HC Deb 19 April 1950 vol 474 cc144-260

3.33 p.m.

Mr. R. A. Butler (Saffron Walden)

My right hon. Friend the Member for Warwick and Leamington (Mr. Eden) has already drawn attention to the difficulty of debating the Budget with the Economic Survey. A very wide range of subjects is involved, and a very large number of papers have to be read by any conscientious person daring to address this Committee—the Survey itself, the balance of payments paper, the paper on the national income, and, I venture to suggest, a very useful document by the E.C.A. on facts about the British economy; and we have since had added to that the lengthy volume contributed by the Chancellor himself yesterday. No one could accuse the Chancellor of the Exchequer of lacking ability to state things clearly, but even his noble efforts, lasting as they did for a very long time, to draw a thread through this mass of materials do more credit to the acuteness of his mind than to the policies which lie behind both his own mind and that of His Majesty's Government.

The general impression made upon my right hon. and hon. Friends and myself was that this is the Budget of a man and of a Government who do not choose or care to look very far ahead, and, moreover, a Budget introduced to look such a little way ahead that they themselves cannot expect to continue long in office to carry out these very policies of which they are so proud. This time we have a reversion to the famous expedients to which the Chancellor of the Exchequer referred before, not expedients on a drastic scale, but still expedients as the opera said: A thing of shreds and patches, and, as some hon. Members undoubtedly found yesterday, a "dreamy lullaby." The question we have to ask ourselves is whether this dirge will have lullabied organised labour into a belief in both the Chancellor and a secure standard of living. Will it have "hushabyied" the querulous Members of the right hon. Gentleman's party behind him?

It is at least noticeable that on this occasion the Chancellor was most restrained; and we should like to pay him a tribute on this score, in not raiding, as he has done in the past, what we have regarded as one form of national savings, and that is a variety of accumulations of wealth. He has obviously not done this because it is quite clear that the raiding, or mulcting, or soaking of the rich has now reached a stage which has resulted in diminishing returns. I did, however, notice that the only occasion upon which we heard the usual grunts and squeals of delight which we associate with hon. Members opposite when their predatory instincts are aroused, in the long period of two and a half hours, was on a comparatively minor, but no doubt tragic point, namely that referring to restrictive covenants—what is known as the Lord-Black, or, as I put it, the other way round, in deference to another place, the Black-Lord case.

Now this case raises a variety of questions of principle, not the least of which is that we on this side of the Committee do not believe in retrospective legislation, and this and other aspects of this case will be considered when we deal with this matter in detail later. Further, I think it most important that no action by the Chancellor should remove what might be called the legitimate incentives to managements—[Laughter]—but we have to ask ourselves in this case—and perhaps hon. Members opposite would wait a moment before laughing—whether these incentives were in fact legitimate As far as we have been able to study the matter—and, as I say, it will be considered again—it would seem that if any of us are to be shorn by Surtax we should adopt the Government's policy of fair shares in this case, and that therefore the Chancellor has a certain amount of right on his side in dealing with this question

Today, we have to deal with the Budget as such. Tomorrow my right hon. Friend the Member for Aldershot (Mr. Lyttelton) will deal with rather a wider scope, and that is the Economic Survey in its relation to the Budget. It is clear, however, even in a speech which confines itself chiefly to the Budget and the financial aspects, that the level of production, the increase in productivity, the progress of the balance of payments, and the size of the national income itself are all interdependent, and the strands which link those different aspects are, or should be, brought together in the Budget. May I stress at the outset of my remarks that the whole of our national prosperity and the whole of our national standing—whether it be our rations at home, or whether it be the lead we can give to Western Europe—depend upon the soundness of our financial position. Never was there a greater need for broad and wise economic statesmanship.

The duty of the Opposition, as we see it, is to awaken our country's attention to the fundamentals of our economic and financial position, and we regard the Budget presented to us yesterday as inadequate to deal with these vital matters. The Chancellor besides making his speech yesterday showed that further physical resilience which we associate with him in making a broadcast speech which, no doubt due to the shorter length of time and for other rather weighty considerations, omitted many of the more sombre remarks which he made during the afternoon. No doubt the right hon. Member for Bristol, West (Mr. Stanley) will be able to deal with this matter at a later stage this evening. The Chancellor said that his aim was to have a happy country. Our aim is also to create a happy country, not just for a few months ahead but in the long-distant future. I believe that we must create that happy country not only now but for a very long period ahead. I do not believe that the terms of the Budget as presented to us yesterday give us the assurance that this happiness in the country will last for a very long time.

Taking the right hon. and learned Gentleman's statement, I want first of all to refer to his references in the open- ing part of his remarks to Marshall Aid. We remember that there was no reference to Marshall Aid in the Labour Party's manifesto, and, therefore, we see with some satisfaction that the right hon. and learned Gentleman has made suitable and appropriate mention of this great and unprecedented aid which has enabled us to survive during these difficult years and under a difficult administration.

We have had for these years £1,211 million of American and Canadian loans. We have had £499 million gross in Marshall Aid. We have disposed of a great many of our overseas assets, such as the Argentine railways, and negotiations are now in progress for, I believe, liquidating our interests in similar concerns in Brazil. Taking the trade figures for the last four years, the total trade deficit has been in the neighbourhood of £1,145 million. There has been during that time a net capital outflow of some £728 million and drawings on the sterling balances of £319 million. We welcome the improvement to which the Chancellor referred that has taken place in 1949. The trade deficit for that year was only £70 million, the capital outflow £301 million, and the drawings on the sterling balances £15 million.

We welcome this because there have been a good many taunts from the other side of the Committee that we are attempting to make the national situation look worse than it is. That is not the case. It is our desire and our pleasure on every occasion that we notice an improvement to register it. Things are far too serious in our national economy and in our national position for us not to recognise a trend when we see it. But this tendency to improve has also been helped and balanced by American aid. We welcome also the improvement in our reserves position, but it is quite impossible to be complacent, for reasons which I now propose to give the Committee.

The Chancellor of the Exchequer used an expression in his speech yesterday as follows: …if external circumstances continue as they are today there is no reason why we should anticipate any dangerous change for the worse in our situation."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 44.] We regard that as far too optimistic a remark. We consider that the Budget statement does not anticipate difficulties which may arise, for example, from devaluation, which had very scant reference in the Chancellor's long statement. We consider that it is certain that with the undoubted rise which must occur in raw material prices we are going to be in grave difficulties in this country. We therefore think that keener world competition is bound to supervene and to land us in greater difficulties than those which we are facing at the present time.

