dollars. I believe that the agreements that were made beforehand, in anticipation of the enforcement of convertibility, were agreements which we should have had to make any way. In other words, we were bound to restore partial convertibility. The Committee have not had a satisfactory explanation of what really happened. I believe that the drain of dollars which took place under those partial convertibility agreements should have been foreseen, but equally,' I feel that they had nothing to do, or, at least, were not primarily caused by, the American Loan Agreement. I should be glad if the new Chancellor of the Exchequer would give us some additional information on that point.

In conclusion, I wish to say something which I am sure is felt by all hon. Members on this side of the Committee and by many hon. Members on the other side. It is that, in welcoming, as we do, the new Chancellor of the Exchequer to his position of great responsibility—and he has the good wishes, I am sure, of the whole Committee—we, at the same time, feel extremely sad at the' departure of that very notable Parliamentary figure the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) who has just stepped down, and who was, I believe, well liked by everyone in this Chamber. I feel that his achievements will be more appreciated in the future. His very great knowledge, which enabled him to run rings round even the City gentlemen opposite who know a great deal about finance, was, I think, a measure of his distinction and his ability because—and I say this in no sense of disrespect—some of those City gentlemen are fairly fly birds. None the less, he was able to hold his own on the very intricate subjects which were frequently debated in this Chamber. I believe that we can feel that in his last act, in introducing this Budget, he has taken the right line. He has realised that, although there is inflation, the cures suggested by hon. Members opposite and their supporters were of such a nature as to be entirely contrary to his own Socialist principles, and I am glad that he stood firm on the matter.

4.38 p.m.

Mr. I. J. Pitman (Bath)

I would like to talk primarily on the question of the advertisement tax and, in doing so, I wish to declare an interest in the sense that being the chairman of a company which advertises, I have at least a potential interest in the question. On the other hand, like all people who run a business, I regret the amount of money which is spent on advertising. I am therefore in this declared interest not in the happy position of the hon. Member for Preston (Mr. Shackleton) who, in the case of his Labour brewery, clearly enjoys the declaration of the interest which he has so properly and courteously made. In dealing with the proposed tax on advertising, I want to make it clear that I am, not against taxation of business profits but only against this particular tax on advertising. If there is time and I can come to the question of the Profits Tax, I will make it quite clear that I think that businesses as a whole should, in a right way, contribute substantially towards closing the gap. This way is, however, certainly not the right way. Therefore, although I have a vested interest, that consideration does not enter into my motive or argument.

I appeal to the new Chancellor of the Exchequer to reconsider this legacy of his, which he has innocently inherited, and to receive a deputation of leading business people, of advertising consultants and chartered accountants who will, I am fully confident, in practice achieve during the intervening period between now and the next Budget more direct saving in advertising expenditure than the Chancellor is looking for or will achieve by his tax. I can confidently assert this because he himself admits that his saving will be nil in 1947–48, and he is looking only to 1948–49, and to £10,000,000 as the only revenue in a full year. If he will receive such a deputation I believe that the savings which can be voluntarily effected will greatly exceed the comparable situation of any loss which he may suffer in 1948–49 as a result, of postponing until next April a decision on this controversial inheritance. Even if he then decides to persist with this tax, he will have gained very great savings which he would otherwise not have obtained. I appeal to the Chancellor to do this for three reasons: first of all, in the interests of the Inland Revenue and of the smooth collection of taxes; secondly, in the interests of the consumers, who are the people of this country; and thirdly, in the interest of closing the gap between exports and imports. I am not in any way basing my appeal on the interests of the business community because, as I have said, I feel that they ought to contribute, but in another and better way. Indeed, I believe that they are generally willing to contribute, but I think it is wrong to make them contribute by means of this particular tax.

May I deal first with the interests of the smooth collection of taxes? In the business with which I am concerned, publishing, we have what are called dust jackets. They can be charged in our accounts either as part of the cost of the book production, or as advertising. It seems to me to be quite clear that from now onwards all the dust jackets of all publishers, however many books they advertise on the back, will appear in the column of cost of production. I am also connected with the printing trade. A good deal of advertisement expenditure goes to printers for printing. There has been considerable disturbance in the printing trade because of the Purchase Tax on such items, but this will be still further aggravated under the present proposal because it is possible for a firm to buy paper, enter it in the "stationery" column, and then get a Gestetner, Rota-print or one of those office printing machines and enter cost of processing under "salaries and wages," thereby quite properly escaping the tax on this item.

Again, to indicate the unfairness of this tax, let me refer to a large firm like Hoovers. Any hon. Members who have travelled along Western Avenue will have seen that lovely factory with its gardens standing well back from the road. That is a first-class advertisement for Hoovers, but the expense for the maintenance of those gardens is accounted for under all sorts of items in the profit and loss account, such as rent, salaries, etc. That instance is an indication of the degree to which it is impossible to pin down advertising to a particular account called advertising. After all, the subdivided contents of a columnar analysis of a profit and loss account is entirely a matter of opinion, and I maintain that this proposal of the former Chancellor is unworkable and unmanageable. My right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) this afternoon quite rightly called it an unprincipled departure from sound policy of taxation. In repeating him, I am not seeking to attach any strong denigratory meaning to his words. This is an entirely new basis of taxation, and without sound principle.

Hitherto, there has been a principle that there should be complete objectivity in taxation raising. As the hon. Member for Blackley (Mr. Diamond) pointed out the other day, this proposed tax raises difficulties of accounting which are quite astonishing. There is quite enough difficulty in arriving at what is a profit. The way in which the Chancellor of the Exchequer keeps his own accounts as outgoings and incomings is highly objective. A company arrives with a certain amount of objectivity at what its profit, is. At the end of a year we all have a figure in our profit and loss accounts, and we know that unless we do make a profit there cannot be any distribution whatever. Therefore, there is a force which tends to make our objectivity more objective. Under this proposal, however, there will be no such tendency. All businessmen will have the appalling feeling that somebody else is being much more subjective than they are in his analysis of columns in the profit and loss account.

Personally I do not mind if a girl, analysing a bill for £3 10s. 6d., puts it in the wrong column of the profit and loss account; it does not very much matter. But in the future it will matter, and there will be millions of decisions for which the Inland Revenue Departments will be ultimately responsible for approving. All of those decisions will be wide open to subjectivity of interpretation, and we shall all feel that other people are getting ahead of us by being more subjective in their own interests than we are. This tax is thus opening a brand new principle, or lack of principle, which will tempt and may well defeat the financial honesty of accounting in this country. It is admitted on both sides of the Committee that the British taxpayer and the British business community have been extraordinarily good. They are better than those in other countries by a long way, and it is the greatest mistake to put this new temptation in front of businessmen. It is submitting them to an impossible strain.

May I now deal with this question from the point of view of the interests of the consumers? I should estimate that over 80 per cent. of advertising is clearly in the interests of the consumer. If a railway is going to alter its timetable schedules, it must make the fact known. Right hon. Gentlemen opposite are responsible for statutory insistence on a great deal of advertising in the interests of the consumer. Take again, for example, even those little theatre advertisements. If we have time to go to the theatre, it is important to be able to see what the play is, the time it starts and where the theatre is. Take goods coming into supply. In a period in which there has been a short supply of everything, it is important that the mere news that something is coming into supply again, as we hope it will continue to do, should be made known to everybody. This applies not only to sales of parachute silk and material of that kind; it applies to almost everything. In all lines that sort of thing is happening, and it is a real service to the community to have the information.

I have here an analysis of the advertising on Sunday in all the big national Sunday papers. It adds up to rather over 12,000 column inches. It is interesting to note that out of 13 sub-analyses of this total advertising—the total of which is rather under 22 per cent. of the reading space available—the highest is of advertisements for food and household goods and is only four per cent. The next highest one consists of goodwill and commercial publicity. The third one is of announcements of films and cinemas. The fourth one is of medical, toilet and beauty preparations. The fifth one is Government advertising. These leading five users of advertisements take from four per cent. to two per cent of the available reading space.

Leaving out the Government, I think I can safely promise to the Chancellor of the Exchequer that if he will accept this deputation there will be a voluntary reduction in that advertising far more satisfactory to him than the reduction he would achieve by his proposal of a tax. At any rate, let him consider it. He will have a chance next April. I think I can guarantee to him that there will be voluntarily such limitations of this advertising as he wishes. It has never been put to the business community before. Many of them would like voluntarily to have a limitation of this kind if only they could meet with the others and do it by agreement. This deputation would provide a really good opportunity for them to serve the nation as they wish to do and, at the same time, to serve their own interests.

After all, this question of advertising is one of very great importance at the present time because it involves a proper balance between the production manager and the sales manager. The production manager is the man who wants to turn out what he wants the public to take. The sales manager is the man who wants to find out what the public wants, and to give it. The world, at the present moment, with a sellers' market is loaded in the favour of the production manager. What we mean by going back to a buyers' market is a market in which the seller meets us at the door and washes his hands and says to the consumer, "Sir, what is your pleasure?" Only by the sales manager getting a proper emphasis in his dealings with the production manager can that state of affairs come back. I would give one particular instance, that of fountain pens. We in this nation are hopelessly behind in the design of fountain pens. Our export markets are suffering in consequence. It is extremely easy to go on manufacturing fountain pens as we used before the war, regardless of developing trends in the intervening time. This advertisement tax will tend to subordinate the sales manager even more and more to the production manager, and so to defeat the proper service of the consumer by industry in this country.

I come to my third point, which is that of closing the gap between exports and imports. Clearly, from, what the late Chancellor of the Exchequer stated in his speech, he was looking to this, not as a revenue-producing item, but as an item for saving serious waste of money, of labour and of material. First of all, his point is to save waste in advertising, and my suggestion of a deputation will, I submit, produce more savings than his tax. If he is thinking of the waste in creating a demand which cannot be filled, then the advertiser does not wish to advertise and will agree voluntarily to cease. If the goods are there, then the advertising is right, because it lets the public know what goods are available. In so far as firms advertise because other people advertise, this proposal of mine is that we should get together and make this saving voluntarily instead of by a tax, and it will entirely meet the case.

Do let us realise that, in closing the gap between imports and exports, the selling price is of tremendous importance. The selling price of our exports does depend upon the relative influence of the sales manager. During this week a great deal will be heard of Norman Hartnell and of a particular dress that he is making; and that is capable of doing a tremendous amount in raising the prestige of British goods, and in making them more desirable. But the real issue is, that to make that effective we have to make other people know and value highly what we have to sell; and any tax which penalises advertising in that way—whatever the Government may say about having no desire to penalise export business—will penalise the balance between the production manager and the sales manager, and affect the atmosphere here at home.

I do appeal to the new Chancellor to throw out this emotional approach to the matter. It seems to me to be quite clear that in the Royal Commission on the Press the emotional approach, which desires to see a really successful attack on the Press for being dominated by its advertisers, is seriously breaking down. I submit that this tax proposal has been brought forward as a second-line attack on the Press at a time when the Royal Commission attack is not being successful. We are told that we admired the late Chancellor. I would say that, if there was one thing which should be pinned on him, it was the way in which he played to the gallery behind him and sought to play on prejudices of just this kind. We shall get nowhere in this country by the emotional approach. Let the new Chancellor approach this tax from the point of view of safeguarding principle in the collection of revenue, and of the financial integrity of the people; let him see that the consumers do not suffer through lack of information as to products available, and let him help the exporter to develop a real awareness of the market, so that the export selling prices may be good and remunerative.

4.59 p.m.

Mr. Crawley (Buckingham)

The hon. Member for Bath (Mr. Pitman) has made a most moving plea for the abolition of the new advertisement tax. I am afraid I cannot follow him in any detail, although I would say that he seemed to me to be an extremely persuasive advertisement himself for the people he was representing and that were I the new Chancellor, and about to receive that deputation, I am not sure that I would not mentally double the tax as a means of self-defence before they came into the room If his proposal means that saving would be effected voluntarily, then, and at least to that extent, I am sure we can wish his proposal well.

I should like to turn to two points which the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) made. He accused this side of the Committee of misrepresenting what he had said about reductions in social services. I have not a copy of his speech with me, but I think what he did in that speech was to deplore the fact that the Government had increased some of those services at this time; and I think he said that the increase was premature. Surely, he is not justified in saying that we misrepresented him, because if he said that a certain increase was premature, it follows that if he had been in power at that time, he would not have made the increase.

Sir J. Anderson

I do not object to that sort of criticism at all. What I object to is people representing that because I said something had been done too soon, I intended, had I the power, to undo it.

Mr. Crawley

I accept that distinction, but we say that hon. Members opposite would not have raised the social services to the extent that we have; and when we claim to our constituents that hon. Members would not have conferred the social service benefits that we have, surely, we are in the right? One of the many points made by the right hon. Member was that the Government had departed from a certain agreed relationship between wages and the cost of living and he quoted the White Paper on Employment Policy. The fact that we have departed from that agreed basis is, indeed, a measure of the difference between the point of view of the Government and that of hon. Members opposite, and is a measure of compromise they had to make in the Coalition Government. As I intend to show, I believe that we are reaching the limit of the level we can maintain. I and my hon. Friends claim that by the increases we have allowed, and by raising the purchasing power of wages as a whole, we have contributed more than in any other way to the stability which undoubtedly exists in this country, and I think we have every right to take credit for it.

The main theme of the Opposition's case in all these Budget Debates—except perhaps the first—has been that the Chancellor—so far as any single man could be responsible—was the man chiefly responsible for the difficulties in which we found ourselves at the time. There are fairly obvious reasons for their taking that point of view. One is that some of the by-products of the cheap money policy have certainly given them some cause. I will not go into it in detail, but I merely say that events during this year seem to show that the effects of the cheap money policy are short-term, whereas the benefits are obviously permanent and long-term.

The other reason, I think, is simply due to their legitimate tactics of selecting one quarry at a time, so that when they found that the former Minister of Fuel and Power had rallied to his support the might of the British Army, they very prudently withdrew and chose another quarry, and they selected the Chancellor probably because his invective was the next most stinging. What I want to suggest is that the Chancellor, far from being the man who could do most to get us out of our difficulties at this time, is probably more limited in what he can do than any Chancellor of the Exchequer has ever been in our history. On either side of him he has two almost deadweights—[Laughter.]

Mr. Jennings (Sheffield, Hallam)

Only two?

Mr. Crawley

I was thinking in terms of economics. He is not here at the moment, so the laughter of hon. Members opposite is very ill-judged. On the one hand, is this great mass of reserve spending power which has been accumulated during the war, and which carries a constant threat of inflation as it becomes due or is turned into cash. It is, of course, the main body of any inflationary pressure. On the other hand is the basic standard of living, to which, after all, both sides of the Committee are committed; though, as I hope to show, there are differences in the standards which we regard as essential. However, I believe that the standard to which both sides are committed allows of very little elasticity because of the demands on taxation which it makes to any Chancellor. Until the weight of one or other of these imponderables has been removed, no Chancellor will have anything like the power with the financial weapon, either to encourage production or to curtail expenditure which previous Chancellors have had.

For a moment let us consider the War Debt. That can be absorbed in a variety of ways. Obviously, an increase in production will give a greater value to the money set aside during the war. Equally obviously, the gradual inflation which takes place after every war will reduce the dead-weight of that inflationary threat. But it will be a long time before either production increases enough to give that money full value, or that gradual inflation has reached the point where there is no further inflationary pressure. There is, however, one other method of tackling the dead-weight, or war debt, which I was glad to hear mentioned by one of my right hon. Friends, namely the capital levy. I am not suggesting the capital levy is immediately practicable. I think it is an extreme measure. To anyone who has studied it there are quite obviously many injustices inherent in it, and it is very difficult to administer. However, it does seem that if the difficulties from the outside world in raising our production—difficulties of maintaining markets, and so on—continue for a long time, perhaps through causes beyond our control, then a serious consideration of some form of capital levy may become practical politics. As I said some time ago, and as I now repeat, I feel that the Treasury ought to be considering its use. I do not think this is a purely partisan point of view, for I have read at any rate something like that opinion from economist supporters of hon. Members opposite, who feel that £25,000 millions of war debt is an incubus which may be difficult to lift, and which may hamper and limit the financial weapon of all future Chancellors to too great an extent.

At the other end of the financial escalator the dead-weight is of a much newer kind than the National Debt—which, after all, we have had for over 200 years—namely, the general acceptance that a basic standard of living has to be maintained. There are obvious differences between the standards which the respective sides of the Committee believe necessary, but when the party opposite speak in the "Industrial, Charter," or when the right hon. Member for Woodford (Mr. Churchill) speaks in this Committee, of a basic standard above which we should let the best man win, of what standard are they thinking? Do they think that the present proportion of our national income which the wage and salary earners get—and it is worth mentioning that the proportion which interest, rents and profits receive is still the same as it was before the war—do they think that proportion is too high? They make sweeping statements—not in the Committee, but certainly outside—about the economies which can be made at this time in food subsidies, and so on. Recently the "Daily Telegraph" talked of cutting food subsidies by a quarter in this Budget. Do they really stand by that? Or do they accept the view that if they were in power, the basic standard which they support in their published documents and in this Committee could not take any lower proportion of the national income than the basic standard which the people have at this time?

That is why hon. Members opposite have shown great care when speaking about social services and food subsidies. While they have made all the capital they can outside in the country, they have shown that if they were in power they would have to maintain almost the same basic standard of living as this Government are maintaining, and that the real economies they could have made in the Budget would have been very small indeed. I am supported in that by what the right hon. Gentleman the Member for the Scottish Universities said. He spoke very vaguely and cautiously on the subject, showing that his party would find it extraordinarily difficult to reduce the basic standards of living in this country. Therefore the criticisms made against us are totally without foundation.

Chancellors of the Exchequer are not in the position today of being able to bulldoze away all our economic obstacles. The weapon they possess is little more than a mowing machine; but it is important for us to see that the knives are set low enough. It is in the light of these circumstances that we must examine the Budget. Has the ex-Chancellor of the Exchequer set his knives low enough to attack the inflationary gap and to help us meet the balance of payments position? In my opinion, he has not. For his chief economy he is relying on the Armed Forces, where many of us think there still remains scope for economies; but it is important to realise that such economies do not automatically result in any contraction of the inflationary gap. It has been said before, and it always needs to be reemphasised, that while these reductions may knock something off from the Chancellor's balance-sheet, those who are released from the Armed Forces get wages elsewhere, and it is only in so far that they are able to increase production above what they consumed that we get any reduction in the gap at all.

Another point mentioned by the Chancellor of the Exchequer was the very creditable reduction of 32,000 civil servants. I hope that we shall hear a little more on this subject. I read in the "Economist" the other day of a committee which had been set up as a result of a working party in, I think, the cotton industry. It had not gone into the question of which control was right or which control was wrong, but into the methods of applying controls. They have been able to improve the methods a great deal, and to curtail the amount of paper work by as much as 70 per cent. in that industry. It was stated in this article that other committees in other industries were to do the same thing. I should like to know whether the 30,000 civil servants have been saved as a result of this sort of investigation, and if not, what progress is being made in this direction? We all know that the method of applying controls is more cumbersome than it need be in many departments of life, and I hope that similar committees will be set up to tackle this problem.

Hon. Members opposite have pointed out that the main economy could be made in the food subsidies, but from what they have said in this Debate, it is clear that, although they would have tried to reduce the food subsidies, they would not have been able to make any great inroads on them. The ex-Chancellor of the Exchequer made it plain that in his view we had reached the limit of what could be contributed towards food subsidies, because we have more or less reached the limit of what we can do by way of direct taxation. On the other hand, we on this side of the Committee have to consider how long we can retain, or allow, an increasing difference between the prices of foodstuffs and the prices of other necessities. We are absolutely committed to retain the standard of living, but I think there is a danger, as things get better or worse, of making food prices too rigid so that people get a special psychological outlook towards food, thinking that they can always have food at a certain price, while the prices for clothing and utility furniture move up and down. I think it is dangerous psychologically to go too far in that direction.

Mr. James Hudson (Ealing, West)


Mr. Crawley

Because we must try to keep before the people the actual increases in cost of production over the whole range. Four-fifths of the people earn under £1,000 a year, and we have to see that they get the right proportion of national wealth and income, but if we allow foodstuffs to become too rigid in price and other prices to rise, we naturally create a notion in the mind of the people that there is something special about the price of food, which will make it much more difficult to put through our agricultural policy. I am only saying that if, by the next Budget, the prices of all these things have increased even more, there will be a real case for regulating subsidies and Purchase Tax more evenly, so that the people will see there is a relationship between the rise in cost of utility furniture and clothes and the real cost of food. It is a technical point rather than a point of substance so far as the basic standard of living is concerned.

In regard to taxes, I think that the ex-Chancellor of the Exchequer should have gone a little further within the limits under which he can operate. I am not one of those who under-estimate the extent of the crisis we are in. After all, what is the position? If everything which the new Chancellor of the Exchequer has outlined takes place and we reach all our export targets, we shall still be running, as far as our overseas balance of payments is concerned, at a deficit of about 1,000 million dollars at the end of next year. That means we shall have mortgaged in advance more than one-half of any share in the Marshall Plan we are likely to get. Therefore, even if that plan goes through, the immediate relief will not be very considerable. On top of that, we have a large inflationary gap, which, if it is not largely absorbed by taxation, may cause a violent increase in prices, and take a large number of goods out of the range of the lower paid wage-earners. I think the Chancellor of the Exchequer should try to absorb that gap to the maximum possible extent, because if we should not, as the new Chancellor of the Exchequer warned us, reach his targets, we shall be faced with further shortages even in our basic necessities.

It is very misleading to suggest that the situation is less grave than that, or that there is no direct connection between our external deficit and our internal inflationary gap. I would have brought some other commodities into the range of Purchase Tax. Personally, I would have increased the Entertainments Duty, because that is a good way of absorbing inflationary money. It is a mistake to reduce the number of entertainments too much for that reason. I would also have taxed all betting. I know that it is impossible, administratively, to make certain of getting in all the bookmakers, but I am not so sure that an appeal to the bookmaking fraternity—who have a sense of sportsmanship—to hand over a percentage of their takings would not have-had good results. A large sum of money would have been obtained, although it would not have been possible to catch everybody.

Because of what I have said and of the inelasticity of the financial weapon, and because it is not through either taxation or economies that we can bridge this gap—only increased production can do that—the whole question of incentives must be the core of the problem of the Chancellor as of other Ministers. It was disappointing to find no additional incentives in this Budget, and I want to throw out an idea on this point. I believe that we are likely to have heavy direct taxation for some time to come. Such taxation is definitely a disincentive If a man feels that after he has done a bit of extra work he will receive only a half or two-thirds of the nominal amount he is supposed to receive, then that acts as a disincentive. Since, to any considerable extent, that disincentive cannot be moved, I think it can be attacked in another way.

How does the disincentive arise? Surely it is simply a question of habit of mind. I do not think that we have attacked the psychological angle of disincentives with sufficient study and application. Today, direct taxation is not just giving away or losing a lot of money. We get very good and varied values for it. Is there not some way in which the Government can connect more definitely in people's minds what they get for paying taxes with the payment? Most of us pay taxes with regret, or something stronger, but we are, in fact, paying for first-class value, and if there could be established in our minds-a picture of what we get for what we pay, I believe that the disincentive could be-reduced. All this may sound theoretical, but vastly increased industrial production: has been obtained through the application of psychological study in industry, and; the same method could surely be applied to taxes.

The idea is also worth considering from the point of view of saving. The need for saving today is presented in an extremely negative fashion. I have read the weekly pamphlet of the National Savings Movement, and although it is an admirable document in many ways it presents no dramatic picture of what people are saving for. Again, there is great difficulty, I know, in being able to promise people that if they save for five years they will be able to get a car at the end of that time. [HON. MEMBERS: "What about the petrol?"] Well, let us say something else that does not need petrol—a house. Within five years I believe that we should be able to devote more of our products to home consumption, and I think we should consider whether we ought not to put hire-purchase in reverse. There could be schemes by way of coupons or vouchers whereby people could put by a certain amount of money for a specific object. I do not think it should be impossible to guarantee that within a certain time a person might have a house, a refrigerator, or a car. It might encourage people to save, and make sacrifices now, if they knew that at the end of a specific period they would be able to obtain what they required.

5.27 p.m.

Mr. Beverley Baxter (Wood Green)

Unlike the hon. Member for Buckingham (Mr. Crawley), I shall not try to deal with every aspect of this Budget or the next one and many others to come. Unfortunately, the new Chancellor of the Exchequer is apparently having tea, but the Financial Secretary and the Chief Patronage Secretary are here and the advice I want to give will be in HANSARD. The first point I want to make concerns tobacco. The ex-Chancellor said that the saving on tobacco had not been satisfactory and that he was worried about it. Then, amid cheers from both sides of the Committee, the right hon. Gentleman indicated that he did not intend to do anything about it. I think it is a pity to say that something is unsatisfactory and do nothing about it. I would like to ask the Financial Secretary whether he can induce theatre and cinema proprietors—not order them—to stop smoking in theatres and cinemas. It would be greatly conducive to the health of the people, and would stop what my hon. Friend the senior Burgess for Oxford University (Sir A. Herbert) calls the "intensive coughing season" which starts in these places every autumn. It would also bring back good manners among audiences. There is no other country I know of which allows smoking in theatres and cinemas. Further, will the right hon. Gentleman find out to what extent, if any, the sales of tobacco by Co-operative societies have increased since the last impost was put upon tobacco? My impression is that they have considerably increased—

Mr. Coldrick (Bristol, North)

The hon. Member ought to make sure of his facts, because according to my information there has been a considerable decrease—

The Deputy-Chairman

The hon. Member is making a speech. He can only rise to ask a question.

Mr. Coldrick

I was answering a question, Mr. Beaumont.

Mr. Baxter

I was asking the Financial Secretary to what extent, if any, there has been an increase? Under the Cooperative system of trading, cigarettes can be sold below the prohibitive price to which they were raised by the former Chancellor. If there has been no increase, will the right hon. Gentleman try to estimate what decrease there would have been if it had not been for the last increase in duty? If it can be proved that anyone can become a member of the Co-operative Society for the mere entrance fee, which is a shilling or something, to buy nothing but cigarettes, and, by the refund, thereby defeat the policy laid down by the former Chancellor, I shall be very grateful if the Financial Secretary will look into it.

The only other subject about which I wish to speak is advertising. I hope that the right hon. Gentleman will extend our good wishes to the new Chancellor of the Exchequer. It is unusual for so good a batsman to be put in last but, with the Financial Secretary as his partner, he may be able to knock up a score of about 600, and he will need it. We wish him well. We believe that he is a realist, and I hope that he will consider how impossible this advertising tax will be. There is an easy tendency on the part of the Government to take some kind of restrictive attitude towards the Press generally. It has shown itself in many ways, and it is, perhaps, understandable, because the Press have knocked the Government around, but there is a freedom of the Press which we do not want to destroy. This strange tax on advertising will not hurt any of the big national dailies. I say that with knowledge of the subject and as a shareholder in a national daily newspaper. There is not enough space now, and so they will fill up just the same.

This is what will happen. At present, owing to the shortage of space in the national newspapers, there is an "overspill" which goes into the small local newspapers, already most unfairly cut down in size. Now they are in danger of not getting this "overspill" of advertising and some of them may have to go out of business. This is most unfair on these small papers, which keep alive the local sense of independence and put a local point of view which is so essential in these days of mass centralisation of everything. I hope that the Financial Secretary will put it to the Chancellor that this can only work hardly on the small papers. It is simple to say that advertising is an extravagance, but advertising is the very incentive and stimulus of trade. At the present time, the Government are concerned with the saving of manpower and materials, and yet they are now saying to the merchants, "We are going to stop you spending money in advertising, but you will be able to employ more men to serve your goods." [Interruption.] We on this side are sick to death of interruptions all the time and of an hon. Gentleman opposite muttering like a Buddha. This argument is being addressed to the Financial Secretary, and I should be glad if the right hon. Gentleman would listen to me, because I know more about this subject than he does.

How are we to decide what is advertising? Display advertising is possibly easy to tax and to describe. But what about the sending out of circulars; will that be advertising? That would mean an extra use of paper. Supposing an industry has a gathering of its representatives and dealers and gives them a fine time in Manchester or London or any other great metropolis where one can have a good time, is that advertising?. An hon. Member behind me says that the Government do not know. This will involve them in such evasions and differentiations of definition that the Government will not know where they are. Let us take the position of a new firm. Even under our present Socialist system there must be some chance of new firms coming into action. Supposing a new firm has a system of manufacture which is better than what is already on the market, and which might reduce manpower and materials; but they are hard up and have not enough money to float the thing, and their only chance is to advertise. Under this new impost, they would at once run into heavy losses. The Government will prevent this new enterprise from letting its goods become known to the public.

However one may look at it, this proposal is most stupid, involved and almost—I do not like to use the word—malignant. It once more emphasises that, strangely enough in a Socialist philosophy, there is a decision to keep intact the position of the firm that is in possession and to stop new businesses coming in. Everyone on this side of the House receives letters from their constituents saying that young fellows wanting to start in business cannot get supplies, whereas those who were in existence before the war get the materials. That goes on all the time, and now comes this advertising imposition which will stop new firms from allowing themselves to be heard.

Mr. John Lewis (Bolton)

Would the hon. Gentleman explain why this would affect a new firm as against a firm already in existence?

Mr. Baxter

Under the present system, a new firm can charge its advertising against its profits and expenses. Now it will be faced with a loss. They will not be able to charge this, and this tax will become a loss which they cannot meet.

It is wrong for the Government to tell people how to run their businesses. That is a bad thing to begin with. Also one cannot forget the tonic effect of advertising upon the people in general. Many hon. Members see American magazines. I take into my house "Life," "Fortune" and the "Saturday Evening Post." In the "Saturday Evening Post," I read the advertisements first. I am sorry to say that, many times, the advertising is better written than the stories, because they pay more to the men who do it. What happens? There is a sense of the vitality of the whole American continent. The advertising which these firms do is closely linked up with their sales departments, and there is an immense effort to live up to their advertising. More and more in this country, we try to produce the idea of utility production: "There it is; we are short anyway; you will have to take it as it is." How are we to compete abroad if, on the home market, goods go direct from the factory to the consumer without any public taste or discussion in the choice of these things? I do not wish to elaborate this point, but I urge very strongly that this ill-thought-out tax should be withdrawn.

I do not understand the suggestion that there should be some form of contribution. I do not know why the Government want a contribution at all. Again and again the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) said he had this recent surplus and he did not need new taxation. It can really only be a punitive tax, but as it is let me say in all earnestness that as a result of this tax there will be conscious and unconscious divisions. There will be such a variety of interpretations and such subterfuges, legitimate and illegitimate, that the Treasury themselves will not be able to say-what is an advertisement and what is not. For all these reasons, I urge the Financial Secretary to take this proposition back and think it over again.

5.41 p.m.

Mr. Coldrick (Bristol, North)

I listened with great interest to the important statement by the hon. Member for Wood Green (Mr. Baxter). In view of the fact that he writes so freely and speaks so eloquently on the Co-operative movement, one can be pardoned for saying that he exercises an authority out of all proportion to his knowledge when dealing with that particular subject. I understand, in the first place as regards the Co-operative societies' sales of tobacco there has been a definite decline since the tax was imposed, but in order to meet the slender purses of the large number of people in the movement a smaller cigarette has been produced, and that makes it possible for the poor member to consume some at least of the scarce quantity available. Apart from that, I would draw attention particularly to the tax which the hon. Member for Wood Green stresses so much. The impression is generally gleaned from the statements that are made that the Cooperative movement is in some privileged position. Let me make it perfectly clear that the movement pays its taxes to the Chancellor in precisely the same way as any other tobacconist, and if any other tobacconist in the country feels he would like to share his surplus with the ordinary consumer, the Co-operative movement will offer no objection whatsoever.

Mr. Baxter

I am not a member of a Co-operative society, but is it not possible for me to become one for the expenditure of a shilling or something like that, and buy nothing but cigarettes, receiving in due course what is called a "divvy" and thereby underbuying the Chancellor while being only a bogus member of the Co-operative society?

Mr. Coldrick

The Co-operative movement acts on the assumption that most people are honest. We accept a person on payment of a subscription when he or she becomes a member of the Cooperative movement. It has the basic principle of Co-operation, which is bigger than the Co-operative movement itself. Consequently, the movement would soon peter out, if people came in on the assumption that they could buy only one commodity because that commodity conferred upon them a special privilege. It would be impossible with an open membership, even if one felt so disposed, to prevent the hon. Member for Wood Green attaching himself to the Cooperative movement, but the basic principle laid down for 100 years is that we share the surpluses in proportion to the purchases. For that reason everybody connected with the Co-operative movement seeks, of course, to distribute that surplus amongst all members in proportion to what has been spent.

It may be that an unscrupulous person now and again derives a certain advantage, but, to be perfectly frank, in existing circumstances some societies have adopted the policy almost suggested by the hon. Member for Wood Green and have either increased the price or have not paid a dividend on the purchase of a particular article. Speaking for the movement as a whole, however, I want to make it perfectly clear that the tax is paid in exactly the same way as is done by any other tobacconist, and the individual shares no advantage other than the advantage of the surplus which-in other cases goes into the private traders' pocket.

Mr. Baxter

May I interrupt the hon. Member again? He is very courteous to give way. Does he not think, in view of our desire to cut down the sale of cigarettes, that the same policy should be adopted by the Co-operative societies towards cigarettes as is adopted towards books and patent medicines on which there is no "divvy" distribution at all? Why are not cigarettes excluded?

Mr. Coldrick

I do not want to enter into a debate with the hon. Member for Wood Green, but is it not obvious that every argument which he adduces in regard to tobacco can be adduced equally strongly about every article which carries tax, because obviously the same principle applies? For that reason I do not see the force of the suggestion which he is now making that we should single out this particular commodity.

Leaving that matter aside for the moment, I want to welcome generally the proposals in the Budget, and I am particularly glad that on this occasion my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) has declined to accept the advice so much given by the professional economists in this country, with the insistent support of hon. Members on the other side of the Committee. Although I do not pretend to be a professional economist, most hon. Members will readily agree that if the professional economists have been consistent in one thing more than another in the last century, it has been in giving advice that was wrong on most issues. Without going back into the distant past, I think the right hon. Gentleman the Leader of the Opposition has himself made it clear that he made the fatal mistake of accepting the advice of the experts by going back on to the gold standard. Most of us recall that in 1931, when the problem was different from what it is today, all economists advised us that we should tighten our belts at the time when there was a surplus and that consequently they were proved wrong.

Mr. Jennings (Sheffield, Hallam)

Was the present Prime Minister not one of those people?

Mr. Coldrick

The probability is that he was, but I am merely suggesting that the experts have always advised in a way that has led to disaster. On this occasion I am glad that the advice has not been accepted and that consequently the food subsidies have been maintained. Without reiterating the argument already stated, let us for a moment ask ourselves who are the people who derive the greatest advantage from the food subsidies. We were told on the authority of the former Chancellor of the Exchequer that about seven million people have been exempted from Income Tax. I presume they have been exempted because it was felt that the income they received was not sufficient to carry any great burdens. Therefore, it is obvious that they derive a very substantial advantage from the food subsidies. I cannot imagine any hon. Member opposite asking that these people should be called upon to carry any heavier burdens than they are carrying at the present moment.

In the second category would be people with large families. Not only are they exempt from the payment of income tax, but the figures show that each individual is being subsidised to the extent of about 3s. 5d. per week. So, obviously the larger family is at a greater advantage because most people in large families are obliged to spend an increasing proportion of their income on food supplies. It stands to reason that anything that was calculated to take away these subsidies would hit the largest families most severely. Last but not least, without enumerating a lot of the other arguments may I recall that when we were discussing the question of public ownership in this House, I heard a great deal of criticism from the opposite benches because of the hardships that we were imposing on poor people who had fixed incomes. We were told that we were reducing the rate of interest they were to receive from compensation. Is it not fairly obvious that if we reduce the subsidies we shall hit these people very severely? I am amazed to think that any supporter of the party on the opposite benches would countenance a suggestion that we should reduce food subsidies at the present moment.

We can rest assured that if we did as the right hon. Member for the Scottish Universities (Sir J. Anderson) suggested and took off the subsidies, the organised workers of this country would provide ways and means of protecting themselves. They would be entitled to do so. Therefore it is obvious that if we raised prices the organised workers would immediately proceed with efforts to raise wages. The only people left out of this process would be those whom I have mentioned and the people with fixed incomes.

In the matter of social insurance, we have spent years in this Chamber seeking to provide social justice for the vast mass of the people. Let us be clear that the present figures were arrived at on the estimate that the cost of living would be increased by a certain percentage. If we allowed the cost of living to be increased without any restraint it would throw completely out of focus the present range of benefits. We should have to re-orient the scheme of social insurance. I had hoped that the time had passed when political fights would be waged over the question of social security. There was much support from all sides when we introduced Measures giving a wide social security, but if the Government did what the Opposition want today we should undermine the security that we have provided. The price of industrial peace must be a measure of social justice, and in so far as our schemes and our subsidies are essential to that end they more than compensate us for what we pay for them.

I should like to say much more upon that topic, but I must turn to one or two aspects of the Purchase Tax. I have already stated in this House my objection to that tax in principle. I believe that when the tax is applied it falls with greatest severity upon the poorest sections of the community. Every newspaper has been informing us that the shops were being rushed to sell goods which were not carrying Purchase Tax or which would carry an increase of tax after the Budget statement. The people with purchasing power can anticipate the tax because they can acquire what they wish. The heaviest incidence of the tax is invariably upon those who can least afford to buy. We have to consider also the bearing of the Purchase Tax upon national savings, which point was touched upon by the right hon. Member for the Scottish Universities. Some of us who have associated ourselves with the savings movement believe that it has been essential to get the people to save and that if saving is to be encouraged there must be price stability.

We have endeavoured to persuade people to withhold their purchasing power, but what is the result of the constant variation of the Purchase Tax? Let me give the Committee an illustration. Certain articles, such as electric fires and wireless sets, were £4 10s. cheaper a year ago than they are at the present moment. Therefore, so far from deriving an advantage from saving, people are being penalised. That matter needs careful investigation. If we are to maintain the Purchase Tax, a close investigation should be carried out to ascertain what are necessary things and what are luxuries. Once we have decided that question, if we want to debar people from purchasing the luxuries, let us put 100 per cent. Purchase Tax upon things which are outside the range of the ordinary income. To apply the tax as at present, imposes a penalty upon the thrifty and is a discouragement of all thrift.

As the new Chancellor of the Exchequer has pointed out upon innumerable occasions it is essential that labour and materials, being so precious, should be concentrated upon the production of the most essential and durable things. One frequently finds now that the most essential and durable articles are those which carry the higher taxation. It is possible for ingenious manufacturers to produce rubbishy articles upon which a great deal of labour and materials have been expended. They can either get away with a smaller tax, or if people pay the higher tax the article lasts only for a short time. We should draw up a list of articles, and see that labour and materials were concentrated upon producing important, sound and durable articles which will not be worn out in a few days.

In connection with the Profits Tax I suggest to the Chancellor that it may be possible to evolve a system whereby the tax would fall with a different rate of incidence upon essential as compared with non-essential industries. If it is correct to direct people from possibly more remunerative employment into other employment because it is deemed to be more essential, I see nothing wrong in deciding that firms engaged in the production of essential goods should pay a lower rate of tax than those who are producing nonessentials.

5.58 p.m.

Mr. Peter Thorneycroft (Monmouth)

We have heard three speeches from hon. Members opposite, the hon. Member for Preston (Mr. Shackleton) the hon. Member for Buckingham (Mr. Crawley) and the hon. Member for North Bristol (Mr. Coldrick). All were somewhat critical of my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), and suggested that my right hon. Friend was a little vague in the proposals which he put forward. I thought my right hon. Friend was pretty specific. None of the hon. Members to whom I have referred made any specific proposals of their own. The hon. Member for Preston was against the scaling down of the two subsidies and thought that we ought not to have a tax on beer. I must say I rather sympathise with him on that point, but I doubt whether his speech, while making him more popular in Preston, will contribute much towards a solution of our problem. The hon. Member for Buckingham went even further. He said that no Chancellor of the Exchequer could really deal with the situation and that the Chancellor was only a mowing machine whereas we wanted a bulldozer. If that is the case, we had better get rid of the mowing machine and get a bulldozer. I know of only one man in public life who can be so described, and that is my right hon. Friend the Member for Woodford (Mr. Churchill). The hon. Member's final contribution was that the National Debt was a very considerable burden, and he therefore suggested that we might repudiate some of it. That idea would not give very much assistance to the savings campaign. To invite the people to come forward with their savings and in the same breath say that they would be confiscated, is like the remedy of every spendthrift, simply to repudiate one's obligations.