I look at the Economic Survey, and in paragraph 62 some of these matters are summed up as follows: …it is impossible to put forward precise estimates for the general balance of payments in 1950. Price trends following devaluation have still not fully worked themselves out. Moreover, the future course of raw material prices is dependent to a large extent on the level of United States activity "— and even a small recession in the United States is bound to have a serious effect upon our economy. The experience of 1949 showed the disproportionately large effects produced by comparatively small variations in the United States demand. Another major uncertainty is the effect of the recent action taken to liberalise trade between this country and other members of O.E.E.C. Only experience can show what is likely to be the level of demand for many of the products now freed from control. Similar uncertainty exists about our own exports, which should benefit from parallel liberalising action taken by other countries. That statement seems far franker than the speech of the right hon. Gentleman.

These are the vital assumptions upon which British prosperity rests, and they are all extremely uncertain. The Chancellor prided himself in his speech that by relying on what he referred to as "democratic planning" he would be able to pull this country through. Does the Chancellor or the Government imagine that they are the only Government which have a monopoly of wisdom and yet remain a democracy? Do they realise that they are the only Socialist Government remaining in the English-speaking world, and do they realise that other democracies which are able to remain just as good democracies as this country are not indulging in the restraints, controls and general inhibitions associated with the Socialist management of our affairs?

The Chancellor prided himself on equality of opportunity. I suppose that I have had as much to do with helping to improve equality of opportunity as anyone else, and I can tell the right hon. Gentleman this: it was never my idea in worshipping at the shrine of equality of opportunity to do anything other than to improve the opportunity of the individual and to give the individual the best possible chance of giving of his or her best to the country.

I remember discussing my scholastic reforms with a planner, and he said, "What a pity it is that you cannot turn children out of our schools in ready-made groups ready to be planned by the society in which they are moving." That is the exact opposite of the philosophy for which we stand. We believe that in creating equality of opportunity we should give the maximum rein to individual flexibility and genius. We believe that a rigid economy—as the "Economist" said recently, "Our economy is crammed right against the ceiling "—and a precariously balanced Budget, without any latitude or elasticity, cannot meet the undoubted shocks to which we are heir, and which are so dramatically described in paragraph 62 of the Economic Survey itself.

Certainly we believe that the Government must be strong, and certainly any Government that we formed would be a great deal stronger than the Government opposite it would have a mind 01 its own and know where it was going, but it would not attempt to interfere to the extent that this Government is doing in the private lives of the citizens. Certainly we believe that certain controls are necessary. It is necessary in the case of scarce goods of any sort to maintain a system of rationing, but one control to which we attach particular importance is precisely the control which right hon. and hon. Gentlemen opposite seem either unable or totally unwilling to use, and that is, to use the Chancellor's words, control in the area of public expenditure."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474. c. 40.] What picture do we get of this failure to use that absolutely vital control over our economy, that vital control if we are to stop the undue inflationary trend with which we are faced at the present time? The picture we get is expenditure of £3,375.3 million which has been increased by £200 million over the 1948–49 period. It has surpassed the Budget estimate by £67 million, and there is a prospective increase in expenditure of £80 million in 1950–51. I should like to ask the Financial Secretary what certainty we have that the supplementary estimates this year will be kept within bounds.

We know, on the last occasion when the Chancellor of the Exchequer uttered one of his many exhortations, that the supplementary estimates soared to such an extent as to affect the whole of the Budget balance and our economy. We have had no assurance this year, which is perhaps a sign that the Chancellor of the Exchequer expects the very opposite to happen. The huge sum of £16,000 million has been quoted as spent by the administration of Members opposite in the course of 41 years. I have attempted to bring this above-the-line expenditure up to date, and the latest figure I can get for the five years is no less a sum than £19,000 million. That is an unprecedented sum of money to be spent by any administration in the history of the country.

The responsibility for dealing with this problem of Government expenditure must rest with the Government. The Lord President of the Council, winding up the Debate on the expenditure cuts on 27th October last, stated: Any one who imagines that the present list represents the end of the Government's efforts to achieve economies is going to be undeceived before long."—[OFFICIAL REPORT, 27th October, 1949; Vol. 468, c. 1555.] We have been deceived by the Chancellor's statement yesterday, and, indeed, we expected that we might be.

Leaving aside this question of rising and mounting expenditure, we have at the present moment the highest taxation burden in the world. The latest figure rises even above the figure we were all so prone to use in the recent struggle, namely, 43.5 per cent. of the National income which is taken away by the central Government, local government and National Insurance contributions. That is the burden of taxation upon the ordinary citizen. The Chancellor of the Exchequer permitted himself to make this observation on the subject: Our very favourable industrial results over the past year show conclusively that we are not being crushed down by the weight of taxation."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 64.] That is not the view, either of my hon. Friends, or of the average man and woman in the country. They are aware of the crushing burden of taxation which is sapping effort, checking a greater rise in productivity and making it impossible for the incentives to be granted which are so vital to improving production to an even greater extent than has been achieved hitherto.

While dealing with this point, may I revert to the discussion we had during the last Budget Debates on the subject of industrial profits? There is no doubt that the Chancellor of the Exchequer on this occasion made some fair and generous remarks about the real situation of industrial profits. We welcome, at least, that sign of grace, but he did not go on to expand the matter. Costs at the present time for replacements in industry are more than three times what they were. There is no doubt that today, if one asks anyone involved in the industry in this country, whether large or small, there is a great shortage of risk capital and a great difficulty in meeting depreciation costs, and that British industry is staggering under the weight of taxation it has never had to bear before. I should like to ask how soon we may expect the report of the Millard-Tucker Committee on depreciations. We do not know when that report will be made, but we believe that further action, to follow the action taken in the last Budget, is essential from the point of view of industrial enterprise if this question of depreciations is to be properly dealt with.

I come now to some of the more detailed points in the Budget. First, let me refer to Income Tax reliefs. I notice that the Government have accepted here almost in its entirety the policy we put to the country in the last General Election. On page 7 of the now famous document, "This is the Road," the following sentence occurs: As we have already said, our aim and intention is to make sure that extra work, effort and skill on piece rates and through overtime, instead of being penalised, shall gain their just reward. In so far as this proposal to make alterations in the lowest scales of Income Tax achieves that object, it is our desire and wish to welcome the Chancellor's proposal. We have not the trappings of office, but clearly we are providing the policy for the country. This is not the first bloodless victory we have secured. Hardly had this Parliament met when the Minister of Labour came to the Box and announced the abandonment of the Control of Engagement Order. Therefore, both on the very thorny question of direction of labour, in which it appears that democratic planning has wholly and totally failed, and on the question of the only important concession the Chancellor of the Exchequer can make in his Budget, the policy of the Opposition in this new Parliament is holding the field. It is strange how the British constitution works; it is a subject of marvel to foreigners and of great satisfaction to ourselves.