The hon. Member for North Bristol, who made a most frank and attractive speech which we all enjoyed, said that economists have always been wrong. He is perfectly entitled to take that view. There may be some substance in it. One is entitled to say that the economists have been wrong, but one cannot leave the matter there. If one thinks the economists are wrong, one must say what one thinks is the right answer. The hon. Gentleman did not like the Purchase Tax, the food subsidies and a lot of things—

Mr. Crossman (Coventry, East)

The hon. Member did like food subsidies.

Mr. Thorneycroft

The hon. Member did not like scaling down the food subsidies and he was against many proposals, but at the end of his speech he had no solution for the inflationary situation. I do not want to deal with the detailed provisions of this Budget, the advertising allowance, the Profits Tax and the rest. That can be left to the Committee stage of the Finance Bill.

What I want to find out is whether this Budget in its broad outline now really represents the considered financial policy of His Majesty's Government. Is the new Chancellor tonight going to say that this is the Government's answer on the financial side to the crisis confronting us? I should have thought that the new Chancellor of the Exchequer would hardly have regarded these proposals as adequate to the situation or as a fitting corollary to the very honest, courageous and forthright speech on economic matters which he delivered to the House a little time ago. What is the Chancellor of the Exchequer going to do? The Chancellor's name is very much associated with targets. What is his target for tonight? It seems to me that so far the Government have set their sights extremely low. What is the Government's declared objective in this Budget? It is a very narrow and limited one. They came to the Committee and said, "Here is a Budget whose sole object is to cure that part of the inflation which is due to the new proposals for increasing our exports and decreasing our imports." All right, but suppose that is so and suppose they are successful, what about the inflationary gap which existed before those proposals were made? Is anything to be done about that gap? If the Government propose to leave that gap exactly as it was, they are taking a gamble with the fortunes of this country which no Government are entitled to take.

I have listened to most of the speeches which have been made in this Debate and those I have not listened to, I have read. Quite a number of hon. Members opposite, and quite a number of right hon. Gentlemen too, do not seem to be taking the situation confronting us with the seriousness which it deserves. Either they are wholly oblivious to the real dangers of inflation or they hope to hold it in check by some kind of physical control; perhaps some of them think it is a little internal complaint of our own which has not very much to do with our relations with the rest of the world. Those are dangerous illusions. What we want to know is whether those illusions are shared by the Front Bench, and by the new Chancellor of the Exchequer. Does the new Chancellor of the Exchequer think that this country is "sitting pretty"? If he does not, will he get up and make it perfectly plain tonight, because a very dangerous impression seems to be going about the country as to the Government's attitude about these matters?

This pressure of purchasing power—of demand—is directly responsible for the fact that the stocks of raw material in this country are being run down to dangerously low limits. What is the use of the Government putting up slogans like "Work or Want" when, under this inflationary system, the stocks are so low that raw materials are not coming forward to be worked? This pressure of purchasing power is directly responsible for the fact that a large number of men in this country are in the wrong jobs, making the wrong things, a dislocation in our economy which the Government admit but about which they are not proposing to do anything. They are responsible for the perpetuation of a rigid system of control. A lot of nonsense is often talked about controls on all sides, but, believe me, we cannot make a large-scale removal of controls until such time as we have dealt with the inflationary situation which gives rise to it. This pressure of purchasing power is probably due to a loss of productive effort in this country not far short of the loss of productive effort which existed in the 1930's for the opposite reason, the lack of purchasing power.

This inflationary situation and the danger of increasing it all the time is about the worst obstacle we could have to a successful conduct of the savings campaign. Some hon. Members think they can hold it by their physical control. It is a dangerous thing to imagine that we can hold it altogether by physical control. Inflationary pressure is like water; stop it at one point and it will burst out at another. Dissuade people from putting money on the totalisator, and they will go to the bookmaker; stop them buying tobacco, and they will go off and have beer; deny them a wireless set, and they will spend more on their holidays. Finally, when we have got men into the wrong places, can we really direct them back again into the right places under a Control of Engagement Order? I do not believe that is the right way of dealing with it. The right way is not compulsory direction; it is to cure the inflationary situation which got them into the wrong places to start with.

Mr. Michael Foot (Plymouth, Devonport)

Would the hon. Gentleman explain how the inflationary situation is responsible for the fact that the recruitment into the mines is not as great as everyone would like to see?

Mr. Thorneycroft

I do not know what on earth that has to do with it. What I said—I am quite sure that the Government themselves know it and that it is accepted on all sides—was that the pressure of purchasing power of the sort we have, with the prices of the necessary things fixed and the prices of the semi-luxuries unfixed, means a flow of workers from the more necessary things to the less necessary things. That is why we have people in Littlewood's Football Pools when they would be better in the cotton mills. Nor is this an internal problem alone. We are a great trading and industrial nation and our position depends upon two things; the first is the goods that we produce per head of our population, and the second is our credit overseas. There will not be enough goods if there are no raw materials to be worked or if the men are in the wrong places making the wrong things. There will not be any credit overseas if we are living beyond our means both home and abroad.

I want to say frankly what my view is. [HON. MEMBERS: "Hear, hear."] I hope hon. Members will permit me to say it. Under this policy of controlled inflation this country is moving ever more swiftly towards disaster. The American loan is spent. The last of the gold reserves will shortly be running out. There comes a point in the decline of a great nation beyond which recovery becomes, if not impossible, at any rate, extremely difficult. It is anybody's guess when the real crisis breaks, but I would put it at March of next year, about the time the last gold reserves are running out. When that moment comes, it will not be a case of picking up a newspaper and finding that the Chancellor has sold a few more million pounds worth of gold; what will happen is that no more food will be coming into this country. The ration will not be honoured, and at that moment people will begin to realise something of the realities of this situation which confronts us at the present time.

Mr. Mitchison (Kettering)

Will the hon. Member allow me to interrupt for a moment?

Mr. Thorneycroft

No, I am sorry I cannot. I want to say in all seriousness that I put it at next March, a month before the Chancellor introduces his next Budget. I do not think we can afford to wait six months. We cannot risk waiting six months while the Government cannot make up their mind what are their real proposals for dealing with this inflation. We have already paid a high price for the delay. If we had tackled this two years ago, we might have been out of the wood by now. If we had tackled it even at the time of the American Loan, we would not have been out of the wood, but we would have been somewhere near the edge of it. If we had tackled it even when we had the coal crisis last year, and it was known that we had lost £200 million of goods, we would be better off than we are now. If we had tackled it even last July, when the realities of this crisis first began to dawn upon the Government, we would still be better off. But I will not criticise the past. My complaint is that we have not started even now to tackle the real problem. If we delay this thing much longer—[An HON. MEMBER: "What thing?"] There are too many interruptions.

Mr. Crossman

The hon. Member must not only tell us what is being delayed, but what should be done.

Mr. Thorneycroft

I am just about to do so. The hon. Member need not have asked me that. I would not have got up if I had not been prepared to say what ought to be done. I am spending a little time on this because of speeches made by hon. Members opposite, from which it seems perfectly plain that hon. Members do not appreciate exactly what is the situation, or what are the dangers that confront us. I say that if we delay much longer, we shall not just have a lower standard of life. The hon. Member for Buckingham, for example, was talking about whether there is a difference in view between this side of the Committee or that side as to the standard of life at which we should aim, and that if there is such a difference it is simply academic. If we fail in tackling this inflationary situation, it will not be a slight rise or fall. The whole system will come crashing to the ground. It does mean, of course, that the longer we delay, the harsher the remedies will have to be, but in my belief, if we delay much longer, we may find that our very existence as a great nation—

Lieut.-Colonel Lipton (Brixton)

Delay what?

Mr. Thorneycroft

Delay some answer to this inflationary situation.

Mr. Austin (Stretford)

Let us have the answer.

Mr. Thorneycroft

I shall now give the answer—the principles which I think ought to be applied, and some of the steps which I think ought to be taken, and I promise to give it to hon. Members with sufficient precision to enable them to use it in debating speeches at the Gravesend by-election. I think that is largely what hon. Members opposite want.

What are the principles to be applied? I have noticed an inclination amongst a number of hon. Members to try to apportion the inflationary pressure between one section of the community and another, or between one part of the economy and another. Some people say that the inflation is all with the spivs or the rich; other people say that the inflationary pressure is on capital goods and not upon consumer goods. I think this inflationary pressure exists right through the system and that any remedy, to be effective, has to be applied right through the system too. We shall not get out of this simply by trying to cure it from the pockets of the rich. That does not mean that the remedies to be applied will not hit the rich very hard—they have to do that—but we shall not cure it out of the pockets of the rich or simply by dealing with the spivs. By all means deal with the spivs. May I say to the right hon. and learned Gentleman that I think one of the most effective ways of dealing with many of the spivs would be to call up the note issue, but I do not expect him to give an answer on that right away. Deal with the spivs, deal with the rich, but we shall not cure it by those measures. If we fail in tackling inflation, we shall all go down together, and all of us have to make a contribution to this solution. That is the first principle.

The second principle is this: A Government has to be precise in what it is trying to do on the financial side. The right hon. and learned Gentleman made a very courageous and clear speech on the economic situation to the House a short time ago. We all admired that speech. He painted the picture perfectly plainly, so that anybody could see what was the problem. He then went on to give us solutions to it. It does not matter whether one agreed with a particular solution or not—those were the solutions, everybody knew what the problem was, what the issues were, what the proposals of the Government were. Where is the corresponding picture upon the financial side? Surely it is not impossible for the Treasury to make some assessment of the internal gap between the amount of goods we are producing and the amount of money we are trying to spend; to make some sort of assessment of the degree of inflationary pressure existing. And it certainly should not be impossible for the Government to come forward and say first, whether they intend to deal with it—they have not even said that yet; secondly, what steps they propose to adopt.

Now I come to the steps. [HON. MEMBERS: "Hear, hear."] Hon. Members have been very patient. I shall ask a few questions and perhaps they will forgive me for that. I know they all want me to talk about food subsidies because that gives them the best debating point, but I shall take capital construction first. In his other capacity the right hon. and learned Gentleman spoke of a cut of £200 million in capital construction. How much of that is in the public sector and how much in the private sector? I know he was unable to answer the other day, but I am sure that sufficient research has been done now to enable him to give an answer. Why is not any of it reflected in this Budget? Are there no cuts which reflect on the central Government account?

Mr. J. Lewis

Would the hon. Gentleman allow me to interrupt?

Mr. Thorneycroft

No, I have a series of questions to ask. What instructions have been issued to the spending Departments, and how much have they been able to cut down? What instructions have been given to local authorities? What saving is expected in a full year, and in this year, in the cutting down of the programme of capital construction by the local authorities?

Mr. J. Hudson

What does the hon. Member suggest?

Mr. Thorneycroft

If it is necessary for the right hon. and learned Gentleman to make a speech in which he suggests a cut of £200 million in capital construction, it is necessary to see that that policy is imposed. Is it being imposed? I travel about this country and I still see people laying new concrete kerbs along the sides of the roads; I still hear accounts of new tunnels being built and roads being widened. What about the private sector? I can assure the right hon. and learned Gentleman that some of the greatest industries in this country at this moment are contemplating schemes of capital construction, sometimes running into thousands, sometimes into millions, and it is left to individual private directors of firms to argue whether that should go on or not in accordance with something they may have read in one of the right hon. and learned Member's speeches. That is not the way to lead this country. If the right hon. and learned Gentleman wants those programmes of capital construction redrawn, he has to strengthen the hands of those private directors who are trying to follow his policy. He has to give some overall instructions to get the co-operation of private business, which I think he will admit that it is only too willing to give him in these matters. He has to give them that policy so that they can follow it.

With regard to Purchase Tax, the Government propose to raise £10 million by April of next year. Is that really a measure of the problem which we are up against? I would say of the Purchase Tax, and this applies to other taxes which merely divert purchasing power from one sort of luxury to another, that if we are to deal with inflation, we have got to mop up the purchasing power at the point where the people are going to buy anyway. They are going to buy electrical equipment in any event. They are going to buy it because they have no coal. Is it really right that a lot of this electrical equipment should be free of Purchase Tax at the present time? It was taken off some time ago [HON. MEMBERS: "It was put on again."] I hope I have not been buying in the black market, but I can assure hon. Members that there is an awful lot. I am certain if the right hon. and learned Gentleman is going to tackle an inflationary situation, he will have to raise more money by indirect taxation than he is raising at present.

I come now to the food subsidies. There are three things that can be said about them. Firstly, there is their inflationary effect in so far as money which would be spent on food is released to be spent on other things. Secondly, they are a disincentive. At the present moment these food subsidies cost £400 million per year, or approximately 3s. in the £ Income Tax, and that direct taxation is a check and deterrent upon production. Thirdly, in some ways the talk about these food subsidies is rather exaggerated. I want to repeat the figures given by my hon. Friend the Member for East Aberdeen (Mr. Boothby). One thousand five hundred million pounds are spent on alcohol, tobacco and entertainment, and £500 million on potatoes, cereals and sugar. Yet, on the latter figure, £132 million are paid out in subsidies. It is awfully difficult to justify. Another difficulty is, why should a coal-face worker be paying out of his wage packet in order that I may buy a loaf of bread for ninepence—[Laughter.] That is what is happening now. That makes nonsense of economy —[Interruption.] Hon. Members ought to keep quiet, for what I am about to say will be useful to them. I think a start ought to be made towards scaling down these food subsidies. I am not going to be pedantic about the method or the means, but I do say a start ought to be made in scaling them down.

Now I want to deal with something which will not be quoted by hon. Members opposite. If these food subsidies are scaled down, certain things will have to be done. The worst cases of hardship will have to be dealt with, but if the subsidies were scaled down by £300 million that would still leave enough for milk in schools and the acreage payment. It would mean a rise of 2s. 3d. per head per week in the cost of food. Put up the old age pension by 2s. a week, give 2s. a week for the first child, and an additional 2s. a week on the family allowance for each subsequent child, and make a corresponding increase in the sick, widows' and other pensions. We could afford to do that, because the inflationary pressure from wherever it comes, does not really come in any large measure from the old age pensioners. I know that a great deal of political capital can—and I daresay will—be made out of this point, but the bolder we are over measures of this kind, the bolder we can be in restoring incentive.

My criticism of this Budget is that it is timid all along the line. It neither deals with inflation, nor makes any attempt to restore incentive. If we tackle these food subsidies, if we are bold about our policy in relation to indirect taxation, then we should and must reduce direct taxation. Again, I shall not be pedantic about precisely how we should reduce that taxation. We should reduce that by an amount which is equal to 6s. 8d. in the £ in Income Tax. And we can afford to do that if we apply all these other measures, but we cannot do it if we are going to be timid. If you reduce direct taxation, do it in a way which assists the marginal earnings of the wage-earners. To revert to the example of the coal-face worker, the whole trouble is lack of interest in the extra shift, or his thinking that so much of his earnings is coming out of his pocket in the way of taxation.

The policy which I would like to see, therefore, is a policy of dealing with inflation, coupled with incentives. Take, for example, petrol. We are doling it out in penny packets, with 5,000 civil servants in the regional offices looking after it. It is not a very just system. I would raise the price of petrol, by indirect taxation, to 5s. or 6s. a gallon, and I would make a great deal more readily available. This is what would happen. The coal face worker would get more money in his pocket to spend in his own way, and if he worked his extra shift, he would have something to buy. He could buy two gallons of petrol to take his girl out on the back of his motor cycle. [Laughter.] Hon. Members may laugh, but that is precisely the sort of thing for which a man works. At the present moment he is not getting the money which is taken out of his pocket in direct taxation, and with what is left he has not got anything to buy. The only thing he has got to buy is leisure. I am not referring to the coal face worker only; it applies to many other workers. Incentive has to be restored, more has to be left in their pockets, and more goods made available for them to buy. When the goods start to come we can then start to scale down indirect taxation. I know people say that that favours the man with money in his pocket. Hon. Members opposite always say that. I share the Russian view about this matter—I do not believe in equality of reward. I believe the skilled man ought to be given more than the unskilled man, the hard worker more than the man who works less hard, the enterprising man more than the unenterprising man.

I have at least said enough to enable hon. Members to criticise, but what I want to know is, what is the Government's solution to the problem? They often say the Tory Party have no answer. What is their answer? The speech which introduced this Budget was clearly not intended to deal with this problem of inflation. It may be possible for the right hon. and learned Gentleman to riddle my arguments, but let him, before we part tonight, produce his own answer on the subject. Let us have some honest speaking about it. I am not saying that in any offensive spirit. There is too much of a tendency to present to the British people many of these issues all dolled up for the Gravesend by-election. Do not start pretending that direction of labour means a little nice guidance from the local employment exchange, or that inflation can be cured without doing things which hurt all sections of the community. It is not true, and these things should be presented fairly to the British people.

I hope that when the right hon. and learned Gentleman replies he will not talk for the Gravesend by-election at all. He may criticise me, or my hon. Friends, and that is right, but let him say what his answer is. The British people are entitled to an answer. They have done a magnificent job of work despite every type of difficulty abroad, where the terms of trade have been savagely swinging against them, and at home an admitted distortion right throughout the whole economy. Despite that, they have put up the exports. Let us be proud of that, and do not let us have any party divisions about it. There is no division about the way in which the British people have behaved. Take the trade union movement. For every trade union official who can be found lying in the road outside the Savoy Hotel there are 20 going up and down the country risking their careers, their popularity and future by endeavouring to get men to moderate their wage demands and not to strike. What about managements of these industries? For every one sitting down saying, "This is impossible," there are 20 saying that no matter what the difficulties are they will get markets somehow. The right hon. and learned Gentleman has the most magnificent material in the world with which to do the job. Let him face these things, and say what his answer is. Our message to the Government is the same as it was three months ago, "Get on and govern, or get out." If they have not the courage to do the former, let them at least have the grace to do the latter, before it is too late.

6.32 p.m.

Lieut.-Colonel Lipton (Brixton)

We have listened with some interest to the speech of the hon. Member for Monmouth (Mr. P. Thorneycroft), which seemed to boil down to two points, one of which is to cut the food subsidies by £300 million, and the other to compensate for that by adding 2s. a week to the amount of old age pensions, family allowances, sickness benefits and items of that kind. If that is the suggestion he makes, I do not see what advantage we can derive from it. It would mean that new pension books would have to be issued, and more civil servants employed to take money from one pocket and put in into the other. When we add to that the only other concrete suggestion of the hon. Gentleman, to increase the price of petrol to 5s. a gallon, we realise that, stripped of all its adornments, the case he has presented to the Committee and to the country for consideration is a somewhat tawdry and threadbare case.

The fundamental which seems to have been overlooked by many hon. Members opposite is that it is not the Labour Government of Britain alone which is faced with the threat of economic disaster. This is not essentially a British crisis. It is a crisis involving half the world. The dollar anaemia from which the country is suffering is a disease for which many countries of various shades of political complexion have to find a remedy. No British Government, whether Socialist or Conservative, could have prevented the disastrous rise in world prices which has taken place since 1945. The right hon. Member for the Scottish Universities (Sir J. Anderson) said so last August. That is one part of the speech he made last August from which today he did not try to extricate himself. It is not merely the pound sterling which has depreciated in value in the last few years. The American dollar has also depreciated in value, and the American Loan has been devalued in very large measure by circumstances largely beyond the control of the Government of this country. It is of little satisfaction to note that the depreciation of the dollar is due to the wholehearted acceptance by the United States Government of the very principles of competitive selection which are so enthusiastically advocated by the right hon. Member the Leader of the Opposition. In the first Budget introduced by the present Government, the then Chancellor of the Exchequer, my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) wisely observed: We must make … the most vigorous efforts … to re-establish … the balance of our external trade. Until this is done, we shall not, in truth, be the masters of our own economic and financial destiny."—[OFFICIAL REPORT, 23rd October, 1945; Vol. 414, c. 1881.] The yardstick by which the Budget now under discussion must; be measured is whether it contributes to the country's economic and financial independence. To the extent to which it does not, we on this side of the Committee are rightly critical. So long as we consume more than we produce, inflation must persist. The right hon. Member for Scottish Universities continued to advocate old-fashioned methods, disguised under the name of controlled deflation. There is no unwillingness on the part of hon. Members opposite to apply a certain measure of control in respect of deflation. What does controlled deflation mean? We know that hon. Members opposite do not like the cheap money policy pursued by the present Government. They want money, like everything else, to rise in price. But controlled deflation, which would very soon get out of hand, means that the proportion of the national income that goes in debt charges, without necessarily any advantage whatever to our export trade, would increase. In the words of a recent article which appeared in the "Economist": This kind of approach pays no attention to equity as between individuals, and hits the poor more than the rich. It is socially blind in its incidence, and cures over-consumption by under-consumption. Those methods were tried after the first world war, when they doubled the burden of our national debt, caused wages to fall by £500 million a year, and increased the value of fixed interest earning securities by more than £700 million. That is the policy upon which we are invited to embark by hon Members opposite. In 1922 the then Tory Chancellor of the Exchequer, Sir Austen Chamberlain, made a speech in Glasgow about the economic and financial difficulties of that period. These were his words: Nearly two million of our people are unemployed. The trade of the country is stagnant; the purchasing power of Europe does not exist. The whole machinery of exchange and trade has been destroyed. That, thank goodness, is not the kind of speech which a Chancellor of the Exchequer has had to make since the present Government came into power. It is not the kind of speech which my right hon. and learned Friend will have to make tonight when he replies to the Debate, after more than two years of Labour rule. The remedy for inflation does not lie in tampering—

Mr. Drayson (Skipton)

I do not want to interrupt the hon. and gallant Gentleman in the excellent speech he is reading, but before he departs from the question of inflation, will he develop the argument he made from the "Economist" about how deflation at the moment would increase the burden on the national debt, when the late Chancellor told us that he would not require to borrow for some considerable time.

Lieut.-Colonel Lipton

I am afraid that I must limit what I have to say on that point. I can assure the hon. Gentleman that if he wants to put any question to me, I shall be addressing a public meeting in my constituency in the very near future. I advise the hon. Member that my constituency is within a 3d. tram ride of the House, and he will not have to travel very far in order to put any question he wishes.

The remedy for inflation does not lie in tampering with the cost of living subsidies in the manner suggested by the hon. Member for Monmouth. The bulk of the wage-earning population of this country have less to spend than they had a year ago. There are very many indications of that which, unfortunately, time will not permit me to enumerate. In other words, it is capital rather than income which really lies behind the current inflationary pressure. I am fortified in that view by a remark in an editorial which appeared a week ago in the "Sunday Times" which admits that inflated capital values have been the prime cause of the nation's basic financial disorder.

Mr. Draysonrose

Lieut.-Colonel Lipton

I cannot give way. If the hon. Member will permit me, I will try to develop that point. For instance, in the case of inflated property values, is there any reason why the last selling price should not be related to Schedule A assessment? There is a rich and fruitful field to which I direct the attention of my right hon. and learned Friend. In the higher income ranges there are hidden sources of wealth which do not figure in the Income Tax returns. Many large companies do not distribute all their profits. They set aside considerable sums for reserve in addition to providing for depreciation and other contingencies. These reserves are accumulated and can be used to pay further dividends at some future date. They are not necessarily ploughed back into the businesses at all. Here is a source of inflationary pressure which should be tackled before any further burdens are allowed to fall on the lower income ranges. Of course, I admit that that is not the whole story. In reference to declared profits, the "Economist" has given figures for 1,478 companies. The net profit of these companies in 1946 was £139.2 million. In 1947 it was £174.5 million.

Mr. Jennings

All taxed?

Lieut.-Colonel Lipton

These are not my figures, but those of the "Economist." In one year the profits of these companies, which are only part of the total number, increased by £35.3 million, or more than 25 per cent.—

Mr. Drayson

Of what?

Lieut.-Colonel Lipton

When compared with the previous year. The hon. Member for Monmouth said that the measures required to deal with the present difficult situation must affect all classes of the community. Let us see how that works out. If we compare the percentage of the net production of all enterprise in the country taken, on the one hand, by workers, and, on the other hand, by capital, we find that in 1938 wages took 41.4 per cent. of the total net production. In 1946 wages took 42.3 per cent. That is to say, the percentage or share taken by wages out of the total net production increased from 41.4 per cent. to 42.3 per cent. In spite of wage increases, the share of the workers in what they themselves are producing has hardly risen at all. In 1938, rent, interest and profits, accounted for 33.3 per cent. In 1946 the share taken by rent, interest and profits rose to 36.7 per cent. The share taken by capital of the total production has thus increased very considerably when compared with prewar years.

This undesirable trend can be checked, I submit, by a more active fiscal discrimation in favour of earned as against unearned income, and by increased taxation of undistributed profits. In this connection, I urge the Chancellor of the Exchequer to make a wider differentiation than is suggested between distributed and undistributed profits with a further differentiation related to the national need of the industry in question. That is a point which has already been discussed and, therefore, I will not dwell upon it at any great length. Firms manufacturing less essential goods should be subjected to a higher rate of Profits Tax than, for example, textile or pottery manufacturers. It is impossible adequately to plan our industrial productivity without differential taxation. This could be developed into a most flexible instrument for adjusting the balance of our industrial economy in the required direction.

The hon. Member for Monmouth spoke about the inducement that would be afforded to workers at the coal face if they could buy petrol at 5s. a gallon. That enables me to say that it is most encouraging to note our increasing coal production which, I am firmly convinced, would never have been achieved under a Tory administration. The coal miners will save this country sooner than hon. Gentlemen opposite think. I ask the Chancellor to consider the introduction of an export bonus. That would provide a powerful incentive to miners to raise coal output. Very briefly, the idea is that we should raise an export tax on every ton of coal exported from this country after our own essential requirements have been fulfilled. The proceeds should be divided among the miners of the areas where the target figures have been achieved. I agree with the hon. Member for Monmouth that in this Budget insufficient attention has been paid to the provision of incentives to increased production. I hope that my right hon. and learned Friend will consider my suggestion. I believe that countries like Eire, the Argentine, Sweden and Denmark would be willing to pay the small extra charge which would encourage higher output here and thus ensure supplies.

On the subject of the Profits Tax, if I may revert to that for a moment, I merely want to say that a tax on profits of itself is not going to be adequate to meet the situation with which we are faced, for reasons that were set out with commendable frankness by the "Financial Times" on 3rd September. It is very necessary that the Chancellor should be made aware of this possible source of evasion. The "Financial Times" said: It is fairly evident that since capitalist realisations can always defeat the end of profit taxes, anything which the Government might decide to do could not be a substitute for whittling down the purchasing power of the many, whose aggregate incomes account for over three-quarters of the total. If there is going to be this evasion of the Profits Tax by capitalist realisations, then I would ask the Chancellor to consider that, if the only way to meet this challenge is by way of a capital levy, the sooner we have a capital levy the better. I believe that the psychological effect of such a levy on production and on the workers of this country would be highly noteworthy. It would convince the people who produce the goods that the present Government do not expect the sacrifices to be contributed only by the workers. Therefore, with a little encouragement from this side of the Committee, I hope that my right hon. and learned Friend will cast a favourable eye upon this possibility when he brings forward his next Budget. Compared with the acceptance by the workers of the direction of labour, going easy on wage claims, and the additional burdens which they will have to bear in respect of Purchase Tax, what do hon. Members opposite offer by way of a comparable sacrifice on the part of the people they claim to represent in order to achieve the equilibrium in our overseas trade and to minimise inflation?

Mr. P. Thorneycroft

The hon. and gallant Gentleman talks about the claims which we on this side put forward on behalf of those whom we represent. Who is he saying that we represent? I represent the electors of Monmouth. Would he explain that remark?

Lieut.-Colonel Lipton

It is well known that, by and large, hon. Members opposite—I am not making any accusation against the hon. Member for Monmouth—in their approach to economic and political problems, tend to speak on behalf of the financial section of the community.

Mr. Thorneycroft

On a point of Order. The hon. and gallant Gentleman is now making suggestions which are sometimes made, and which, I think, ought not to be made. I think it is out of Order for hon. Members opposite to say that we on this side are speaking in this Debate, not on behalf of our constituents, but as the representatives of some particular financial interest. I do not think that the hon. and gallant Gentleman really meant that, but I think he ought to withdraw what he said.

Lieut.-Colonel Lipton

If you, Major Milner, think that I have said something which I ought to withdraw, I will gladly do so, but until you direct me to do so, I will content myself by saying what I was trying to point out, when I was interrupted, that, by and large, the Conservative Party and hon. Members opposite who sit as Conservative Members of Parliament do, in large measure, speak on behalf of certain financial interests which we on this side do not claim to represent.

Hon. Members


Lieut.-Commander Gurney Braithwaite (Holderness)

On a further point of Order. If, Major Milner, the hon. and gallant Gentleman is not prepared to withdraw what he has said, should he not be called upon to substantiate his remarks?

The Chairman

Frankly, I do not think that the hon. and gallant Gentleman is alleging any improper motive or making any unparliamentary remark. It seems to me to be one of the commonplaces of debate.

Mr. Thorneycroft

It may be becoming one of the commonplaces of debate, Major Milner, but, if I may say so with respect, it will be very detrimental if it is allowed to become a commonplace. Supposing that every time an hon. Member opposite rose in his place—

The Chairman

I am afraid that I cannot allow the hon. Member to argue my Ruling. I ruled that, in my view, the hon. and gallant Gentleman is not making any improper allegation.

Mr. Oliver Stanley (Bristol, West)

Further to that point of Order., Are we to understand, Major Milner, that your Ruling is that any hon. Member can state that another hon. Member is speaking on behalf of financial interests, and can then refuse to substantiate that allegation?

The Chairman

The right hon. Member must not try to put words into my mouth. I ruled that, in my view, from what I had heard, there was nothing which I thought it necessary for the hon. and gallant Gentleman to withdraw. I do not give any general Ruling, each case must be dealt with on its merits. There did not seem to me to be anything out of Order in what the hon. and gallant Gentleman said.

Mr. Kirkwood (Dumbarton Burghs)

That settles that.

Lieut.-Colonel Lipton

In the defence against inflation, which we all want to erect and to which I wish, very briefly, to draw the attention of my right hon. and learned Friend, there is, at the moment, a steady transfer of British capital to Dominion countries, particularly to South Africa. This transfer of capital is assuming such proportions that action should be taken to stop it in cases where transactions of that kind are merely disguised flights from Britain and are not justified transfers of business capital. Of course, I fully appreciate that it is desirable to maintain freedom of capital movement in the sterling area to the utmost possible extent.

The hon. Member for Monmouth referred to the desirability of withdrawing Treasury notes; he said that it would help the Government to deal with spivs, and others of that class. There I find myself in complete agreement with him. If necessary, existing issues should be recalled. There can be no honest justification for private individuals—and here, I hope, I am not transgressing the Rules of Order—holding fantastically large sums in Treasury notes. The issue of premium bonds would also, I am convinced, attract large sums of wandering capital to the national coffers at very small cost to the Exchequer. Let us not be too hypocritical about this, especially in view of the fact that, at last, we have started to make what I might call an "honest woman" of the tote on dog racing tracks. In connection with totes, football pools, and such like, there is an activity which is ripe for nationalisation. As my hon. Friend the Member for Aston (Mr. Wyatt) pointed out in a recent article in the "New Statesman," it would be possible, by nationalising football pools, to divert 15,000 full-time and 30,000 part-time employees to more useful productive endeavours.

Substantial savings must be effected forthwith. When we explore the possibilities in this direction, we receive no positive suggestions from the Opposition. The Foreign Office, like ordinary individuals, must be curbed in their expensive tastes. The gain to be derived from reducing our overseas commitments would be twofold. We would have the productive power of many thousands of workers for our export drive, and that would be a much better solution of our economic problem than a cut in food subsidies. Strangely enough, I felt some sympathy with the hon. Member for Louth (Mr. Osborne) who, I am sorry to see, is not present now, when he expressed concern about the cost of the food subsidies. The hon. Member for Monmouth also pointed out that many people able to pay for their food at its proper price were being given the benefit of food subsidies.

I would like the Chancellor, some time or other, to produce figures which would show the capital value of food subsidies to persons in the higher income ranges. The figures are quite fantastic. In the case of a man with a wife and two children who is paying Income Tax at the rate of 12s. 6d in the £, it will be found that the capital value of food subsidies in his case, taking a rate of interest of 3 per cent. or thereabouts, is somewhere in the region of £1,700. If hon. Members opposite believe that such people are getting something they should not get, I am prepared to agree with them to the extent of a levy on the capital value of the income they obtain by means of food subsidies. This is something to which my right hon. and learned Friend might give his attention.

Considerable attention has been paid to the recent speech of my right hon. and learned Friend the Chancellor, in which he outlined the difficulties with which we are faced. There is another speech which he made not so long ago and which I would like to quote, but which I fear will not meet with so much acceptance from hon. Members opposite. He said: If we can recapture that spirit which caused our Socialist movement to become the great one it is today, we can not only lead our own people out of the present difficulties, but lead the world to its salvation.

7.1 p.m.

Mr. Henderson Stewart (Fife, East)

The hon. and gallant Member for Brixton (Lieut.-Colonel Lipton) concluded by referring to the duty of this country to lead the world to salvation. I do not know about that, but I am quite certain his speech will lead the Labour Party candidate at Gravesend to something very different from salvation. I was astonished by his suggestions. He referred to an export bonus. That meant, according to him, increasing the price of coal. Is that a good idea? Is the Chancellor of the Exchequer going to support a proposal by which our exports in this diminishing sellers' market are going to be made still more difficult to sell? The revenue to be provided out of this new export bonus, according to the hon. and gallant Gentleman, would be given to the miners in those areas which exported coal.

Lieut.-Colonel Lipton

No, I was referring to the miners in those areas which reached the target figure.

Mr. Stewart

Those which attained the target figure?

Lieut.-Colonel Lipton


Mr. Stewart

The hon. and gallant Gentleman then proposed a capital levy. In a fortnight's time I shall be going to the capital of Scotland to address the annual meeting of the Scottish Savings Movement. I am very glad to be able to do it, and I shall always do my best to support that movement, as I have done nearly every year in recent times; but it does not help me very much in the preparation of my speech to the people of Scotland when the hon. and gallant Member, speaking for the Labour Party, suggests that there should be a capital levy, which means nothing less than stealing the savings which the people are being induced to make. Nor does it help to suggest that the savings of the people should not be used by those people in the way they desire. Even the former Chancellor of the Exchequer did not propose that there should be an embargo upon the use of British capital, or that it should not be sent to any part of the world, within the sterling area, desired. I hope the Chancellor takes note of the fact that his hon. Friends apparently no longer want the sterling area to be an area for the free exchange of sterling, but an area of a very different character.

There is a lot I would like to have said on the general issue. The present Chancellor has so often said that past efforts were not sufficient to meet the present economic situation, that I would like to hear his frank views on the present Budget. Does the right hon. and learned Gentleman really think that this Budget is adequate to meet the economic situation which he has described and the economic demands which he has made upon us? I would like to ask the Chancellor what are the principles upon which this Budget is based, because I find them very difficult to understand. I would like to take as an example the tax on betting. There is to be a tax of 10 per cent. on the dog-racing totes. The former Chancellor said: I do not propose to levy a duty of this kind on the horse totes. Everybody in the House immediately wanted to know why, and this was the right hon. Gentleman's answer: They are owned by the Racecourse Betting Control Board and are not run as the dog totes are, for private profit—a very important distinction."—[OFFICIAI, REPORT, 12th November, 1947; Vol. 444, c. 408.] I really cannot "See what that has to do with the point. If, as the late Chancellor said in his subsequent broadcast to the nation, everything that can ought to make its contribution, and if it is right for the dog totes to make a contribution, how can it be wrong for the horse totes to make an equal contribution? The character of the body that runs the one or the other has nothing to do with the principle. The principle, as I thought I understood it, is that this form of entertainment or amusement should make its fair contribution.

The hon. and gallant Member for Brixton made it a little more difficult to understand this principle. He proposed the nationalisation of totes. It would appear that the horse totes are sufficiently nationalised to lead the Chancellor of the Exchequer to refrain from imposing any tax on them. If he were to nationalise the dog totes, presumably they would not be taxed either. Therefore, the nationalisation of the dog totes would not help us in our difficulties. The fact is that the only tote of any value to the Treasury is the private enterprise tote. To what will all these taxes on betting and pools amount? I understand they will amount to £15 million in a full year, and £3 million in the remainder of this year. If the situation is as bad as the new Chancellor has so often pointed out, and if there is all this vast amount of money chasing this diminishing amount of goods, as the late Chancellor described, £15 million from betting, which is the form of activity that ought to make the biggest contribution of all, is farcical. A tax of 20 per cent. or 30 per cent. would not be regarded by anybody as unfair or unreasonable. Therefore, in that respect the Budget is a considerble failure.

I am now going to be bold and refer to the question of food subsidies. I want to suggest a new thought to hon. Memhers. In the course of the Debate I have understood that the Labour Party propose to maintain food subsidies at their present level and proportions. Let us see what that means. For example the food subsidy on bread, at the moment has some relation to the basic price of bread. It bears a proportion to the present cost price. It is that proportion which hon. Members opposite are telling the electors in Gravesend will be maintained. In my submission that is humbug, and I will tell the Committee why. The Chancellor of the Exchequer made great play with this problem. The sum of £392 million was well spent to maintain that social service, as he described it. But that £392 million is needed to maintain the proportion now. If the same proportion next year demanded £450 million, then, according to members of the Labour Party, that £450 million must be paid. But that is not what the Budget is going to do. The late Chancellor told us it cannot be paid. He said about food subsidies: We have to consider how much we can afford to spend on them from time to time, taking everything into account in our national finances … I intend to find that sum of £392 million this year, but, in present conditions, it would be impossible to justify a further increase."—[OFFICIAL REPORT, 12th November. 1947; Vol.,444, c. 398.] Why? What is the principle underlying this Budget? Can it really be said that £392 million is absolutely right but that £393 million is absolutely wrong—that we can afford the first but that the last would be disastrous? The late Chancellor said it would be disastrous if we increased the amount. He said: If we were to let this upward drift continue unchecked, it could pull any Budget out of balance."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 398.] What is the principle there? Is it, then, intended—is it, then, the truth—that food subsidies are not this year to be maintained? If, however, the prices of food—of these essential foods—rise in value, as they very well may rise in value, and the subsidy is not increased, then, indeed, the people for whom those hon. Members appear to talk are going to be less well off than they have been allowed to imagine. That is the truth of the matter. The late Chancellor made it very plain that he would continue to try, as he said, to stave off the worst effects of the economic blizzard, but that: We cannot do so to the complete extent which I have indicated, and, for this reason amongst others, it is clearly impossible to decide at present what should be our expenditure on food subsidies next year."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 399.] I am going to suggest to the Committee that food subsidies next year must be and will be less, at the instruction of the Chancellor himself. I predict—I have every right to do so—that the basic prices of our food are bound to rise, and that if the total sum set aside for food subsidies is not proportionately increased, the working people and all the rest of us will have to pay more for our food. It is, therefore, humbug for hon. Members opposite to hold out to the country that the price of the food the people buy is going to remain steady. It is not going to remain steady: it is going to rise.

If, indeed, we are to believe the late Chancellor of the Exchequer—and the right hon. and learned Gentleman the new Chancellor of the Exchequer—that this business of inflation is a serious thing— as it is—then, clearly, we are not taking adequate steps to deal with it. I listened to the hon. Lady the Member for Blackburn (Mrs. Castle) who, in the second part of her speech, made, I thought, a better case for the Labour Party than perhaps any other hon. Member opposite. I thought it was very well done. But what I thought she failed altogether to comprehend or take into account was this. Unless we can reduce this inflationary pressure, the price of everything that the working people, for whom she spoke, buy will rise, and in the end the working class people will be much, much worse off than if we now take the strong medicine in a strong enough dose which alone will get us out of this trouble.