This matter of relief in the lower rates of Income Tax will have to be examined in greater detail. We shall have to examine the tables and see precisely what is the effect, but it is quite clear on first examination that it is unlikely to touch precisely those lower paid workers to whom the Chancellor referred in his Budget speech. The lower paid workers are the very workers who are the cause of the greatest anxiety to us all and of the greatest pressure in regard to what is known as the controversy of the "wage freeze." There is no doubt that the lowest paid sections of our population will not be affected by this concession at all.

Is it really tackling the problem of overtime? if the Financial Secretary, who presumably, like most Members of the Government, has now a fixation on agriculture, can tell us whether the agricultural worker who works overtime will gain some relief, and will give us some illustrations, it will be extremely satisfactory for us to know that some of our constituents are covered in this way. Does it measure up to the size of the problem with which we are faced? At any rate, this reform, as we are pleased to call it, has been financed by a most severe tax on the roads. It looks as if the right hon. and learned Gentleman is so concerned about our document, "This is the Road," that he has roads on the brain. He has in his Budget launched an onslaught on the road user, and hence on the costs of industry.

The right hon. and learned Gentleman has had to finance this concession by playing with the last two millions on his immense Budget figure and by imposing a tax on petrol. He has also attempted to compare costs of petrol here and on the Continent. It is rather interesting to note that in imposing this tax he has not only accepted one of the practices of the Continent, namely rationing by price, but he has also departed from one of the major beliefs of the Labour movement itself. It is not a case of fair shares for all, but a case of those with sufficient money who can afford the petrol being able to buy it. This is a departure from the fundamental philosophy on which the right hon. and learned Gentleman has preened himself during the last five years.

Moreover, is the right hon. and learned Gentleman quite satisfied that his analogy with the Continent is correct? Perhaps the Financial Secretary to the Treasury will give us some comparisons between motor taxation paid in this country by way of what we describe as registration, and what is paid on the Continent. Perhaps he will also tell us whether it is proposed in this concession which has been made of giving an extra ration to keep the registration fee at half for the basic ration.

The Chancellor of the Exchequer (Sir Stafford Cripps)

Yes.

Mr. Butler

I accept it that that is the case, and that at any rate will be satisfactory.

When we come to examine this concession about petrol any intelligent person must realise that this country is going to use more petrol as a result. The right hon. and learned Gentleman said he hoped this could be achieved without any great increase in imports."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 75.] As he used those words carefully, I presume that there is bound to be an increase in import of petrol from dollar sources. In the light of that statement, how do some of the statements in the General Election look in reply to my right hon. Friend the Member for Woodford (Mr. Churchill), when he in very guarded language raised the question of the possibility of increasing the petrol ration? What about the statement of the Financial Secretary himself, which was published in the "Daily Herald "of 1lth February? He referred to my right hon. Friend by saying that he tried to buy votes with wild offers of petrol, and that by pretending that more pleasure petrol can he consumed now without loss of dollars, he was wilfully deceiving the public.

The Financial Secretary to the Treasury (Mr. Douglas Jay)

But the right hon. Gentleman leaves out the rest of what I said. I said the Leader of the Opposition offered to increase the ration as soon as possible, and the Government will also do it, I remarked, as soon as possible.

Mr. Butler

But the hon. Gentleman's words do not bear that out. I am sorry not to read any more of his speech, but there are many quotations with which I shall have to weary the Committee and I do not wish to speak too long on any particular quotation.

Let us examine what the Chancellor himself said on 11th February last in what I believe is his native town of Nails-worth. He said: It is not possible to extend the consumption of petrol in this country unless they were going to cut it from other kind of dollar expenditure. If that be the case how does the right hon. and learned Gentleman propose to cut other forms of dollar expenditure in giving this new concession to the road user?

Sir S. Cripps

We have by the device of taxation managed to re-allocate the volume of petrol we are going to use. If the economists who advise hon. and right hon. Gentlemen opposite are right, this increase in the price of petrol from 2s. 3d. to 3s. will lead to a reduction of consumption and the amount of this reduction will be available to be used by the ordinary road user.

Mr. Butler

In that case why did the right hon. and learned Gentleman say that there would be no great increase in imports?

Sir S. Cripps

For the simple reason that marginally there may be a small increase.

Mr. Butler

The right hon. and learned Gentleman has had a great deal more time than I have to prepare his important Budget statement and we presume that every word he used was accurate and that he could give good reasons for the words which came out of his own mouth. The real truth is that the observations made in the Election by the Government have now been disproved by their recent action, and there is no doubt that they are now doing something which a few weeks or months ago they thought it was morally wrong to do.

We must see how this experiment works out. Will it result, as we fear it will, in an increase in fares? If so in the London area—and the right hon. and learned Gentleman was not explicit on this point—it may well be that the benefit of the concession given under the Income Tax proposals will be taken away by the increased fares which the Londoner will have to pay in travelling and particularly does that apply to those living in the suburban areas. So this is another example of that wonderful system of transfer from one pocket to another, very often in the same pair of trousers, which is a feature of our national economy.

The other tax on the roads that has been made is on the commercial vehicles. These commercial vehicles are a vital part of our road transport system.

Mr. Churchill (Woodford)

Lorries.

Mr. Butler

As my right hon. Friend reminds me, they are lorries. These lorries are of vital importance to the road transport industry, and I do not doubt but that this proposal will very seriously hit "C" licence holders. We want to ask whether this is a further effort to "feather bed "—I must apologise for the expression—the railways. I should like to ask the Financial Secretary whether an answer will at last be given to the Transport Tribunal which has asked for permission to increase rail freights by 163 per cent. I have no doubt that the whole result of the Government's proposal both on road and rail will eventually be to raise the charges. I should like to know what is the main object of the Chancellor in this?

Surely the right course, if one is to get some sort of understanding between road and rail, is not to use vindictive measures in the Budget, but to get ahead with what we thought was one of the intrinsic features of the nationalisation proposal, namely, some understanding between road and rail upon the rate structure. When are we going to hear some developments in that connection, because unless there be some understanding between road and rail there will never be prosperity by the railways or happiness on the roads?

I should like to ask this technical question, whether the increased Purchase Tax on commercial vehicles can be debated as a separate item. Presumably it will be a Clause in the Finance Bill and can be debated as a separate item and will not be lumped together with others as it is in this nefarious Resolution. The information which we have received from the trade in regard to commercial vehicles is that that industry is finding it very difficult to maintain its exports, and the home market has been a very vital feature of its production. If that be the case, we think this tax upon commercial vehicles is a most regrettable one in this year's Budget. I want to make some mention of the Purchase Tax Resolution.

Before I come to that, I want to say a word about beer. The Chancellor of the Exchequer may well go down to history as the man who devalued our money and revalued our beer, but I very much wonder whether this immortality in the case of beer will serve to put his reputation in good stead. As far as I can see, here is another example of helping the man who is better off and not helping the man who is worse off. The real problem of beer at the present time—this is a subject of great importance in our public life—is that in the average "pub," at any rate in the rural districts, people cannot go in and buy beer in the middle of the week because they have not extra money with which to do so. Any of us who frequent those desirable haunts know that to be the case. They are not crowded in the middle of the week. The real problem about beer is whether the Chancellor's policy is to result, as we believe is the case in regard to the revenue generally, in diminishing returns. I should like to ask the Financial Secretary to give us some indication whether the barrellage consumption has not gone down and whether he thinks it will be increased by the Chancellor's proposal to increase the gravity of beer and to lend to the beer some of the gravitas to which he treated us yesterday.

Now I come to a question on the Purchase Tax. We believe that the Resolution which we are debating this afternoon shows certain signs that the Government are not quite so adamant on this matter as they pretended to be in the course of our Budget Debates last year. The Chancellor must be under no illusion as to the importance that we attach to this subject. It has been a burning issue of discussion in the country. When one examines the Budget, one sees that there is practically nothing in it except the Purchase Tax which will be of interest to women. Women will not take a first-class interest in any of the other proposals which have been made. Therefore, it will be our desire to debate this matter to the utmost that is permitted under the Resolution as drawn.

As drawn, the Resolution only permits us to debate the matter in chunks and not to pick out individual subjects for discussion. The fact is that a very big constitutional question still remains unsolved and unanswered by the Government. It is that the representatives of the people in this Committee are unable to discuss the imposition of particular taxes. They can discuss the taxes only in the chunk. It was an aggravation of this spirit which lost us the American Colonies and it is an aggravation of this spirit, as shown by the right hon. and learned Gentleman, that will lose the Government their position. We see distinct dangers in a Dutch auction, but we also see the necessity for discussing certain aspects of the Purchase Tax.

For example, if a concession is to be made on large cars so that they may be sold without the double Purchase Tax on the home market, there are a great many other goods of a luxury or a vital character on which we think a similar concession should be given, with a view to encouraging our exports. Similarly, there are a great many details which can be discussed in relation to the Purchase Tax and which affect industry, such as the numerous materials which are imported for use in industry and are then processed and sold again, thereby paying double Purchase Tax. Similarly with materials imported for research and investigation. These are individual points which it will be impossible to discuss on the Finance Bill under the terms of the Resolution as it is now drafted.

I want to ask three questions at this stage on the main economic position, before I come to my final summing up. The first is about housing. I feel sure that the Committee and the country will have observed that the so-called concession about 200,000 houses is to last us for three years. It means that we cannot look forward within those three years to any improvement on that target. That will be a source of great disappointment to all those people who are looking for a house and are living in overcrowded conditions. I should like to ask what proportion of the loans to local authorities is taken up by housing needs, and to say that in regard to capital expenditure we attach the greatest possible importance to local authorities exercising much more economy in matters other than housing than they have done hitherto. Economy in the expenditure of local authorities is just as important as economy in the expenditure of the national Government. I should like also to ask whether the Government will give further encouragement to local authorities to sell houses to tenants who desire to have them and thereby relieve the local authorities of the necessity of obtaining loans from the central Government. It would enable them to obtain the finances they want for their future investment in houses by means of selling to the private citizen.

Then I want to ask a question about the food subsidies. This ceiling-cum-floor description of the right hon. and learned Gentleman seems to leave very little room for manoeuvre. It is certainly very difficult to understand. If I am right, this proposal is to go on for only one year.

Sir S. Cripps

indicated assent.

Mr. Butler

Perhaps the Financial Secretary would further clarify the point that in no circumstances will the food subsidies be reduced below £410 million even in the event of the Government adopting our policy of the private purchase of foodstuffs, in order to ensure supplies at cheaper costs.

My third question is in regard to the Health Service. I do not think anybody has been particularly wedded to the idea of the shilling on prescriptions. Those who have studied the matter think that it is a fairly clumsy method. We also know that there are undoubtedly extravagances which the honourable man notices in the Health Service just as some of the workers noticed them in the old days when the fund was being abused. As this is a national fund and as we are all behind a national, free Health Service, perhaps we may receive in the next few days a little further enlightenment as to the possible methods of cutting out extrava- gances in the Health Service and of retaining it as a free, honourable service for all those who are in need.

In my concluding remarks I want to burden the Committee for a moment with some rather serious considerations on one matter. I have hitherto been discussing the Budget and the features of the Budget individually. What I now want to try to make clear to the Committee is that while the right hon. and learned Gentleman has managed to obtain a precarious balance in the Budget, or a slight deficit, which comes to much the same thing, our national economy is not, in fact, in balance. We claim that the Chancellor in his long speech never gave a clear picture. He said: If the voluntary savings of individuals and firms are insufficient then the Government must itself make up the deficiency in the nation's savings by accumulating a Budget surplus."—[OFFICIAL REPORT. 18th April, 1950: Vol. 474, c. 62.] Let us go into the Chancellor's sums. The Chancellor tells us that his ordinary expenditure is £3,455 million, his net below-the-line expenditure is £450 million and his revenue £3,898 million. There, he says, he will have a small overall deficit of £7 million, but that is, in fact, playing with words.

Now that Socialist taxation has eaten away net private savings, it is not the below-the-line expenditure alone which has to be covered by the surplus of revenue over the above-the-line expenditure, but the whole gap between the public's voluntary savings from all sources and the total capital programme, including the Government's below-the-line expenditure. In other words, there Is today a real deficit in our national finances, as can be seen by the admission of the White Paper that private savings must go up by 27 per cent. in 1950 over 1949. The Government have, in fact, nationalised savings, with the same disastrous result that has followed upon nationalisation in other directions.

The Survey states that gross private savings will have to rise by £228 million and net private savings—that is, excluding depreciation allowances—by £193 million. It is true that the increase in the depreciation allowances and what are called "inventory revaluations" reduce the gap, but there is at least a gap of £168 million which should be filled by other forms of private savings. However, the Survey shows that net private savings fell by £254 million between 1948 and 1949—that is, from £966 million to £712 million—and the National Savings figures show a net deficit for the financial year just ended of £68 million, which, including interest payments, means that there is a liability on the Exchequer of £93 million. Allowing for the interest accrued, the net addition to personal savings was only £33 million during the year. I do not apologise for going into this seriously in view of the many figures given by the right hon. and learned Gentleman.