That is the weakness of this Government; they do not seem to have the guts to do what is necessary at the right time. They have not the guts now to do it. I am sure I am right, and that I am representing the great mass of the people of this country, when I say that the British people would far rather take bad medicine now and be done with it. They know very well that this half measure, this stinted, frightened attempt to cope with the potential danger to our financial situation, is not only playing with the problem but making it infinitely worse. The new Chancellor comes fresh to this job. It will not surprise anybody if tonight he is not able to make any revolutionary changes in the Budget. It is not to be expected that he will. I am not expecting that he will say anything very exciting tonight; but he has the opportunity within the next week or two—and I think the absolute duty—to make by his own efforts in this Budget, for which he has now become responsible, drastic changes which will enable us to avoid this danger, which we can avoid if only we make use of the courage and guts of the British people.

7.15 p.m.

Mr. John Lewis (Bolton)

I think it is a remarkable thing that all the speeches we have heard from the Opposition benches have put forward as a panacea for all our economic ills the scaling down of the food subsidies. I do not think there is a Member who has spoken from the Opposition benches today, or during the Debate last week, who has not referred to this as a solution to our economic problems. For my part, I cannot see the purpose of this Budget at the present time. There is an estimated revenue of £3,450 million and all that it is hoped will be gained by the measures now before the Committee is an additional revenue of £48 million. What I believe is important is, not what is in the Budget, but what has been left out. I believe it is a clear indication, by His Majesty's Government, that they do not intend to succumb to the blandishments of the Opposition to grind the faces of the poor.

That may sound a very trite term, but I am going to explain what I mean. It is useless to refer to all sections of the working community as being well off. For instance, some railway workers who, on the average, earns £4 a week, will suffer if we reduce the food subsidies. Listening to the right hon. Gentleman for the Scottish Universities (Sir J. Anderson) and his apologia today reminded me of that old French saying, "Qui s'excuse, s'accuse." Then there was the hon. Member for Monmouth (Mr. P. Thorneycroft) who started off with great gusto by saying he was going to offer us a panacea for all our financial ills but instead, summed up what he would do by saying he would impose a Purchase Tax on electrical apparatus. He did not know that it has already been done. He then went on to say he would scale down the food subsidies, reduce taxation and put more money into the people's pockets. If those are measures which are calculated to close the inflationary gap, then I must say that the hon. Member must think again.

I do think, however, that the former Chancellor missed a golden opportunity. I am one of those who believe that the money incentive is one of the most important incentives to increased production. I do not believe that the Chancellor has in his possession a mere economic mowing machine, as suggested by my hon. Friend the Member for Buckingham (Mr. Crawley). I believe he possesses an economic bulldozer and that he holds the key to greater production by his control of fiscal policy. But we have made it clear that our intention to maintain these subsidies is a step in the right direction.

I should like to have seen measures put forward now for the purpose of introducing a capital levy. Anyone who owns £5,000 in this country—£5,000 or over—if he is patriotic, as hon. Members opposite may suggest, and as I would agree, should be prepared to assist the nation by parting with part of his accumulated wealth. I am quite certain that hon. Members opposite do not look particularly happy at the moment about this proposal—

Mr. Marlowe (Brighton)

What we are feeling happy about is, that this is a fine proposal because it will not hit any one of us.

Mr. Lewis

By virtue of what happened a few moments ago during the speech of my hon. and gallant Friend the Member for Brixton (Lieut.-Colonel Lipton) I hesitate to say it would benefit their friends. Another point which has been emphasised on both sides of the Committee is the question of the large sums of banknotes which are circulating at the moment.

Mr. Jennings

Who has got them?

Mr. Lewis

It is well known that all over the country there are people who have been engaging in cash transactions, who have waxed rich in the black market, and who are prepared to pay £1,000 in notes for a cheque for £750. There was a golden opportunity here in drawing in all this money if the Chancellor had deemed possible. He did not make it clear why this opportunity was lost, but no doubt he wished to avoid any complexity at the present, so we shall have to be satisfied with what we have at the moment.

There are certain points about which I should like to ask the new Chancellor concerning certain measures in the Budget which, I think, require clarification. The first concerns the taxation of advertising. When my right hon. and learned Friend replies, will he make clear if the advertising to which reference has been made will also refer to trade journals published in this country but some of which circulate abroad? There does seem to be some case for those who say that this new measure may result in certain injustices. For instance, a trader can either take an expensive site on a main road where the windows are always under the eye of the shopping public, or he can publicise his goods by employing canvassers or travellers, or he can advertise. However, only one section of the business community is affected by this tax. Will my right hon. and learned Friend explain whether the word "advertising" covers window posters, catalogues, mail order forms, general letter headings and bills, or merely newspaper advertising? If he makes that clear tonight it would help many business people and shopkeepers in the country to understand exactly where they stand.

The former Chancellor made it perfectly clear that it was against his wish that there should be a large-scale distribution of profits by way of dividends. If that is so, why tax undistributed profits? There must be a reason for it. I am sure my right hon. and learned Friend will be able to tell us precisely why this measure has been introduced at this stage. After all, we must recognise that a time will come when the question of re-equipping our industries will be vital, and it is by means of accumulated reserves that that can best be financed. Therefore, I cannot see why, in attempting to induce the withholding of large dividend payments, we should at the same time penalise undistributed profits which have a contrary effect to distribution.

The final matter with which I wish to deal is the proposed tax on dog racing totalisators. I think the Committee will agree that in all these matters morals should not be allowed to influence our minds. We should apply the principle of equity. In this particular case I cannot see why it was found necessary or deemed advisable to impose a tax on dog racing totalisators but not on horse racing totalisators or bookmakers. If this 10 per cent. tax is introduced the betting public will be driven from the totalisators to the bookmaker whom the Chancellor will in effect be subsidising. The totalisator is a scientific machine which has large upkeep expenses. The bookmaker has relatively very little expense. For that reason we should take into account the situation which will arise when a bookmaker finds himself in the position of offering better odds than the totalisator because of the increased taxation, and will thus be having diverted to him business which would normally go to the totalisator. The reason given for the discrimination between horse racing and dog racing totalisators is that the Betting Control Board have to allow a certain sum of money to be used for the purpose of horse breeding. That argument does not really apply, because I am told that the Greyhound Racing Association have arranged to finance a £70,000 canine research station.

Hon. Members


Mr. W. R. Williams (Heston and Isleworth)

It has come to something when we are canning dogs.

Mr. Lewis

I understand it is a £70,000 Canine Research Station, which will benefit the brceding of dogs in this country. In those circumstances, I cannot see the difference between the two types of expenditure. What people have failed to understand is that the pools and the totalisators are not parallel cases. Football pools comprise more or less one investment a week, from which a 10 per cent. deduction makes very little difference to the dividends or rewards paid out at the end of the week. The case of the dog racing totalisator is quite different. The attendance at a dog racing meeting is comparatively small, and I am given to understand that the average odds paid out are less than four to one, so that on what is called an even chance on a 2s. stake the normal dividend would be reduced from 4s. to 3s. 6d. by virtue of this tax. It must be emphasised that the residue goes into the pool eight times during the course of one evening. This large sum which is referred to as being invested in the totalisator is not, in fact, invested: it is the same sum coming through eight times in two and a half hours less the deduction. The result of the proposal now before the Committee, I am told, is this. Out of £100 invested at a dog racing meeting, taxation would take £46 19s. 10d.; the company would take £28 3s. 10d.; and the patrons would get £24 16s. 4d. It means that the patrons will lose 75 per cent. of their money during the course of the evening.

A further serious aspect of this proposed tax is the benefit given to the bookmakers by exempting them from any form of tax. It is not the slightest use presuming—as hon. Members have done during the course of the Debate—that it is possible to tax bookmakers on the bets made. That is a virtual impossibility. The right hon. Member for Woodford (Mr. Churchill) tried it in his day and failed; and I am quite satisfied that it would be hopeless even to anticipate what might be gained from a tax of that kind. At a racecourse it is not necessary to hand over the cash; I am advised that a signal from one bookmaker to another may mean a transaction of £1,000; the figure "I" can be put down in their books instead of "£1,000," and there could be a cash settlement afterwards. It is too much to hope that such a tax would ever be a success. But there is a means of getting revenue from bookmakers, and that is by licensing and registering them.

Mr. Jennings

Legalising them.

Mr. Lewis

Not necessarily legalising them; although I agree there may be a case for amending the betting laws, because a man cannot be taxed on what he does not possess. A bookmaker may have £30,000 owing to him on his book, but there is no reason to suppose he will ever get it, because his client can plead the Gaming Act, and the bookmaker gets nothing. The only way of obtaining revenue from the bookmakers, and controlling them in some way, is by means of licensing and registration. It would appear that there are two or three different sorts of bookmakers. The bookmakers who operate are in different categories; there are bookmakers who operate on the racecourse, and there are also the bookmakers who operate in an office taking bets on the telephone, or by letter or telegram.

What I propose—and I hope the Chancellor will give it consideration—is that there should be a strict licensing of bookmakers; that some authority—whether it be the police or the local authorities—should license the bookmakers, and charge for the licences which would have to be displayed on their stands, or, if they operate from an office, they should display on the walls of the office in the same way as any other certificate of registration. As an example, those working in an office could pay a licensing fee of £200 per annum, and a £20 fee for each employee. That will immediately control all those spivs, hangers-on and racecourse touts, because the bookmaker would have to register and pay for all his employees. If on the course, the big men or men on the rails, as I understand they are called, were to pay £500, those at Tattersalls' £200, those in the smaller enclosure £100 and those outside £50, there would be some means of checking the number of people in this section of the gambling industry, and there would be a guaranteed source of revenue for the Treasury. It would meet with the approval of the Minister of Labour, who would then know precisely what sort of people and how many were employed on this less desirable form of employment.

Sir Frank Sanderson (Ealing, East)

Is the hon. Member not aware that by far the greatest number of bookies are to be found in the mills throughout the country? How does he propose to deal with them?

Mr. Lewis

So far as the battle for production is concerned and the objective of getting as many people as possible into productive industry, I do not think that the man in the mill who takes a few shillings from his friends is doing any harm; he is breaking the law, but he is not doing any harm. I think it is high time that the betting and gaming laws were revised in the light of present conditions. I am satisfied that the plan which I have expounded would not only meet with the approval of the Jockey Club and the Greyhound Racing Association, but that every decent bookmaker would support it. I regard the reputable bookmaker as being a very honest man. In point of fact as a rule he has no written contract for any of the transactions which are undertaken with him. I feel that they themselves would like to clean up the betting industry, and that the system of controls which I have elaborated, whereby they are all registered as well as their employees, would do a lot to help the Treasury in their argument that there is no discrimination against the people who operate dog racing totalisators and their patrons. It would also bring a measure of equity and justice in regard to the taxation principle involved.

This interim Budget has done very little to put forward constructive suggestions to improve production. I know that any measure which is put forward, if it introduces a question of differential taxation, is difficult and complicated from the administrative point of view. The great difficulty is evolving some comprehensive means to apply differential methods of taxation to our present system. I say to my right hon. and learned Friend that he will not get so much increased production in the factories and mills from the new people who come in now and have to be trained over a period, as he will from those people working there now. The only way to get large-scale increased production is to create a money incentive for the worker. Do not let hon. Members on this side of the Committee blind themselves to the fact that one of the reasons why workers say, and rightly say, that they are not going to work longer hours in order to produce more, is because their earnings from the longer hours they spend in the factories and mills would go mainly in taxation.

I know this is a difficult problem to deal with from the administrative point of view. I heard an hon. Member say "rubbish" a little earlier on, but let me tell him that I have had practical day to day experience in contact with the finest body of men in the country, and that I know their point of view which is entirely reasonable. It would be of very great assistance if it were possible to introduce some differential form of taxation now, but this is only an interim Budget and let us hope that some system may be devised in April next whereby overtime can be taxed at a lower rate, and thus create an incentive to people to work harder and longer.

7.35. p.m.

Lieut.-Commander Gurney Braithwaite (Holderness)

I found myself in agreement with a great deal of what the hon. Member for Bolton (Mr. J. Lewis) said. I am bound to add, however, that I think him fortunate in that his speech was made in the absence of the hon. and gallant Member for Brixton (Lieut.-Colonel Lipton). Had the hon. and gallant Member been here, he would have undoubtedly pilloried him for representing financial interests rather than the interests of his constituents. I find some difficulty in fitting the financial proposals before us into the five-year plan, which we were told about when this Parliament first met, during which there would be unfolded a series of Budgets which would lead us slowly but surely into a more prosperous condition. The fact that we are faced with an interim Budget at all is because the Finance Bill we passed in April now lies in ruins. It lies in ruins after a mere six months, and looking through the proposals adumbrated last Wednesday, there is really no reason at all why we should not have another interim Budget in January.

If the Government can see no further ahead than they have done in the last six months, we may be faced with quarterly Finance Bills, like the rent collector's quarterly call. It does throw considerable light on the new procedure whereby Budget discussions are to be seriously curtailed. The new Chancellor of the Exchequer is generally credited with a more realistic attitude to our situation than his predecessor. At any rate his reputation has gone before him, because there was a general fall in gilt-edged securities as soon as his appointment was announced. I want to ask him, or the Financial Secretary, whether the new dispensation is going to continue the cheap money objective of the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), or whether they are going to defend the 3 per cent. loan on Government borrowing, which will not be at all easy to hold.

When the Chancellor of the Exchequer spoke to us during the Debate on the Address, in his capacity as Minister for Economic Affairs, he outlined to us a situation which, in his new capacity, he will now have some reasonable opportunity of dealing with. But he will have to pass a new Bill first. He will have to pass a Bill to curb and restrict the powers of the "Second Chamber," their lordships in Transport House. Their complete veto must now be abolished and substituted by a suspensory power of not more than 12 months, if he is to have any opportunity of carrying out what we all know is in his mind.

The subject of food subsidies engendered a certain amount of heat. I think that we can at least agree on one thing, and that is their very onerous nature.

Mr. Warbey (Luton)

On whom?

Lieut.-Commander Braithwaite

It the hon. Member listens, he will hear. He must not be so sensitive following the municipal elections. I am suggesting that it is the duty of hon. Members, wherever they may sit, to point out to their constituents the extent of the burden in direct and indirect taxation which these food subsidies mean. In Islington the other day, I saw a poster in the office of the local Labour Party which intrigued me to such an extent that I wrote down its words. This is what it said: "Under Food Subsidies everybody gets 3s. 2½d. worth of food every week free." Is there any Member of the Committee who agrees with that? I am quite certain that the Chancellor of the Exchequer does not agree with it at all. That is the fallacy of the food subsidies. Of course, that is not true. They are extracted by various methods from the very people who benefit from the subsidy. Let us rid our mind of these delusions, because if we do not, the new Chancellor will very soon do it for us.

I refuse, however, to be unduly worked up about the food subsidies, because I believe the question to be largely academic—and I say that with respect to my hon. Friend the Member for Monmouth (Mr. P. Thorneycroft). It is academic for this reason: that the issue will be decided before very long by the stark pressure of events. The Chancellor is now rapidly approaching the parting of the ways. Either the cost of living subsidies will have to be drastically reduced, or we shall experience a runaway inflation which will wreck the whole structure of our national insurance system and our other social services. The choice rests fairly and squarely on the shoulders of the Government. It has nothing to do with us. The Government got us into this situation, and it is for them to decide which road they will now take.

I now want to turn to a proposal in the Budget which, so far as I know, has not been mentioned in the speeches today, nearly all of which I have heard. It is the proposal to charge three per cent. interest on agreed Income Tax payments outstanding after three months. I regard that proposition as perfectly fair provided that what is sauce for the tax-paying goose is also sauce for the tax-gathering gander. I happen to be chairman of a voluntary organisation which, after a 15 months' wait, has just received an agreed claim of £6,000 from the Government. Are we to receive three per cent. interest for that waiting period, and if not, why not? If this proposal is to be put forward, it must cut both ways; it must be two-way traffic. Incidentally, is there any significance in the three per cent. as being the new rate of Government borrowing?

The third time is sometimes lucky. In two previous Budgets I put forward a proposal, and I am glad to have heard it repeated since the House came back after the Summer Recess by the hon. Member for North-East Ham (Mr. Daines) and my hon. Friend the Member for Monmouth. I wish the new Chancellor were here, but perhaps the Financial Secretary will pass on to him my remarks. Why do the Government invariably keep on flogging the willing horse in Budget after Budget? When will they make a real effort to rope in the tax dodger? The right hon. Gentleman knows very well that there axe hundreds of thousands of pounds of loose money bumping about in the country at the present time. In October, 1945, and again last April—and I want to reiterate it again tonight—I said that there was no more effective weapon for dealing with the tax dodger than calling in existing currency notes. If the Chancellor, after 1st January—[HON. MEMBERS: "Too long."]—or 1st December, if the Committee prefers it, said that the existing note issue was no longer to be legal tender, I believe that the result would be not so much a disclosure of what has been going on, but that the Government would reap a rich harvest as vast sums would never be surrendered—[Interruption]—I am glad to hear that those observations have been received with some assent on both sides of the Committee, because I am now about to move in more controversial waters. The Financial Secretary, on Thursday evening, thought it proper to deliver some harsh and wounding observations about the attitude of the Opposition towards the National Savings Movement. May I remind him of what he said? Throughout the whole of that period"— he was talking about the war— the Labour movement has, on a non-political basis supported the National Savings Movement. It has been left to this House, when the country is in a critical situation … for hon. and right hon. Gentlemen opposite to turn this movement into a political one. Then followed certain exchanges across the Floor of the Committee, when my right hon. and gallant Friend the Member for the Scottish Universities (Lieut.-Colonel Elliot) asked the Financial Secretary whether he was making a charge against Privy Councillors. The Financial Secretary withdrew the charge so far as Privy Councillors were concerned, but he then raised his sights and plastered the back benches with a salvo of "dud" shells which, I think, were intended for the incumbent of St. Gabriel's Cricklewood. The right hon. Gentleman then went on to say: What I will say is that hon. Gentlemen opposite have in their speeches yesterday afternoon and today … indicated that in their view this movement should not be supported. May I say, in the few minutes that are left, as I think the right hon. Member for West Bristol said earlier, that if now the proposals made by the Government in this Budget and elsewhere fail and this country goes down, then we all go down with it … that includes hon. and right hon. Gentlemen opposite. Therefore, I hope that hon. and right hon. Gentlemen opposite will assist the Government to do all it can to make the National Savings Movement a success in the months that lie ahead. … We want everyone in this House, if he will, with the prestige which surrounds any Member of Parliament, and particularly right hon. Gentlemen who adorn the Front Opposition Bench, to share with us this work of making the National Savings Movement a success."—[OFFICIAL REPORT, 13th November, 1947; Vol. 444, c. 673–674.] It was a curious attack to make on the Opposition. What had fallen from the benches behind the right hon. Gentleman the previous evening? May I quote some observations made by the hon. Member for South Nottingham (Mr. Norman Smith), to whom I gave notice, and to whom I am grateful for being in his place? The reason the National Savings Campaign is a failure is quite simple to understand. I have often been asked to go on the platform in my constituency to support the National Savings Campaign. I have always refused because I have always thought that it would be thoroughly dishonest to urge other people to do a thing which I do not do myself. In no circumstances would I dream of putting my savings into any sort of security, so-called, which might let me down very badly. If I have any savings I put them into equities for the reason that there is some hope that if we get an inflationary situation equities will rise and I shall not find myself in the position of having put away savings worth a bucket full of commodities only to discover later on that if I choose to mobilise them they are only worth half a bucket, due to the process of inflation. It is not honest to invite people to put their savings into war bonds or savings certificates unless one can assure them that when the time comes to draw out their savings those savings will have at least their original value."—[OFFICIAL REPORT, 12th November, 1947: Vol. 444, c. 426.] The hon. Member was speaking with complete sincerity, and was entitled to place those views before us, but after listening to that speech, without uttering or even muttering the mildest rebuke, the Financial Secretary had the impudence to charge us with something akin to sabotage. There is only one plausible explanation. It is that the right hon. Gentleman is in a highly harassed and almost paranoic condition after two years' experience as a junior Minister in a rapidly declining, decaying, and indeed putrefying, Administration.

Mr. Norman Smith (Nottingham, South)

I do not bear the hon. and gallant Gentleman any malice whatever. In this matter he has treated me with the courtesy which all of us would expect from him, but would it not be more helpful from the national point of view if, in addition to making his party point, which he has done well, and on which I congratulate him, he were to weigh in with his support for the constructive proposal I made in that connection, whereby the savings movement should be helped through guaranteeing investors the future purchasing power of their savings, as measured in goods?

Lieut.-Commander Braithwaite

If I were to take up the time of the Committee in dealing with all the interesting suggestions the hon. Gentleman makes, I should take a very long time. I was making a relevant quotation suggesting to the Financial Secretary that if his wrath is to be turned in our direction, he should also glance behind him.

The right hon. Gentleman made another curious contribution to the discussion. He informed an obviously astonished Committee, not only on these Benches, that the country is "sitting pretty." Sitting pretty when the clock is striking 12 as the Lord President of the Council has told us; sitting pretty when on suspension of convertibility of sterling our final reserves of gold and dollars are, on the word of a Government spokesman, about £600 million, when only that sum stood between us and possible starvation so long as we had to finance an adverse balance of trade; sitting pretty when it is clear that to maintain national solvency this £600 million has to be stretched, together with such windfalls as may come our way, certainly over nine months and possibly 15; sitting pretty when, if we staked every penny of these reserves on one final throw and even if the trade programme went according to plan, we had a mere 30 weeks of solvency; sitting pretty—ask the women when rations are at a lower level than was ever achieved by the U-boats and lower than those that prevail in His Majesty's Prisons and Borstal institutions; sitting pretty—ask the ex-Service men who have laid out their gratuities on petrol-filling stations and are now faced with abject ruin; sitting pretty—ask the electors who expressed their growing disquiet on 1st November; or let him ask if he likes one of the most recent and exotic recruits to Socialism, who is at present trailing a tattered scarlet banner through the streets of Gravesend.

Is it surprising that large sections of workers remain unconvinced of the crisis when a responsible Minister himself can inhabit such a fools' paradise? Is it remarkable, when statements of that sort come from the Treasury Bench, that an American newspaper correspondent wired his paper in New York that only the other day he had been to Grimethorpe during the dispute there and a miner said to him, "If this is an economic crisis, long may it continue."

The Financial Secretary to the Treasury (Mr. Glenvil Hall)

I only want to interrupt the hon. and gallant Member if he has reached the end of that passage which quite obviously he prepared with great care. I did not want to spoil it by interrupting in the middle of it. I would remind him and the Committee that the phrase I used, "sitting pretty," did not refer to any of the things of which the hon. and gallant Gentleman has now made mention. If he will do me the honour of re-reading that part of my speech, he will see that I was referring to the question of inflation and that, compared with certain other countries which I named and in respect of which I gave figures, this country could be said to be sitting pretty.

Lieut.-Commander Braithwaite

I am most grateful to the right hon. Gentleman because he has given me the interruption for which I had been angling, which has come at the appropriate moment. I have a bracketed note here: "Pause for interruption." What the right hon. Gentleman is saying is this: that a sailor perched precariously on a raft watching his shipmates drowning all around him, with half a dog's biscuit to sustain him for the next three days, is sitting pretty. That is what the right hon. Gentleman's statement adds up to. I urge on the Government, under the new regime at the Treasury, to tell people the truth. The hon. Member for Bury (Mr. W. Fletcher), who excited the wrath of the Financial Secretary on Thursday night, did no more than warn us rightly of the evidence of the flight from sterling. After two and a half years of Socialist misrule, the trusting and toiling millions who voted them into office with such high hopes find the brave new Britain steadily receding from their gaze. All we have got—I would not like hon. Gentlemen opposite to miss the sentence which is coming—sums up the whole of this Debate. Instead of the brave new Britain for which these people voted, all we have left is a land fit for bookies to spiv in.

7.56 p.m.

Mr. Scott-Elliot (Accrington)

I did not intend to say anything of a controversial nature this evening. In view, however, of the speech delivered earlier this afternoon by the right hon. Member for the Scottish Universities (Sir J. Anderson), who I am sorry is not in his place, I feel I ought to refresh the memory of the Committee with extracts from speeches which he has delivered on two previous occasions. I come first to the question of food subsidies. When the right hon. Gentleman addressed this Committee on 16th April last, following the Budget statement, he said: I would add, in that connection that a moment when relief from direct taxation is being provided would seem to me eminently suitable to choose for a determined effort to bring down those subsidies. Our national economy will never be on a satisfactory basis until they have been reduced to negligible proportions.—[OFFICIAL REPORT, 16th April, 1947; Vol. 436, c. 202.] I would draw attention to the last few words. We are used to hearing measured words from the mouth of the right hon. Gentleman who speaks as it is right for him to speak in measured terms from the Front Opposition Bench. It may how-ever be alleged that his tongue ran away with him on that occasion. I would therefore draw the attention of the Committee to another occasion when this House was considering the state of the nation on 7th August, and I would again like to read what was said by the right hon. Gentleman: I think we must aim at a real budgetary balance by pruning expenditure ruthlessly—not by increasing taxation but by pruning expenditure ruthlessly. In that connection it is absolutely essential that the Chancellor should make a determined effort to deal with the running sore of the food subsidies."—[OFFICIAL REPORT, 7th August, 1947; Vol. 441, c. 1703.] There is one other thing to which I would like to draw attention concerning family allowances and old age pension to which the right hon. Gentleman made reference on the same day: One of the first steps the Government took on coming into office was to bring into operation a system of family allowances, and almost simultaneously greatly to improve the old age pensions of the people of this country. I do not blame them over much for that—[An HON. MEMBER: 'Overmuch?']—I think they acted too hastily."—[OFFICIAL REPORT, 7th August, 1947; Vol. 441, c. 1698.] It seems to me that these statements bore no relation whatsoever to what was said by the right hon. Member for West Bristol (Mr. Stanley) last week, and I think that it is right that we on these benches should be told where the Opposition stand in this matter. I sincerely hope therefore that the Opposition will do something to clear up this dilemma. I do not want to take up the time of the Committee for long but I have other things to say and I will say them as shortly as possible. One tremendously important subject to which hon. Members have referred is the question of National Savings. I think this is tremendously important, because obviously this is one of the three ways in which we are going to mop up expenditure and deal with the inflationary gap. It seems to me that we have to analyse what has gone wrong with National Savings. It is not so much a question of shortage of savings each week, though admittedly they are not as good as they should be. What is happening is that the saver, particularly the small saver, is cashing in on savings to an absolutely irresponsible degree. It seems to me that, in connection with the intensive drive for national savings, we want to consider whether it might be possible to offer a greater inducement for savings in the future.

I should like to make two suggestions to the Financial Secretary to the Treasury in the shape of new methods of saving. My first suggestion is that the 10 years saving certificate is altogether too long dated. It may have been perfectly all right during the war when there was patriotic fervour and when people put in 15s. and knew that they were going to get 20s. 6d. out. What is the position today? It is that if a man buys a 10s. certificate he will only get 13s. at the end of 10 years. That seems to me to be too little, and I should like to see a certificate issued of a currency of three or four years bearing a relatively high rate of interest, which would only accrue if the certificate were held until the date of maturity.

My second suggestion, which I do not like as much as the first, is that some new kind of Defence Bonds should be issued bearing a low rate of interest and at a considerable discount. Those saving bonds would be subject to drawings of a certain amount every year at par, and in saying that I do not want it to be thought that I am discussing anything like a State lottery. Already there is a precedent for this so far as the big investors are concerned, because after the first world war 4 per cent. Victory Bonds were issued at 85, and they could be tendered at any moment in payment of Death Duties. That was intended for the big savers, and what I am suggesting is a bond that would be applicable to the small savers. The reason I do not like this suggestion as well as the one I made about savings certificates is that it might have an attraction for the big investors and might not bring in sufficient small savings.

Mr. Gerald Williams (Tonbridge)

Before the hon. Member for Accrington (Mr. Scott-Elliot) leaves this very interesting point, might I ask him if he thinks it is really practicable to encourage an appeal for savings when at the same time hon. Members on his own side of the House are advocating a capital levy?

Mr. Scott-Elliot

I should like it to go on record straight away that I am entirely opposed to a capital levy, and, speaking as an individual sitting on the back benches, I have every right to my own opinion

In conclusion, may I say that our financial position is extremely serious. I recognise there is an inflationary gap, not quite as large as may have been suggested by certain hon. Members opposite, but, nevertheless, an inflationary gap which is going to be increased by the cuts that are now being made. I recognise that we should do everything we can to limit that inflationary gap to an absolute minimum. It has to be done in part by means of increased taxation. We are now discussing that in the Budget proposals. But that is not all. I hope when my right hon. and learned Friend the Chancellor of the Exchequer rises tonight ho will not only be able to say something about taxation, but will be able to give us an idea of the total savings in Government expenditure, including savings on the Forces, on supplies for the Forces, on capital expenditure, and in administrative expenditure, which at least should be possible in the Budget he will be producing next April.

8.5 p.m.

Sir Frank Sanderson (Ealing, East)

; I should like to make reference to the very unfortunate remark made by the hon. and gallant Member for Brixton (Lieut.-Colonel Lipton), when he stated that hon. Members on this side of the Committee represented financial interests. That is not true. It is totally unwarranted and it is dangerous. Members, not only on this side of the Committee, but in all parts of the Committee, represent their constituents, and I think it should be made quite clear that Members on the other side of the Committee include those who rank amongst the wealthiest men in the country. It is a mistake to believe that the capitalists, so called by the hon. Members opposite, are on either one side of the Committee or the other. I regard that remark as dangerous because, as I have said, not only is it untrue, but it is an unwritten law in this Committee that when any hon. Member in any part rises to address the Committee, and he is interested in the subject under discussion, he declares his interest. The hon. and gallant Member's remark, to my mind, lowers the prestige and dignity of the House. In recent weeks there have been ample causes for that, and it behoves every Member to do all he can to uphold the prestige and dignity of this House.

The hon. Member for Accrington (Mr. Scott-Elliot) addressed the House upon the subject of National Savings. I would like to preface my remarks by saying how very much I deplore the concluding remarks which fell from the lips of the Financial Secretary to the Treasury in winding up the Debate last Thursday. I believe that the prime cause was the fact that there were many interruptions and interjections and he expressed himself in a way which, in the normal course of events, he would not have done. I regard the Savings Movement of this country as of the utmost importance. It has been said that there is a danger in putting money into saving certificates because of possible inflation, that is the purchasing power of the pound being made less, rather than more, the longer people keep their certificates.

If there was no other reason for advancing the savings movement the millions of people of this country—and I believe that there are 20 million people who have invested their money in savings certificates and in deposits at the Post Office Savings Bank and who, I believe, have no less than £4,000 million to their credit—should continue to save to their utmost with a view to the prevention of inflation, thereby increasing the purchasing power of the millions of pounds they have already invested. I trust that we shall hear no more talk of that kind from any side of the Committee about the advisability or otherwise of saving, because saving is essential to the preservation of our economy, and it is the duty of hon. Members on all sides of the Committee to assist in every way possible. I wonder whether it has occurred to hon. Members that if our people rose to the necessity and saved 15 per cent. of what they earn, the troubles of the Chancellor of the Exchequer would be almost at an end. That degree of saving would close the gap with which the Treasury are confronted, and endeavouring to close by every means possible.

Another subject which has not been touched upon today is the Profits Tax. The Government are making a great mistake in introducing retrospective legislation. On some occasions, as on this, it is to their advantage, but the principle is hazardous and dangerous, and it is grossly unjust. It is proposed to double the Profits Tax and to make it retrospective to 1st January, 1947. Many companies balance their books to 31st March, 30th June or 31st August. How will the proposals affect companies whose year ended after 1st January, 1947, say, 30th June? They will have made their distributions to dividends or to reserves, and provided for taxation. Their books will have been duly audited, but their accounts will now be incorrect. The figures shown will be wrong. How are those companies to reopen a year which is already closed and for which accounts may have been already lodged at Somerset House? How are they to pay the increased Profits Tax for a financial year which has already ended? The Chancellor should consider this point, for I can assure him that it will raise endless difficulties with the business community and also with the accountants.

I also raise an objection to this tax because it is discriminatory in effect. The extent at which the tax is paid by the investor depends entirely whether the individual's money is invested in debentures, preference shares or ordinary shares, for this tax will fall wholly upon the ordinary shareholder. The debenture holder receives his interest, the preference shareholder derives a prior claim, and therefore the whole weight of this 25 per cent. of tax will fall upon the equity, namely, the ordinary shareholder. That is not all, for the extent to which it falls upon the ordinary shareholder will depend very much on a company's capital structure. If, as is the case with many companies, the principal capital has been raised by debentures and preference shares, the balance of the profits of that company will be absorbed in meeting the Profits Tax charge and the ordinary shareholder will have to be content with no return whatever upon his money. No hon. Member will disagree when I say that it is the man who invests his money in ordinary shares who takes all the risk. He invests his money in ordinary shares because he believes he is helping to develop and extend industries. It is unfair that we should have discriminatory taxation which falls upon only a percentage of the whole. It is inexpedient that we should pass for one class of investment legislation which will oppose initiative and enterprise and the development of our great industries. I will not develop that on account of the time, but I would just point out how every £1 of net profits earned by a company now has to bear Profits Tax at 5s. where such profits are being distributed. The balance of 15s. has to suffer a further deduction of 9s. in the £, i.e., 6s. 9d. The total tax charge is therefore 11s. 9d., equivalent to practically 60 per cent.

A great deal has recently been said with respect to the possible devaluation of the pound sterling as against the dollar. I have no intention of developing this tonight, but I regard it as vital that the Government should say at the earliest possible opportunity whether or not it is their intention so to do, because it is having a serious effect upon not only financial interests, but also industrial interests. I cannot believe that it is the intention of the Government to consider devaluing the pound. One reason recently stated by one of the economists of the U.S. Federal Reserve Board was that the correct value of sterling today as compared with that of the dollar, based upon the cost of living in America and that of this country, would not be 4.03 but 4.79. That brings us approximately to-what was the value of the dollar before the pound was depreciated. Secondly, to devalue the pound would confer no benefit upon this country, since it would not increase our imports but would increase the cost of our exports in a market where it is becoming increasingly difficult to meet world competition every day. I hope the Chancellor will be able to give us some enlightenment as to what his policy in this direction is likely to be.

8.22 p.m.

Mr. Rankin (Glasgow, Tradeston)

I have listened throughout practically the whole of this Debate and there are certain aspects on which it can be said there is some measure of agreement on both sides of the Committee. We accept the Budget as a mechanism for mopping up surplus spending power but, of course, considerable difference of opinion has been manifested as to where that surplus spending power lies. Hon. and right hon. Gentlemen opposite have done their best to encourage the Chancellor to mop up what they call the surplus spending power represented by food subsidies. That is something to which we on this side of the Committee and, I am certain, my right hon. and learned Friend, will pay absolutely no attention. We have shown that if there is surplus spending power to be mopped up, then it is not to be mopped up from, or found in, the purses of the women in our working-class homes. Instances have been given to show that working women today are finding tremendous difficulty in making ends meet as it is, and we certainly will not do anything to increase that difficulty. There the difference remains between the two sides of the Committee, and that difference cannot be bridged.

We have been challenged on this side to say what remedy we propose in order to meet what has been called the inflationary trend. There we have only one reply—output. It is not unfair to say that the party opposite have shown in the course of the Debate no other than the old remedies which they have proposed previously, which they have put into execution previously when they had the power, and which previously have failed. To cut down has been the theme of practically every speech that we have heard from the opposite side of the Committee during the Debate. We reject that, and we say that inflation can be met by increased output.

It is at this point that I want to take the question a little further, and ask what is going to happen to the output. A certain amount of it, of course, will have to be retained for internal consumption, but a large proportion must go abroad. I want to ask where? It will go abroad in the form of exports, in the long run, to bridge the inflationary gap, but where is it going? Are we going to pile it up, as is being alleged today in the form of vacuum cleaners in the ports of Australia, or in-the ports of West Africa in the form of motor cars? Where is it going? A week ago, in "Reynolds" newspaper, my right hon. and learned Friend the President of the Board of Trade stated that in order to help in solving this problem of inflation, part of our policy would be to divert exports to Canada. I want to look at the solution which he put forward, or at least which he suggested, that part of our exports would go to Canada.

In 1936 we sent to the Canadian market, £25 million worth of merchandise. If we continue until the end of this year exporting to Canada at the present rate we shall have sent during 1947, £40 million worth of merchandise there. That is an increase of £15 million, which in the circumstances is very creditable. There is nothing in the least to be ashamed of in that increase when we view the whole circumstances of the case. But if we look at the American exports to the Canadian market during that period, we find that £73 million worth went into Canada in 1936, three times the value of ours, whereas at the present moment America is sending to the Canadian market £273 million worth of merchandise, nearly 14 times the increase of trade that we have made. We have got to balance, or put against the £200 million increase which America has attained today, the £15 million increase which we have, and if we are going to put into the Canadian market more exports to help our internal balance, then we shall find ourselves up against a dollar curtain, which will be very hard indeed to penetrate.

But if we look at these figures a little more closely we find that Canada's chief demand on the world market is for coal, machinery, oil and textiles. Our coal exports to the Canadian market this year will amount to 47,000 tons, against the United States' export of three million tons. Out of a total trade last year of £98 million of imports of machinery, America had £93 million against our £3 million. In oil we have practically nothing to set against what goes into Canada from the United States. In textiles we have an even break with the States, of about £2 million worth each. That is the situation which faces us today in our attempt to get more exports into the Canadian market.

In other forms of merchandise we find exactly the same situation. Other nations, such as India, and practically every part of the British Commonwealth, repeat the tale I have told about Canada. If we seek to penetrate that market at the expense of America we may precipitate a "cold war" which will be even colder than the alleged ideological cold war in the East. In facing the problem of meeting the needs of the nation we have to change from the old method which has been advocated tonight by hon. Members opposite, and we have to stop regarding the mere ability of individuals to sell goods on a foreign market as being either a national asset, or a national advantage. In order to approach the problem, and cut out the dangers that are inherent in competition for exports, we have to view our national product as a whole, and decide what portion of that product has to be kept for internal consumption and use the part which is over—the coal, machinery, oil and textiles—as a surplus with which we can trade with other nations in order to bring in the goods we need. Only when we approach the problem of exporting commodities as a nation, expanding our control over them, and dealing with them from the national point of view, shall we cure our financial unbalance at home, and our economic disequilibrium abroad.

8.34 p.m.

Mr. William Shepherd (Bucklow)

I wish I could agree with the hon. Member for Tradeston (Mr. Rankin). If we could contract our stomachs, and reduce the demand machines make for raw materials, this arbitrary limitation of our exports might be a practical and very desirable proposition; but I am afraid those two conditions are not in fact fulfilled. I wish to reinforce the plea made by my hon. Friend the Member for East Ealing (Sir F. Sanderson), who said that we on this side of the Committee are very mindful of the real necessity for supporting the Savings Movement. There may have been some hon. Members opposite who have doubted its validity, but, I think that everybody who tries to judge this situation impartially will agree that it is essential to have savings at present. It is also essential—and this is the point we must drive home—that the Government should create the conditions of confidence in which savings flow naturally. Our contention is that during the past two years those conditions have not been created.

Not all hon. Members on this side of the Committee take the view that the cutting away of food subsidies in any harsh manner is the most desirable proposition. It is wrong to assume that the giving of food subsidies means that everybody is getting a great deal more. That would be true if the food subsidies were not accompanied by very high indirect taxation. If one views the heavy incidence of high indirect taxation, on the one hand, and food subsidies, on the other, and if one says, "Which is more equitable—to charge people more for their food or to charge more for tobacco and beer to those who can afford it?" I think the answer is that, in the main, the balance of adjustment lies in food subsidies. But that is not to deny that basically any subsidy on food is bad. We must work towards the elimination of food subsidies because they distort our economy.

I want to deal briefly with what has taken place in this Budget. It is agreed by everybody who tries to look at the situation without favour that this Budget is inadequate to serve the purpose in view. The nation needed a shock. The nation was even prepared for a shock, but the Government have given it another scdative. I can only imagine that this Budget was prepared during a very bad bout of municipal election jitters. The Government were not prepared to take the steps which the country knew were essential for our well being. For two years we have been fighting the Keynesian doctrine. For two years, in an inflationary situation, we have been doing all the things which ought to have been done in a deflationary situation. The Government have been accentuating a condition of affairs which has put this country into a very difficult position indeed.