This illustrates a steady downward trend, and all this justifies our criticism of the effects of the Government's economic and financial policies of which they have spoken so much. I must remind the Committee that this is the first year in which National Savings figures have shown a net deficit. The decline in small savings is a sure sign that the mass of the people are finding life intolerable with taxes and prices as they are and are finding it impossible to live within their incomes. Lord Mackintosh has said that 10 per cent. of personal consumption expenditure is paid for by withdrawal of savings. That is a serious picture.

It is against this picture that we have listened to the Chancellor's straightforward remarks on the subject of what he calls "the restraint in incomes," which we may call "the wage freeze." We recognise that patriotic and courageous efforts have been made by the trade union leaders to stem inflation, but everyone can see how increasingly difficult it is to hold the position as it is developing. The Chancellor is assuming that wage restraint will continue, but in our opinion this Budget does not sufficiently strengthen the hands of those who wish to act as we do with a full sense of national responsibility. It is the wage earner in the end who suffers from the type of policy which the Government is undertaking. If the Government spend 43.5 per cent. of the national income, the wage-earner cannot spend that money too. Unless productivity is increased, higher wages and salaries can come only by diversion from Government expenditure or from capital or from exports.

We are living, as I said, under this crazy system of transfer and redistribution which is so well brought out in the E.C.A. Report on the facts of the British economy, in which it is illustrated that one income group is transferring from its own pockets to the other side a great deal of the national money, with a colossal rake-off for all the bureaucrats at the same time. This is all surely an indication of an inflationary trend which it is the policy of the Opposition to combat.

I come back now at the end to what I spoke of at the beginning, the need for a real and improved disinflationary policy with further and better incentives to those who show the best production results. We must control unnecessary expenditure and thereby gain the sums, when we have done that, for further necessary reductions in taxation. Neither in the question of the "wage freeze" nor in the question of full employment is it the intention of the Opposition to swing over to a drastic deflationary policy any more than we propose to allow our standard of living and the value of our people's social service payments to slip away and lose their value due to the present inflationary trend. It would be a tragedy if His Majesty's Government, in pursuing what the White Paper describes as their economic and financial policies by which we have been guided over the last three years, permitted the social service payments to lose even more of their value than they have up to date.

Our interventions in these Debates, therefore, will be designed to remind the country of the fundamentals, some of which I have tried to describe, of our economic position. We see a revenue which is unlikely to be as buoyant as before and an expenditure which is steadily mounting. We see a Government which, by this Budget, has lost all power of manœuvre in the economic field. The fact is that we are simply not paying our way. I would go further. We are the banker of the sterling area. It is not enough for us to live on the verge of solvency because the verge of solvency is also the edge of insolvency. We must create a greater economic strength if we are to give the international lead which we all desire shall be given by our Government and our country.

Finally, we see, and we deplore, the increasing tendency to withhold from the individual the right to spend his money in his own way. We seek to achieve not only national independence and an ability to survive without external aid; we seek also to ensure that our country's prosperity is based on that most priceless of all our traditions, the ability of an Englishman to stand on his own feet.

4.26 p.m.

Mr. Benson (Chesterfield)

My first duty is to congratulate my right hon. and learned Friend the Chancellor of the Exchequer not only upon his Budget Statement but upon the Budget itself. I did not realise until I listened to the right hon. Member for Saffron Walden (Mr. R. A. Butler) how foolproof a Budget it was, for seldom has there been more feeble criticism of any Budget in the large number of Budget Debates to which I have listened.

Before I turn to a general discussion of the Budget, I should like to congratulate the Chancellor upon one or two tax changes which he forecast. Certainly upon this side of the Committee one of the most popular proposals was to introduce for the first time retrospective legislation to combat tax avoidance. The right hon. Member for Saffron Walden said that the Conservative Party did not believe in retrospective legislation. There has not been a Conservative Chancellor in the last 15 years who has not threatened it time and again. In introducing tax avoidance legislation, Conservative Chancellor after Conservative Chancellor has threatened that if avoidance continued, retrospective legislation would be introduced. The right hon. and gallant Member for Gainsborough (Captain Crookshank), who was formerly Financial Secretary to the Treasury, knows that very well. Perhaps he will convert his right hon. Friend.

Captain Crookshank (Gainsborough)

I do not need to.

Mr. Benson

The right hon. and gallant Gentleman says he does not need to, but—

Mr. R. A. Butler

Perhaps I can relieve the feelings of the hon. Member for Chesterfield (Mr. Benson). I thought I made it clear that we did not wish to see avoidance of Surtax of this sort.

Mr. Benson

But the right hon. Gentleman began by saying that the Tory Party did not believe in retrospective legislation. He cannot have it both ways.

It is also well worth while congratulating the Chancellor on his proposals to review the whole tax position in regard to superannuation and annuities. The attitude of the Board of Inland Revenue with regard to annuities has always been extraordinarily anomalous. An annuity is a payment of mixed character. It is partly an interest payment and partly a return of capital, but the Board of Inland Revenue has always insisted that the whole of the annuity shall be taxed. That is quite indefensible. It is perfectly easy actuarially to assess what is capital return and what is interest, and it is only on the interest that the tax should be assessed. As a matter of fact, certain companies have already introduced rather cumbersome policies to separate the repayment of capital from the payment of interest.

With regard to the tax upon commercial vehicles, it may be perfectly true that this tax will not be to the advantage of the road transport licence holders, but that is not the point. The point is: will this tax be of advantage to the country? During the past 12 months or so, the motor manufacturers have, contrary to the general agreement, allowed some 50,000 vehicles, representing £35 million of capital investment, to be sold in this country which should have gone abroad.

Mr. John Hay (Henley)

Will the hon. Member say how much of that amount is due to inability to export?

Mr. Benson

It may be perfectly true that motor manufacturers are finding it more difficult to sell abroad, but all English manufacturers will find this more difficult in future, so they had better get busy and put more energy into it. In any case, we cannot afford to allow an additional investment of some £35 million in road transport vehicles. This is a matter of duplication, for the railways are available and we cannot afford to duplicate in present circumstances.

This is the second Budget in which there has been no radical change. We are probably reverting after some 10 or 11 years to Budgets of stable pattern, where the pattern of taxation and expenditure is broadly the same from year to year. I admit that, compared with pre-war, taxation is extremely high, but those people who expect any serious reduction in taxation seem to overlook the fact that we are now living in a new world and that there will be no serious reduction of taxation. We have laid the foundations for the welfare State; it has come to stay, and it has to be paid for. I admit that we could not have done it in five years had it not been for the great height to which war raised taxation. When we came into office in 1945 we used the level of war taxation and switched its objective from fighting the Germans to fighting insecurity. This enabled us to do what we have done in five years instead of in a generation.

The right hon. Gentleman referred to this as a precariously balanced Budget. I was not sure whether he would advocate higher taxation or lower expenditure. To my astonishment one of his methods of making the Budget less precariously balanced appeared to be to lower taxation. The right hon. Gentleman showed great interest in the possibility of cutting Purchase Tax. He referred to the effect of high taxation as stopping productivity. Yet productivity has been increased in the last three or four years at a rate never before equalled in this country. Productivity is going up two or three times as much per annum as it did before the war. Then the right hon. Gentleman referred to the shortage of risk capital. Why is there a shortage of risk capital? Because there is such an overwhelming demand for new plant and new extensions. It is because initiative is out running the possibility of providing the capital for it. If initiative had been crushed, there would have been no shortage of risk capital.

I was anxious to hear what the right hon. Gentleman would say about reductions in expenditure and where they were to come, but I noticed that he kept carefully to broad generalisations. Well, he was in a difficult position. If what rumour says is true, that he is the author of "The Right Road for Britain," I can understand that it is difficult for the right hon. Gentleman to suggest where the cuts in taxation should fall. I read "The Right Road for Britain" carefully. I underlined it. I found it one of the most effective weapons in my election campaign. and I noticed there that there was not a single one of our social services on which the right hon. Gentleman's party, under his guidance, did not propose to increase expenditure. They proposed to improve the Health Service, they proposed to build more houses, they were to spend more money upon the Army, they were to set up a committee to examine whether they could spend more money on war pensions, and they were to release postwar credits—all in the name of economy

The right hon. Gentleman knows perfectly well that there can be no drastic economy unless there is a drastic change in policy, and the right hon. Gentleman has led his party to follow slavishly along the lines that the Labour Government laid down in the past five years. They can get big economies only if they change policy, and they are pledged not to change policy. I know there were references to administrative economies—and here I am glad to see in his place the right hon. Member for Leeds, North (Mr. Peake)— but what hon. Gentlemen opposite have to say on this matter is extraordinarily vague. I admit theoretically that some economies in administration must be possible, for no machine works at 100 per cent. efficiency. I will give them that. But the idea that we are to achieve large savings—and by that I mean savings sufficiently large to affect taxation—is simply nonsense.

I am not quite sure whether it was the last Budget or the one before when the right hon. Member for Leeds, North, took up our challenge to say where these economies should be made. He was for some considerable time the Chairman of the Public Accounts Committee and, if I may say so, he was a very good Chairman. Goaded by our demands to be told where these economies were to come from, the right hon. Gentleman carefully went through the work of the Public Accounts Committee and quoted a string of suggestions and criticisms which it had made. What did the lot amount to? Barely a quarter of a million pounds. I am not suggesting that a quarter of a million pounds should not be saved, and I hope sincerely that, as a result of my activities on the Public Accounts Committee, it will be saved, but the saving of a quarter of a million pounds will not reduce our taxation.

As a matter of fact, we have two important Committees continuously engaged on this problem of administrative efficiency and of waste. The Public Accounts Committee has been running since 1863. That Committee, and the Estimates Committee, year by year investigate industriously what Government Departments are doing, but it is seldom that either turns up any really large extravagance. If the public Accounts Committee of this year finds a large extravagance, the reflection is upon the Public Accounts Committee of last year for not finding it out earlier. As a matter of fact, neither the Public Accounts Committee nor the Estimates Committee ever do find large evidence of waste. That is not their function, except in theory. Their real function is to act as a deterrent to waste and they act very effectively because civil servants treat both these Committees with a good deal of respect and trepidation. It is because we have had these two Committees running for so long, and because they are assiduous in examining how our public money is spent, that there is very little really large. scale waste.

I know that hon. Members opposite, led by the Leader of the Opposition, are very fond of talking about "hordes of officials." Our Civil Service has grown, but does anyone really suggest that we can slash the number of our civil servants sufficiently to have any real effect on taxation? We cannot do so unless we are prepared to cut services and unless we are prepared to slash again at policy. The long-term trend is inevitably towards the growth of the Civil Service; it is only natural. As nations or individuals get wealthier, they change from what is known as primary goods to secondary goods and from secondary goods to tertiary goods, and then start demanding, not goods, but services. As this nation grows wealthier it will demand more and more services for the community.

What was the record of the party opposite before the war? I looked it up and found that from April, 1932, just after the National Government took office, until April, 1939—that is seven years before the war—the number of civil servants increased by 63 per cent. That is excluding Post Office and industrial civil servants. We have been reducing the number steadily and regularly since the war, and there has been a reduction of 5,000 or 6,000 in the last few months. There will be no great drastic reduction. At present there are 444,000 civil servants. Does anyone imagine that it is practicable to cut that number by 25 per cent.? A 25 per cent. cut in the Civil Service is outside the realm of possibility, but what would it give us? If we took 110,000, which is a 25 per cent. cut, at, say, £400 a year, the saving would be £44 million, yet that is a fantastic and impossible figure.

Even with the most drastic economy, if one attempted to reach 100 per cent. efficiency we could not save even a quarter of that number of civil servants. The fact is that one may rake here and cut there as things change and we get away from war-time conditions, but there is no chance of a really severe and drastic reduction in the Civil Service, any more than there is in other forms of expenditure, unless we are prepared completely to revolutionise Government policy.

My right hon. and learned Friend, the Chancellor, referred to a rather interesting phenomenon, the shift from unearned income to earned income. This trend has been going on very rapidly since 1938 and I think it very likely that it will accelerate and tax policy has certainly helped acceleration. High Death Duties and high Surtax are going to eliminate the large estates. With the Death Duties running to something like 80 per cent. and with heavy Surtax making it impossible to rebuild those great estates, those great private accumulations of wealth, of the large rentier class whom the right hon. Member for Saffron Walden described as a form of saving, are inevitably bound to pass. They are politically negligible; from a social point of view they are morally indefensible. They are, in fact, born milch cows to a Chancellor of the Exchequer, and it was the party opposite who started milking them first. We are merely continuing. Inevitably they will go and I do not think that when they pass, anybody will shed a tear over them, unless it be some future Chancellor of the Exchequer.

4.47 p.m.