It must be realised that a position of intense inflation can have all the effects of impeding production, of lowering quality, and the desire for work and the skill of the workers, that can be obtained by unemployment and a bad state of deflation. We must face the position that what has existed in the last two years has been an inflationary position with a demand for every conceivable kind of service and material in excess of supply. In the circumstances, the Government have made no attempt whatever to apply the necessary remedy. Instead, the Government have tended to increase the inflationary pressure by all kinds of devices. The hon. Member for Trades-ton said that we must be careful what we export. The plain truth is that we are trying artificially to maintain too high a standard of living. It is no good asking whether we must export our wealth to Canada, America or China. No one wants to do that, but if we are to eat we must do it. What the Government have been trying to do during the past 12 months is to maintain a standard of living higher than the economic condition of the country allows.

Some hon. Members talked about incentives. The time is rapidly approaching when material incentives will not be available. The time is rapidly approaching when budgetary devices will be useless. The time is rapidly approaching when, I think, only an intensive desire on the part of every man, woman and child in this country will save us. We are passing—and will pass very shortly—from the sphere where economics apply, to the sphere where a spiritual urge on the part of the people will get us somewhere. I wonder whether those hon. Members opposite who, for 30 or 40 years, have tried to poison the wells of industry and to build up in the minds of the people a distorted idea of the system under which they lived, are fitted to speak to this country as it needs to be spoken to. I also wonder whether they can speak for this country as it needs to be spoken for. I hope they can, but I fear they cannot. Unless there is this great spiritual change, I feel that this country is heading for a disaster, the like of which we have not known before.

8.42 p.m.

Mr. William Wells (Walsall)

I suppose no hon. Member on either side of the Committee will be concerned to deny the seriousness of the position which the hon. Member for Bucklow (Mr. W. Shepherd) has depicted, but we on this side would emphatically deny two things that he has alleged against us. The first is that we have tried to poison the wells of industry. That is a charge which nobody who knows anything of the way in which industrial relations work, or the work which our trade union leaders are doing at this moment would substantiate. The other charge with which I wish to deal is that which he made against my right hon. Friend the Member for Bishop Auckland' (Mr. Dalton) that he had administered a sedative when he ought to have administered a shock.

We have to look at the fundamental task that faced my right hon. Friend the Member for Bishop Auckland in framing this Budget. It was clearly to counter inflation, but without producing disincentives, because the cardinal factor in the situation is that production can counter inflation and that nothing else in the long run can do that task. Increases in direct taxation on an individual's earned income might be counter-inflationary in theory, but, in practice, they would be precisely the reverse. The same would be true of very steep increases in Customs and Excise duties, or on almost any kind of consumable materials except in the purely luxury ranges. In the field with which we have been dealing my submission is, and it appears to have been the theory on which the late Chancellor of the Exchequer acted, that drastic measures would largely defeat, or tend to defeat, their own objects.

In the few minutes at my disposal, I do not wish to deal at any length with the question of food subsidies. I would only say that the Opposition have taken two lines. One is the line taken by the "Economist," that food subsidies are bad in themselves—that they are a pure gift of 12s. 6d. a week to people who could very well spend that money out of their own pockets—and the other is the more statesmanlike view taken by the hon. Member for Bucklow, who spoke, I think with the voice of the official Opposition, that, if we reduce food subsidies, we must, accordingly, increase the sums spent on social services. That is a very attractive proposal coming as it does from the Opposition which has not the responsibility for administering those services. Is it seriously proposed however, that, in order to deal with a position which obtains today, but which, in three or four years' time, may, and probably will, be quite different, we are to overthrow permanently the very careful balance which the Minister of National Insurance has set up in his National Insurance measures, and place a permanent burden on the taxpayers of this country in order to meet a temporary difficulty?

This is a Budget of limited objectives, and in my submission, the limited objectives which it set are correct. There are many other proposals which I hope my right hon. and learned Friend will consider before next April, and which I know he will consider. I would only add that while I agree with my hon. Friend the Member for Accrington (Mr. Scott-Elliot) that certain forms of capital levy might be the greatest disincentive to saving, and that we on this side of the Committee should support, in every way we can, the National Savings Movement, I believe that taxation of the large increments in capital values that have accrued since the war started is a matter to which my right hon. and learned Friend might well pay future attention.

8.46 p.m.

Mr. Osbert Peake (Leeds, North)

We have had a fairly full Debate for three days upon the proposals contained in the Supplementary Budget of the former Chancellor of the Exchequer. I hardly know whether to congratulate or sympathise with the right hon. and learned Gentleman who has succeeded to his great office. One might congratulate him, I suppose, on attaining supreme power in a Government who have hitherto been hamstrung by what my right hon. Friend the Member for Woodford (Mr. Churchill) called the other day a dichotomy of policies. One might, on the other hand, sympathise with him—and I do sympathise with him—in having to defend a Budget in which he can hardly wholeheartedly believe. I would only give the right hon. and learned Gentleman one word of advice, and that is that he should take a leaf out of the book of the Lord President of the Council and improve his public relations service. I think he will be aware of the incident to which I refer—I think it was on Thursday night—when it was reported in parallel columns of "The Times" that he was unable to attend a mass meeting on account of the great press of his labours, and in the next column that he was enjoying himself at the theatre.

The Chancellor of the Exchequer (Sir Stafford Cripps)

It was quite consistent.

Mr. Peake

It may have been quite consistent, but I think the public relations officer should try to see that such announcements do not come out simultaneously.

There will be no crocodile tears on this side of the Committee regarding the disappearance from the Government of the right hon. Member for Bishop Auckland (Mr. Dalton), though there will be general regrets at the manner of his departure. We on this side of the Committee believe that he, more than any other Minister, is responsible for our present plight. We believe that throughout his Chancellorship he has shown a cynical disregard of the real needs of the situation, and, without entering into the merits of the questions, I would only instance his record in regard to the food subsidies and Purchase Tax. In his first autumn Budget in 1945 he told us that the food subsidies were going to cost us £250 million, and he warned the Committee of the danger of their growth. In the following April he estimated them at £335 million. He said categorically: We cannot go on doing this indefinitely, regardless of cost."—[OFFICIAL REPORT, 9th April, 1946; Vol. 421, c. 1811.] That was the speech in which he also committed himself to the statement that the danger of inflation was gradually receding. Then, a year later, having committed himself to the statement that we could not go on increasing these subsidies regardless of the cost, he proceeded to do so, although by then the figure had risen to £425 million.

I want to ask the new Chancellor to explain to hon. Members what was meant by the former Chancellor's statement that the figure was now to be stabilised. Does it mean that the global figure to be spent on food subsidies will be the figure estimated by the Chancellor last April, whatever supplies of food may or may not be available? For, after all, subsidies of a fixed sum on the prices of commodities are bound, surely, to vary in their totals according to the quantities of food available, and one would have thought that, with the progressive cuts that have taken place in the rations, the food subsidies at a fixed sum for an article would cost us something less than the original estimate of April last. Would the new Chancellor make it plain whether stabilisation of the subsidies means that a fixed sum is going to be spent on food subsidies, whatever happens? Or does it mean that subsidies will be paid at fixed rates according to the quantities of food that come into the country? In his April Budget the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) stated: Today there is plenty of purchasing power. That has been our aim."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, c. 54.] That was said three months after the publication by the Government in January of the Statement on the Economic Considerations Affecting the Relations between Employers and Workers. That was the statement in which the inflationary gap due to excessive purchasing power was put at the figure of £1,000 million. We say that throughout his tenure of office the late Chancellor pursued a dual policy, on the one hand to increase purchasing power, and, secondly, to proceed to impose taxation designed to mop it up.

Anyone who possesses, as I am fortunate enough to do, a copy of "Alice in Wonderland" with the original illustration by John Tenniel, will, I think, be struck by the resemblance both of stance and of feature between the former Chancellor and the Financial Secretary, on the one hand, and the Walrus and the Carpenter on the other. The right hon. Gentleman the Financial Secretary and his former chief survey regretfully the great quantities of new purchasing power which they have created in the hands of the people—just as the Walrus and the Carpenter: Wept like anything to see Such quantities of sand … 'If seven maids with seven mops Swept it for half a year, Do you suppose,' the Walrus said, 'That they could get it clear?' I doubt it,' said the Carpenter, And shed a bitter tear. That is exactly the Financial Secretary. It is not a mop that has been wanting in the past two years: it has been a plumber to stop the leaks and to turn off the taps of the constantly increasing purchasing power created by Government policy and by the lack of it. In August, the Prime Minister said that we had tried to do too much. His words have since been echoed by the Lord President and the new Chancellor of the Exchequer. There is one sentence in the Prime Minister's Guildhall speech, to which I listened on the wireless, with which his nation-wide—possibly, his world-wide—audience must have found themselves in complete agreement. He said, reviewing two years of Socialist administration: The results have been quite amazing. I believe that we now have a plumber at the Treasury. The speeches of the right hon. and learned Gentleman have ail shown a keen realisation of the immense problems which confront the nation. He it was who, on 10th March last, in the Debate on the economic situation, appealed for some stability in wages rates; and he was the author of that phrase which the former Chancellor so severely castigated Lord Woolton for using in regard to full employment; it was in his speech of 10th March, if the right hon. and learned Gentleman will read it, that he will find he spoke of "the prospects of over-full employment."

I now turn for a moment to the Budget Speech of last Wednesday. The proposals for new taxation, raising only £33 million in the current year, seemed to us to be derisory as a contribution to the terrible difficulties which confront us today. There are increases in Purchase Tax and in Profits Tax. It would have been far better, in our view, to have achieved a large Budget surplus for the current year by economy in expenditure rather than adding to the already heavy burdens of taxation. The increases of Purchase Tax, in particular, as the hon. Member for North Bristol (Mr. Coldrick) made so clear in his well-informed speech, have shaken confidence in private savings, and the unparalleled run on the shops during the last few weeks has shown what efforts people will make to try to anticipate a rise in the price of goods and services.

There is one other detail of the Budget to which I must refer, since the right hon. Gentleman who introduced it founded his case or endeavoured to found his case, so far as I could make out, on a report of the Public Accounts Committee, of which I am Chairman. I refer to the charge of interest at three per cent. on direct taxes unpaid over a period of three months or more. I say that the Report of the Public Accounts Committee affords no justification for the Chancellor's proposal. The report of that Committee was not a censure upon the taxpayer; it drew attention to the staff difficulties of the Board of Inland Revenue. These large arrears of taxes are due, not to laxity on the part of the taxpayer, but to the fact that the Inspectorate of Taxes has been reduced from 1,800 inspectors before the war to 1,600 at the present time. Unlike virtually every other great Department, whose staffs have been immensely swollen since the war, the Inspectorate of Taxes is actually employing fewer inspectors to deal with the immensely complicated problems of Excess Profits Tax, Profits Tax, Surtax, and so forth, than it employed before the war. I have not the slightest doubt that the employment of a few additional skilled inspectors, if they could be found, would result in bringing a good deal of money more speedily into the Exchequer.

I wish to reinforce the point made this afternoon by my hon. and gallant Friend the Member for Holderness (Lieut.-Commander Braithwaite), who said that it there is to be an interest charge, surely, it should be a two-way traffic? I myself, 18 months ago, accidentally overpaid my Schedule A Income Tax. It took six months of correspondence to persuade the authorities that that had, in fact, been done; but it took seven months after they had agreed that they owed me the money before I got the cheque. Surely, it is most reasonable that, if shortage of staff in the Inland Revenue Department leads to these long delays in repayment of tax which is known to be due, a grant of interest should be made to the taxpayer?

I want now to say a few words about this inflationary gap, with which it is the avowed purpose of the Supplementary Budget to deal. Many have said that the gap is not capable of precise estimate. It was, however, estimated, in the paper to which I referred, the "Statement on the Economic Considerations affecting Relations between Employers and Workers," at £1,000 million in January last. This paper, which was published with the authority of the Government, said: At present, there is too much money chasing after too few goods. To increase the amount of money in people's pockets does nothing to increase the amount of goods available. On the contrary, it makes the situation worse … The volume of purchasing power is already far bigger than the supply of goods at present-day prices. The total amount of incomes of all sections of the community after paying Income Tax, is well over £7,000 million, but the value of goods and services available to be bought by consumers is only about £6,000 million at present prices. Therefore, we start at a datum line of £1,000 million, which is the Government's estimate of the gap in January last. Since then, there have been a large number of different factors all tending to increase the gap. The first is the diversion of goods by the new Chancellor of the Exchequer, in his previous capacity, from the home to the export market. The second factor is the cuts in imports announced on 27th August, totalling £228 million. These were cuts in foodstuffs, basic petrol, the denial of foreign private travel, and so forth. All of that money is available today to be spent in the home market instead of buying imports. Then there were further cuts beyond that figure, announced by the new Chancellor of the Exchequer on 23rd October. I could not precisely assess what these cuts amounted to, but I think the right hon. Gentleman told us, or meant to tell us, that he was cutting dollar imports to the tune of £200 million; but apparently some of the supplies not to be obtained from dollar sources were to be obtained in future from sterling sources, and so the net amount of the further cuts is not apparent to us.

There is the further fact that since January last the wages index has increased by four points. I should put the additional purchasing power thereby created at £100 million. Then there has been the recent increase in wages granted two or three days ago by the National Coal Board to the miners, which will, I think, require approximately £30 million per annum. No doubt, in due course a part of that increase, or all of it, will be passed on to the consumer in the form of increased charges for coal, and in that way this newly-created purchasing power may to some extent be absorbed. But so long as the rise in wages operates, and before the price of coal is advanced to meet this increase, there is a further creation of new purchasing power.

To complete the catalogue, in the current year, there were Postwar Credits being repaid to the tune of £60 million, war damage payments of £270 million and Excess Profits Tax repayments to the value of £60 million. It must surely be apparent to anyone in any quarter of the Committee that if the inflationary gap stood at £1,000 million in January, it must be an enormously greater figure at the present time. Yet the hon. Member for Blackley (Mr. Diamond), who I rather think is the Parliamentary Secretary to the Financial Secretary, declared on Thursday that all we have to do is to deal with the additional pressure which will result from the stopping of imports to the extent of between £250 million and £300 million."—[OFFICIAL REPORT, 13th November, 1947; Vol. 444, c. 636.] If the official Treasury view is that that is all that is necessary, namely, to try and cut off purchasing power to the tune of £250 million or £300 million, it is a pretty black look-out for our country.

Budgets normally contain a review of expenditure, as well as of revenue. When the Supplementary Budget was introduced, I thought the then Chancellor would say something more about current expenditure. As Members know, current expenditure for this year is no less than £3,200 million. I thought he would say, "Things are so critical that we have found ways and means of reducing that figure, for the current year, by £200 million, or £300 million, or £400 million. But he made no announcement of any cut in expenditure for the current year at all, although he held out hopes that some of what he called "War terminals" amounting, I think, to £320 million this year, would show a big rundown in 1948–49. It has always been my view that expenditure at this enormous level is more than this country can carry in peacetime. Yet all we had from the ex-Chancellor was the statement that the Civil Votes for the current year would exceed the Budget estimate. The right hon. Gentleman apparently anticipated that even the Budget estimate of £3,200 million would be exceeded. Why is there no announcement of any reduction at all in Government expenditure for the current year? It really is amazing, with this huge inflationary gap to be filled, and the Government themselves spending more than one-third of the whole of the national income, that they should set no example, that they should not come forward with suggestions of any sort or kind to reduce expenditure for the current year.

It is not as if there were no ways in which expenditure could not be substantially cut. We know that there are. Earlier today hon. Members interrupted my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) to ask, "Where would you cut expenditure?" Well, those Members have only to refer to the ex-Chancellor's broadcast on Wednesday night, when he stated categorically: There are a lot of other items where we can cut down without harm to essential interests. If Members would take the trouble to refer to the Financial Statement, issued at the time of the Budget, they would see on page 13, among these terminal services, a total of £320 million for the current year. These are all supposed to be services which arise out of the war, and which are simply winding up wartime expenditure. Could not the winding up of some of this expenditure have been expedited? Apart from the social services and without touching them at all, there are vast figures of current expenditure. Works, buildings, stationery, and information services are to cost £76 million, and £30 million are to be spent in the current year on the road programme.

There is also projected—or was, until recently, unless it has been cut down—the expenditure of £28 million on a single new airport—Heathrow. Twenty-eight million pounds seems a substantial figure for one airport in this country. I have not the slightest doubt that not only is money being spent wastefully but also that through every Government Department trying to spend at once, and in competition with other Government Departments, costs have been greatly inflated. In consequence, we have been getting bad value for the money we have been spending. A new Chamber is being built for the accommodation of the House of Commons, not far away from this Chamber.

Mr. Kirkwood

Is the right hon. Gentleman blaming us for that?

Mr. Peake

No, I cannot blame that on the Government. I was going on to state, as an example of swollen costs, the figures relating to that building project. It was estimated that the cost would be £1 million. Revised estimates were made some six or seven months ago at something like 50 per cent. in excess of that figure. The new figure is close upon £1,800,000, and I am quite prepared to wager any hon. Member in this House that before it is completed, it will have cost £2¼ million. That is what is happening at the present time. There is inflationary pressure coming from Government expenditure, and the late Chancellor of the Exchequer has prodded on Departments to spend in competition one with another.

There is one other matter on which the new Chancellor, I think, should give us a little enlightenment. In the course of his speech three weeks ago, he referred to a cut of £200 million in capital expenditure. That was on 23rd October, and the right hon. Gentleman, in the course of his long review of our situation, said: The object of this curtailment of our capital construction programme is primarily to save steel, fuel and some dollar imports, such as timber, and, at the same time, to bring about a measure of deflation. We have come to the conclusion that, as a first step, the annual expenditure on capital construction must be cut immediately by £200 million."— [OFFICIAL REPORT, 23rd October, 1947; Vol. 443, c. 277–8.] He was then asked by the hon. Member for Monmouth (Mr. P. Thorneycroft) whether he could divide that figure into how much of the £200 million would be in the private sector and how much Government or local authority expenditure, and the right hon. Gentleman then replied—it is now three weeks ago—that he could not give those details, and he did not know how much of the £200 million cut would fall on the Government, and how much would fall upon private persons. He went on to say that further details would be set out in a White Paper which the Government hoped shortly to publish. The late Chancellor referred to this in his Budget Statement. He said, referring to this cut, that only part of it would be actually reflected in reduced Budgetary expenditure. We think that it is about time that the House and the country were told of what this £200 million consisted and upon whom this cut would fall. I imagine that, in the first instance, this £200 million at the time of the announcement was only a target, and that discussions were going on with Ministers sitting round the table, each Minister battling for his own programme of expenditure. I hope that tonight the right hon. Gentleman will be able to give us a figure out of that £200 million which is to be an economy in the current year to public funds.

I want to refer to one other subject, and that is the National Savings Movement. I was dumbfounded, and, I think, most hon. Members were dumbfounded, by the sudden and unprovoked onslaught by the Financial Secretary to the Treasury upon those of us who sit on these benches on Thursday evening. The matter has been very fully dealt with by my hon. and gallant Friend the Member for Holderness. I would only say that the attack, to the effect that we were making a political issue—I think that was the statement—of the National Savings Movement is wholly unfounded, and I am glad to say that the right hon. Gentleman withdrew it so far as right hon. Gentlemen on this side of the Committee are concerned. When he came to justify his attack, the only hon. Member whose name he could mention was the hon. Member for Hornsey (Mr. Gammans). I have read the speech of the hon. Member for Hornsey and all he did was to give a very careful analysis of the reasons for the falling off in National Savings. If hon. Members want an outright condemnation of the Saving Movement they should look at the speech of the hon. Member for South Nottingham (Mr. N. Smith). In that speech he said: The reason the National Savings campaign is a failure is quite simple to understand. I have often been asked to go on the platform in my constituency to support the National Savings Campaign. I have always refused because I have always thought that it would be thoroughly dishonest to urge other people to do a thing which I do not do myself. In no circumstances would I dream of putting my savings into any sort of security, so-called, which might let me down very badly. That, I would say, was a very irresponsible statement to make at the present time.

Mr. Norman Smith

Does the right hon. Gentleman think it fair to the country and the Savings Movement to pull an isolated statement like that from its context and quote it without at the same time even mentioning that I did express a very strong desire that the Savings Movement should succeed and made a constructive suggestion whereby it might be made to succeed.

Mr. Peake

I cannot read the whole of the hon. Member's speech, but he did devote quite half a paragraph to what is a very forthright condemnation of the National Savings Movement. He continued: If I have any savings, I put them into equities for the reason that there is some hope that if we get an inflationary situation, equities will rise, and I shall not find myself in the position of having put away savings worth a bucketful of commodities, only to discover later on that if I chose to mobilise them they are only worth half a bucket."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 426.] That is a very downright condemnation of the Savings Movement as it stands today, and I have never heard any hon. Member on this side of the Committee express himself so strongly about the National Savings Movement.