Mr. Black (Wimbledon)

In rising to speak in this House for the first time, I ask for the indulgence which is normally accorded to maiden speakers and my feeling of trepidation in speaking here on the first occasion is somewhat allayed for me by the experience of very great kindness which I have received since I came here from Members of all parties and indeed from everyone connected with the conduct of business in this House. I hope my speech will not be regarded as unduly controversial for a maiden speech, but it is rather difficult on a subject of this kind to avoid going somewhat into the realm of controversy, and if my speech is regarded as in some sense controversial, I shall at least endeavour as far as possible to be constructive and not provocative.

I should like first to suggest that the outstanding fact of the Budget and the Budget speech is that there has been no real and constructive effort to reduce either the enormous level of public expenditure which is taking place at present nor the taxation which follows from that tremendous expenditure. I am not personally so much concerned with the comparatively small alterations in the incidence of tax. It is obviously possible to criticise some of these particular changes of incidence, but in my judgment any changes of incidence in taxation contained within the Budget are of very minor importance and pale into insignificance in comparison with the fact that the country is being asked for a further year to maintain a level of public expenditure and penal rates of taxation which we cannot continue to support without the very greatest peril to the economic life of the nation.

I would certainly be correct in asserting that never in history, either ancient or modern, has any nation been able without disaster to maintain for long public expenditure and taxation at the rate which we are experiencing today I do not believe that the economy of this country will be able for long to maintain expenditure by the Government in the neighbourhood of £4,000 million a year, and taxation, including local taxation, at the rate of 40 per cent. of the national income, or on an average 8s. in every £. I believe that disaster would have already overtaken us as a result of the policy which has now been pursued for nearly five years were it not for the fortuitous but outstandingly generous assistance which we have received from the United States and from the Dominions, which has tended to obscure the real character of the disaster that faces the nation if this particular policy continues to be pursued.

I want to suggest two profitable fields for investigation by the Chancellor of the Exchequer in which, I submit, there is great scope far saving in public expenditure. First—and I say this in spite of the speech which was made by a former speaker—I believe and submit that there is vast scope for saving in the costs of public administration and the expenses which are involved in running the Government at the present time I do not believe that it is necessary for the nonindustrial Civil Service and for local government employees to be retained at a figure of about 700,000 in excess of the numbers which were necessary for the purpose of carrying on the business of the country before the war.

While it is quite possible for hon. Members to attempt to minimise any saving that might be effected in this particular field, I suggest that the saving is not confined merely to the saving that would be inherent in a reduction in the number of civil servants and local government officers, but it goes far beyond that because this great new army of 700,000 officials has its counterpart in another great army in private industry, of people who are not productively employed but whose engagement is necessitated by the fact that somebody has to answer the letters and to fill in the forms which are sent out by this vast army of 700,000 non-industrial civil servants and local government officers who have been taken on to the public pay-roll over and above the numbers who were employed before the war.

Why is it necessary for this vastly increased number of public servants to be employed? One obvious reason is the fact that there are some 25,000 rules, orders and regulations by which the life of the business community is harassed and which, obviously, require a very large number of officials for their administration and supervision. I was very interested in making a study of the Report of the Herbert Committee on the work of Intermediaries and I should like to draw the attention of hon. Members to one particular aspect of that Report to which, I think, sufficient attention has not been paid, either in the House of Commons or throughout the country. The appendix to the Report contains an impressive catalogue of the number of licence applications dealt with by the various Government Departments during a period of 12 months. I have had the number of licence applications in that catalogue totalled, and assuming, as I believe to be the case, that my arithmetic is correct, I was staggered to find that the grand total is some 19,370,000 licence applications dealt with by the Government Departments during a period of one year.

It is not in the interests of the productivity of private enterprise that not only vast numbers of officials should have to be employed to deal with this stupendous total of applications for licences but that, on the other hand, private business should be dragged down by the obligation to make licence applications on this scale, many of which, no doubt had to be made in triplicate and involved vast research and work on the part of the unfortunate people who were entrusted with the duty of making the applications.

In the whole field of public administration it is quite erroneous to suggest that there are no further economies that can be made and that everything possible has already been done, because such an attitude to the problem bears no correspondence at all to the realities of the situation. What is lacking is not scope for economy but the will to effect the saving which we regard as essential to the industrial well-being of the nation. That is one field that offers very large scope for economies in public expenditure.

Secondly, I should like to draw the attention of the Committee to a further field in connection with certain of the social services. I have particularly in mind those social services which may be said to possess two characteristics: first, that they are services paid for by the many but enjoyed by the few, and secondly, that they are paid for by the less well-to-do and enjoyed by the better off. There are a great many aspects of the social services which deserve consideration under this heading but I wish now to refer only to two and to ask the Committee to consider whether there is not in this particular field considerable scope for economy.

First, I want to draw attention to the expenditure involved in the maintenance of the day nurseries. The day nurseries were very largely a product of war conditions and they played a valuable part in the conditions of the six war years. During the war they were paid for wholly as a charge upon the national exchequer and they made a valuable contribution to the war effort. But the time has come to review the financial arrangements applicable to the day nurseries. The situation today is that these nurseries are paid for as to one half by the ratepayers and as to one half by the taxpayers; and by law it is only possible to make a charge to the parents of children in the day nurseries to the extent of the value of the food which they eat. That means, of course, that it costs parents nothing at all to put their children in a day nursery, because the cost of food if the children were kept at home would be approximately equal to the price they pay for the food in the day nursery.

In the area of a county council with which I am connected, we recently had a financial probe into this question of day nurseries. Some very interesting facts were brought to light and I should like to bring them to the notice of the Committee. First, only one family in 200 in the whole area of the county council benefited in any way from the operation of the day nurseries. Here is an example of a service which is paid for by the many but enjoyed only by the few. But an inquiry into the circumstances of the parents of the children disclosed the fact that there were a number of cases in which parents had a combined income of as much as £15 per week.

Thus there are children maintained in day nurseries at a cost of £2 Is. per week per child, from which 6s. 8d. can be deducted for the cost of the food they eat, which is paid for by the parents, leaving a charge of £1 14s. 4d. per week on the rate funds and the national Exchequer. I suggest that it is not good sense or social justice that the old age pensioners, with their meagre allowance of 26s. per week each, should be required to contribute, through taxation and rates, to the maintenance in day nurseries at public expense of the children of parents having a family income of £15 per week. That is a type of service where the financial arrangements involved ought to receive serious consideration.