Mr. Norman Smith

I submit that that is not a condemnation of the Savings Movement. It is a condemnation of the financial system which the party opposite stands for as much as anyone else.

Mr. Peake

If it is not a condemnation, will the hon. Member accept it as a criticism? It is perfectly clear that in the economic circumstances of the day the great bulk of the small savings must come from the weekly wage earners, and weekly wage earners are claimed by hon. Gentlemen opposite as wholeheartedly their supporters. I cannot imagine that they are very much discouraged from savings by an occasional bark from my noble Friend the Member for South Dorset (Viscount Hinchingbrooke). How much they are affected by the hon. Member for South Nottingham I cannot say, but the fact is that the fall in savings is due to the intelligent assessment by the public of the policy and action of His Majesty's Government in the light of actual experience. During the past two years it has become increasingly difficult for honest men conscientiously to recommend savings as the best spending of money. [HON. MEMBERS: "Oh."] That was said this afternoon by the hon. Member for North Bristol. He said that experience in the last two years had made it very difficult to recommend savings because, in point of fact, increases in Purchase Tax had consistently increased the price of goods to the public.

The new Chancellor has a great "opportunity to restore confidence in the National Savings Movement, not by the mere declaration that he intends to maintain the value of our money, but by action and by example. A substantial and immediate cut in Government expenditure would show the people of this country that the Government are in earnest about saving, and it would be the first real and essential step towards the restoration of our economy. To that end we, as a party, are not only willing but are anxious to give the right hon. and learned Gentleman all the support that lies in our power. Personal savings can make an immense and certainly a vital contribution to our salvation at the present time. We wish the new Chancellor well. Never has a Minister in peace time been armed with such powers or confronted with such difficulties. His powers and his difficulties are alike the measure of his opportunity. We wish him God's blessing in his endeavours, but I warn him that we shall hold him and not Providence responsible if he fails.

9.22 p.m.

The Chancellor of the Exchequer (Sir Stafford Cripps)

I am most grateful to the right hon. Member for North Leeds (Mr. Peake) for his kind wishes to me in the office which I now hold. I can assure him that I will not try to put the responsibility on Providence. I am sure that the Committee will not expect me on this occasion to make any general statement on financial policy. I propose to limit what I have to say to replying to those criticisms which have been made in the course of the Debate. My sudden precipitation into this field has not made it possible for me to pick up all the threads of financial policy in the space of a day or two, and I hope, therefore, that no one will read any subtle intentions or indications of policy into any remarks that I may have to make.

I should like to make one thing clear at the outset, and that is that I was and am in full agreement with the proposals which my predecessor put forward in this Budget. No one inside or outside the Government can have a deeper feeling of loss than I have in the resignation of my right hon. Friend, if only because of the close and intimate collaboration in which we worked. He was the best and most co-operative of colleagues, and his ability and honest counsel were of the greatest value in the economic as well as in the financial sphere. If I may say so, by his final act he has decisively underlined the high standards of British democracy and the honourable conduct of British statesmen and politicians, which is in itself no mean service in a world where high standards of conduct are needed more than ever before.

As the right hon. Gentleman said in his opening speech, this is not the time for dealing with questions of expenditure when the Estimates are now being worked through by the Treasury and will be in form for the Budget next April. He did, however, contrary to what has been suggested by the right hon. Gentleman the Member for North Leeds, mention a number of matters in which economies had either been effected or were to be effected as the result of action taken by the Government. I will not go through them, but they can all be found in HANSARD.

I think it is fair to say that the major criticism that has been made of the proposals now before the Committee is that they are not drastic enough to deal with the situation that exists or is likely to develop in the course of the next few months. This Budget is, of course, an interim Budget designed for a limited and immediate purpose. It is not intended to cover the full range of an annual Budget but is aimed at making some immediate contribution to the problem of decreasing the inflationary tendencies which the economic policy of the Government will set up. The tendency towards inflation is not, as many hon. Members have pointed out, at any time an easy thing to measure, and, indeed, I would say that it is not possible of measurement for one very simple reason, at any rate, which is marked by a fallacy in the figures put forward by the right hon. Gentleman the Member for North Leeds.

If we take the familiar definition of this tendency as being too much money chasing after too few goods, there are three separate factors in it; first, too much money; second, too few goods; and third, that the money should chase the goods. In other words, it depends upon what is done with the money as to whether it creates an inflationary tendency or not; and when the right hon. Gentleman just now mentioned the figure of £1,000 million as being the difference between the available money and the volume of goods purchasable, that does not in the least mean that there is an inflationary gap of £1,000 million. It may be that half or, indeed, all of that is invested, in which case there is no inflationary gap at all. One has, therefore, to be very careful when dealing with figures of this kind. Steps can and indeed are being taken in this supplementary Budget to reduce the volume of money available for spending by various taxation devices, but it is only one part of what we can and should do.

There remain the two other points—the volume of goods available and the use to which the money is put by the individual citizen who controls it. The volume of goods produced is not a fixed maximum, and every increase in our efficiency of production makes more goods available and so decreases the inflationary tendency. That is the second way in which we can deal with this problem. I disagree wholly with the suggestion made by the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) this afternoon that anyone on this side of the Committee is unconscious of the continuing need to increase production. For many months past all of us have been emphasising that necessity, and we continue to do so because such an increase is vital, not only for the export plan, but also to counter the inflationary tendencies by giving to our own people a more ample supply of consumer and capital goods and, so far as consumer goods are concerned, those which they not only need but deserve.

Thirdly, the individual can control his own expenditure, whether in respect of consumer or capital goods. He can, in fact, stop his money chasing goods by investing it in National Saving certificates or in any other way, thus preventing it from causing an inflationary tendency.

Sir Arthur Salter (Oxford University)

Does the right hon. and learned Member mean "in any other way"? Surely, when he says that investment is a deduction from inflation, he must mean investment only in Government bonds or in savings; if it is investment in a business, obviously goods and labour are being chased just as if it were being spent on articles of consumption.

Sir S. Cripps

Certainly I meant in any other way which the Government provides for saving. As I pointed out to the House in the course of the Debate on the Gracious Speech, it is essential that private capital investment, especially in buildings and new machinery, should be limited as far as possible so as to allow the use of the material resources for our export task and for the most vital of our domestic needs. That limitation, which is so important for those reasons I have already given, is equally important to diminish the inflationary tendency in the market for capital goods, where, I am convinced, the pressure is greatest of all. The hon. Member for Monmouth (Mr. P. Thorneycroft) suggested that the inflationary tendency was universal throughout our economy, but he afterwards contradicted himself by pointing out that if food subsidies were to go down, we should have to increase the incomes of the poorer paid people because there was no inflationary tendency there. It is quite clear, from all the facts of today, that the inflationary tendency is largely in that area where the money is available for capital goods.

It is our pride as a democracy that we leave the individual with as large a degree of freedom to do as he likes with his own as is compatible with the national interest. But the possibility of continuing that degree of freedom in a condition of economic stability must depend upon the restraint with which the individual makes use of that freedom, especially in times of national difficulty such as those through which we are now passing. Unlike the hon. Member for Monmouth, we do not want to use forms of compulsion with well-meaning directors to force their reactionary colleagues to do that which is in the national interest, as he invited us to do this afternoon. We do not want to be driven to more and more measures of control by the misuse of individual freedom in a way that is antagonistic to the urgent needs of society.

What, therefore, we have attempted to do in this Budget is to narrow, rather than to eliminate, the potential inflationary gap, relying upon the public spirit of the people to cover the rest of the gap, first by increased productivity and, secondly, by self-restraint in their own expenditure. By next April we shall be able to see whether, and how far, we have been successful in this attempt. I would, therefore, appeal to the whole nation to give their voluntary help in cutting down unnecessary expenditure, and in investing their savings in-Government securities. Such investment will bring them a double advantage, because it will help to avoid the dangers of inflation now, and, at the same time, it will preserve the money they have saved to be spent when goods are in more plentiful supply, and when, I hope, prices will be lower than they are today. We do not, therefore, suggest that the new taxation proposed, or the savings in Government expenditure which were foreshadowed by my right hon. Friend, will, of themselves, entirely close the inflationary gap. Part of it will be closed by the good sense and patriotism of the people who make the goods and who have the money to spend.

The uncertainty as to exactly how far the available money will chase the goods makes it, as I have said, impossible to calculate the size of the gap. We have taken steps in this Budget, as the Committee knows, which during next year will close that gap by just over £200 million, and that, accompanied by the reduction in the investment programme which has already been announced, and by other economies such as the reduction of the Defence Forces, the elimination of certain non-food subsidies, and other matters mentioned by my right hon. Friend, will go a long way towards bridging the gap. The right hon. Member for North Leeds asked me for particulars as to the postponement of the investment programme. We have tried to get out a figure between public and private expenditure, but it is not possible, for these reasons. He has only got to look at coalmining machinery, or other machinery, which is limited at the stage of manufacture by some steel control or something of that kind. It is quite impossible to follow that through—I am quoting that as one example—and analyse, in every case, whether it falls into public or private expenditure. In the course of a few days we shall be issuing a White Paper to which the right hon. Gentleman referred, and that will give the details of works and other things which are being discontinued, from which it will be possible to make some assessment of the sort of postponement that is going to take place.

Of course, next year the Estimates will be scrutinised with a view to eliminating any unnecessary expenditure. The Government are as anxious as anyone to avoid any unnecessary expenditure so as to save our resources for the most vital purposes today. Expenditure by the Government must, however, be looked at in detail, having regard to the broad general policies which the Government are pursuing. These latter have been made quite clear by the legislation which has already been passed in the last two Sessions, and that which will be brought before this House during this Session. These are things which we shall continue to regard as of first importance, and it is in the light of those necessities that we shall examine and scrutinise the items of expenditure for next year. Obviously the definition of "unnecesary Government expenditure" will vary with the political views of the individual giving the definition. So far as this Government and its supporters are concerned, we do not regard expenditure upon social services as unnecessary or as a luxury. Nor do we regard the maintenance of a standard of living and housing for the lower income groups of our population as unnecessary extravagance.

That brings me to the subject of food subsidies. There is no doubt of course that food subsidies constitute a very formidable part of our annual expenditure but they are a most material factor in our policy to make rationed foods available to all sections of our population. It has been suggested by the right hon. Member for West Bristol (Mr. Stanley) that we should, to quote his words, try to provide that sufficient income is in everybody's hands to buy the food at its proper price."—[OFFICIAL REPORT. 13th November, 1947; Vol. 444, c. 571.] That sounds quite well, but the right hon. Gentleman did not give us any suggestion as to how the Government could make such a provision. I do not know whether he is suggesting that henceforward the Government should fix all incomes, or fix a minimum income on a sliding scale according to the cost of living. Short of that, it is difficult to see how the Government could secure that individual incomes would be large enough to provide the food at the increased prices, which would result from the removal of the subsidies.

I think the right hon. Member for Scottish Universities (Sir J. Anderson) managed to befog the Committee still further as to the somewhat difficult interpretation of his earlier sayings, and I am bound to say that with the best will in the world I have not the slightest idea at the moment what means the right hon. Gentleman suggests for making the income of the lower paid part of the population adequate to meet the higher costs which he would put on foodstuffs by removing the subsidies. These subsidies are a convenient way of dealing with what we hope is a temporary difficulty. To make the great changes in individual incomes which would inevitably result from their abolition would be likely to create far greater difficulties in the future than any relief which they provided at the present time. We believe it is wiser to maintain the subsidies for the present within the limits that were stated by my right hon. Friend, and to adopt other measures, if necessary, in order to close the inflationary gap.

Of course, the mere holding of the subsidies at the figure of £392 million for this year, a total figure in sterling, may, as a result of unfavourable price movements, necessitate the raising of the prices of certain foodstuffs to a moderate extent, but any such increases will not, we hope, disturb the general level of incomes in the country. The hon. Member for Monmouth suggested that we might make a moderate decrease in the amount of the subsidies, and offset it by increasing family allowances, which are also paid to everybody and would not make any selection as regards the desirable people, and also old age pensions.

Mr. Pitman

Income Tax, and, if necessary, Surtax, is paid on family allowances.

Sir S. Cripps

That may be so, but family allowances are also paid to everybody irrespective of the income they receive. The point I was about to make was that the suggestions which the hon. Member put forward would cost something over £70 million, but would not have started to deal with the real difficulty, the low-paid wage-earners, who everyone admits today could not afford to pay the extra money that would be put on their food bill if the subsidies were removed. The danger of precipitating a general increase in wages of all sorts and kinds is one which I know the hon. Member realises. It is something which he would not like to precipitate in an unnecessary way. Indeed, the food subsidies have been responsible for the remarkable smoothness of progress in the field of industry ever since the end of the war—a most remarkable smoothness when compared with what happened after the last war.

Mr. P. Thorneycroft

I quite appreciate the point which the right hon. and learned Gentleman is making, and which is a most important one. Has it occurred to him that the difficulty of dealing with these demands for wages increases will be far harder if he fails to deal with the inflationary situation?

Sir S. Cripps

I quite appreciate that. I am only pointing out to the hon. Member that this is not the way to deal with the inflationary situation.

There has been some criticism of the policy of cheap money by the right hon. Member for West Bristol as tending to increase the inflationary gap. This is on the basis that it generates capital profits which investors then spend as income. My first answer to that suggestion is that it rests with the investors whether they spend it or not. There is no reason, in the existing circumstances, why they should show themselves so financially incontinent as not to reinvest the money. But there are other reasons, too, why it docs not, in fact, extend the inflationary gap. Unless the private investor sells his stock to the Government, he must find a buyer at the higher price, and what the buyer pays in cash reduces the buyer's capacity to spend by exactly the same amount as it increases the seller's. It is, in fact, an exchange of capacity to spend, and not the creation of a new capacity to spend. Although it may be, and, indeed, it is as a rule, socially undesirable that these capital profits should be spent at such a time as this, nevertheless their volume compared to the whole national income is extremely small and can have little, if any, effect upon the total inflationary tendency. For these reasons, the effect of capital profits upon the inflationary tendency, is almost negligible, if it exists at all. Certainly, it provides no reason for abandoning an otherwise sound policy of borrowing as cheaply as we can, as we hope to continue to do in the future.

Another criticism of the cheap money policy is that it encourages all forms of capital expenditure simultaneously and, therefore, imposes an unbearable strain upon the capital industries, particularly building. That is, no doubt, in one sense true, but the ordinary correction of allowing interest rates to rise has, as I see it, two strong objections in present circumstances. Firstly, rates would have to rise very sharply if they were to act as a brake and the consequences would spread very widely. Secondly, such a general rise in interest rates is wholly unselective. It would prejudice and make more expensive the essential capital investment as well as the less essential. We prefer to deal with this position by selection through physical controls, the reduction of certain parts of the investment programme, and the good sense and patriotism of private investors, of whom I have already spoken. But the physical controls will be under strain unless the community helps to relieve the pressure by following the policy of investing savings and withholding unnecessary claims on capital goods.

I pass now to the actual provisions which have been put forward in this Budget; here I think I can say with some confidence, there has been very little real criticism of any of these provisions except on matters of detail which, of course, can be dealt with in the Finance Bill when it comes forth. The main provision, so far as the Customs and Excise are concerned, is that relating to Purchase Tax. Here it has been suggested that a review of the commodities in the various classes might be undertaken. I am sure the Committee will understand, however, how important it is for traders that these lists should be changed as seldom as possible, and, anyway, not more than once a year, at the time of the annual Budget. That is why my right hon. Friend adopted the wise device of a general increase of tax in each class, leaving the contents of the class the same. It has been suggested that the top rate of 125 per cent. might be raised still higher, but to do that would, I am afraid, create so strong an inducement to evade the tax that it would be extremely difficult to police it adequately.

As the Committee will remember, motor cars and motor cycles have been exempted from the general increase because they had been dealt with last April, and it would be unwise now to make new alterations just as their manufacture is getting on the new basis. There is another good reason, too, and it is that, under existing circumstances, any new cars purchased are certainly not for pleasure use. We do not want to penalise the doctors, nurses, businessmen, and others who are obliged to use new cars. But this raises another point which has been brought to my attention—the increase of tax on bicycles and tricycles from 33⅓ to 50 per cent. In view of the fact that the taxes on the more well-to-do forms of transport—cars and motor cycles—are not to be increased, is it fair that the ordinary cycle, which is almost exclusively used nowadays for business purposes, should be more heavily taxed? I believe the answer to that question is, "No, it is not fair." Therefore, I propose to deal with bicycles and tricycles in the same way as cars and motor bicycles, and the appropriate steps will be taken to make that alteration in the Budget provisions. That change will mean a reduction of about £1 million a year in receipts from the Purchase Tax.

So far as the betting tax proposals are concerned, the main objection to these has been that they do not go wide enough; that they ought to include the horses and the bookies. So far as the horses are concerned, it has been explained that they already make a contribution to the national interest in the form of a fund which is put aside for breeding horses. So far as the bookies are concerned, they have proved an insoluble problem to this House on a former occasion, and we do not wish to have our fingers burned by the bookies once again.

So far as the Inland Revenue in the Budget is concerned, the proposals on the Profits Tax have given rise to one or two rather technical points which, I think, can be left over to be discussed when the Finance Bill is published. But the case for doubling the rates of the tax has not, I think, been seriously challenged except, possibly, on the one point, why double the tax on undistributed profits? The answer to that is that the general volume of profits has been excessive over the last year or two, and, therefore, there is a perfectly good case for increasing the Profits Tax overall. By doubling both taxes it will be noticed that the gap between the two is also doubled, so that there is a greater inducement not to distribute now than there was before. Furthermore, the tax on undistributed profits is a good anti-inflationary measure which will tend to stop people spending so much money at this moment in the capital goods market. They will put it aside, I hope, and invest it in Government securities.

The right hon. Member for North Leeds raised the question of the fairness of the 3 per cent. charge on arrears of tax, and he suggested very kindly that if we increased the size of the Civil Service we should do it better. I will bear that suggestion in mind and do what I can to assist him on that line. But there really is no argument against the fairness of paying to the Government interest on money which is overdue for payment, and I do not think anybody has really disputed it.

Colonel Dower (Penrith and Cockermouth)

"What about cases of refunded overpayments in tax?

Sir S. Cripps

I understand that those cases are so few and isolated that it certainly is not worth making any provision for them.

Let me come to the question of the disallowance of Income Tax for advertising expenses. This was criticised by the right hon. Member for the Scottish Universities (Sir J. Anderson) as being a novel form of taxation. We do not mind that criticism at all. If it is a good form of taxation, the fact that it is novel does not matter in the least. In the past many right hon. and hon. Members have asked why advertisements are not taxed, and I believe that this is the best way of taxing them. We shall be able to discuss the details when those details are published in the Finance Bill; but broadly, with the exceptions that have already been indicated, this will provide a very convenient method of placing a tax generally upon the whole range of advertisements, without having to go into a lot of difficult separate taxes for dealing with the different classes of advertisement, and I am quite sure that everybody would agree that at the present time advertisements are not one of the primary needs of our society.

This Budget, as I have suggested, is not intended as a major financial operation which would entail a complicated piece of legislation, which would not be appropriate or timely at the moment. It is an interim measure, and is one of the means designed to ease the inflationary pressure. It will enable us to a considerable extent to deal with that inflationary pressure during the next six or nine months. We shall then be able to look at the situation again in April, in the light of the circumstances which then rule, and see whether we must take further steps in the same direction. If we have to take further steps we shall take them. I believe that this Budget will hold the situation until that time, and it is because I believe it is a useful, though not a spectacular measure, which is going to help us get through the difficult time, that I commend it to the Committee.

Question put, and agreed to.

Resolved: That—

  1. (a) interest at three per cent. per annum shall be payable on unpaid excess profits tax;
  2. (b) paragraph (a) of this Resolution shall be deemed always to have had effect, except that interest shall in no case begin to run before the first day of January, nineteen hundred and forty-eight; and
  3. (c) any Act of the present Session giving effect to this Resolution may contain provisions consequential on or incidental to any of the provisions aforesaid."

Resolution to be reported Tomorrow.

Committee to sit again Tomorrow.