The second social service to which I wish to refer under this head is that of housing and the subsidies paid in connection therewith. I hope that no Member of this Committee will think that I am proposing to embark upon any general condemnation of housing subsidies, because while a policy is pursued which results in the same labour force in the building trade as before the war building only half the number of houses at three times the cost, it is obvious that subsidies are in many cases essential if the houses are to be brought within the reach of the lower wage earners of the country. But what I am suggesting is that there can be no justification for giving subsidies in cases in which they are not needed, as the giving of subsidies indiscriminately results in the subsidies being provided in many cases by members of the community who are less well housed and less well-off than the minority who enjoy the subsidies and who occupy the houses erected by the local authorities.

It seems to me, and I think that it would seem to the country that the only justification for giving subsidies is the fact that a need exists on the part of the recipients which ought to be satisfied or alleviated by the community at large. But what we are doing in many cases at present is to take money from a majority of people who are themselves less well off. through rates and taxes collected from them, and to use that money for a privileged minority of people who may be very much better off in many cases than the people who are providing the subsidies, the benefits of which they enjoy.

I can understand, and I thoroughly agree with the principle underlying the social services that the strong should be asked to bear the burdens of the weak, but matters have developed to a point at which the social services operate in a number of cases in the form of requiring the weak to bear the burdens of those who are stronger and better off than they are. I therefore suggest that without in any way impairing the value of the social services or depriving needy members of the public of the assistance which they ought to get, there is here a big field which is worthy of consideration and in which large savings could be effected.

I wish finally to say a word about the discouragement to effort and enterprise which is inherent in taxation at its present levels. A great deal has been said both in this House and in the country in the past as to the deterrent effect of P.A.Y.E. Income Tax upon extra effort and overtime, but I do not think that sufficient attention has been given to the discouraging effect of indirect taxation as distinct from direct taxation.

I take the case of a typical family in order to illustrate the point which I have in mind. Let me assume the case of a man with a wife and two children who has a basic salary of £500 a year, and who could, by extra effort or by overtime, add to his in- come an additional £100 a year, bringing it up to £600 a year. Under the reduction, announced yesterday, in Income Tax applicable to such a case, the P.A.Y.E. Income Tax to which that man would be liable on the £100 per year earnings for overtime or extra effort would be about £20 per year, leaving him, as it would seem, with £80 a year to spend. But that, of course, is only the beginning of the story, because where direct taxation leaves off indirect taxation begins.

Let us see what would be the effect in this case of the man going into the market to spend his £80 a year net income. Let us assume, for instance, that he spends his £80 on providing his wife and himself with cigarettes during the year. In that event he suffers a further £64 of indirect taxation and is left with £16 worth of cigarettes at the end of the year. Again, supposing he spends the £80 in taking his family to the cinema once a week, the Entertainments Duty is £36 and he is left with cinema entertainment of a real value of £44. Or, to take a third example, suppose he saves up the money for a year in order to buy a radiogram or a piano. At the end of the year the position is that he suffers Purchase Tax of £25 and secures a radiogram or a piano of a real value of £55.

I suggest that indirect taxation at its present levels is just as much or even more a deterrent to extra effort and overtime as is direct taxation deducted from wages. Of course, this is true right up the scale up to the highest income earners. It is not a good state of affairs that eminent authors should limit the number of books they write because it is not worth while for them to write any more; that famous artists should curtail their efforts and limit the number of pictures they paint because it is not worth while to do any more work; that eminent surgeons should limit the number of operations they will perform because there is nothing left in it for them if they perform any more.

I know, and recognise, and agree, that material gain should not be the only consideration or the only incentive in cases of this kind, but we are getting far away from reality if we fail to recognise the fact that material incentives are a great spur to extra effort, and a spur without which many people will not exert themselves to their full capacity. I must con- fess my very great surprise at the fact that the Chancellor has maintained indirect taxation at this present crippling level. I have always understood that the view of the Labour movement has been that indirect taxation is an unjust form of taxation, being a tax upon needs and not a tax upon means; and that the fairest way to extract money from the taxpayer is through direct taxation based upon income and the circumstances of the individual.

I would bring to the notice of the Chancellor what the present Prime Minister said in 1940, about Purchase Tax, when Purchase Tax was first imposed in that year at a time when the country was at war: In fact, it is not a really sound tax and is only a kind of handy way of getting a certain amount of money into the Exchequer. It will not assist the finances of the country, and I do not think it will meet the Chancellor of the Exchequer's aim, that is, to suppress luxury."—[OFFICIAL REPORT, 23rd April, 1940; Vol. 360, c. 92.] That was in 1940, a war year; and after five years of peace, indirect taxation is three times greater than it was in 1940.

I wish to repeat my conviction, which I am quite certain is widely held throughout the country, that this nation cannot recover its former position as one of the great trading and industrial nations of the world without very substantial relief from public expenditure, and the present rates of taxation. It would be pathetic and tragic indeed if, after the splendid triumph which was achieved at a cost of six years of war, as a result of the unwise policies pursued in the years that follow —extravagance instead of economy and unwise financial measures—we were at this stage to lose the battle of the peace. It is still possible for us to re-create the former greatness and prosperity of this country, but we can never hope to do so under the existing burdens of public expenditure and taxation. It is still possible even at this late hour for us to regain what has been lost, but it would be a tragedy indeed if history were to record that we missed the opportunity while that opportunity was still available to us. I pray with all my heart that it may not be so.

5.14 p.m.

Sir Stanley Holmes (Harwich)

It is with the greatest pleasure that I congratulate the hon. Member for Wimbledon (Mr. Black) upon his maiden speech. He came to this House with a great reputation for the public work which he has done for his county and his borough. That he won the seat by such an enormous majority showed what the electors and the residents of his town felt with regard to him. Therefore, I think a little more was expected of him than is expected of the ordinary new Member who comes into the House. He has certainly given us today—although perhaps everything he said was not agreed to by hon. Members on the other side of the Committee—a sound and solid speech made in the best Parliamentary style. I am sure we look forward to him being a great asset to the House in years to come.

I read in one of the Sunday papers an account of the session of the Consultative Council of the Brussels Treaty Powers which was held last week end, and in which they started in quite a novel way to consider what they should spend on defence. They began with the resolution that they should spend only what could be afforded by each country without upsetting its own domestic economic policy. This is something quite new. We do not do that in this country. What happens so far as the Chancellor of the Exchequer is concerned, the traditional procedure, is for him to ask the various Ministries what they want to spend. In some cases the Chancellor is able to reduce the amount; in other cases he may fail, or perhaps he does not even try.

In framing his Budget his starting point is the amount of money which his colleagues need. That method was all right 40 years ago, when taxation absorbed only a small proportion of the income of the nation, and the question of whether the nation was over-taxed did not arise. Notwithstanding anything the Chancellor may say, I venture to agree with my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) that today we are grossly over-taxed and we are putting the cart before the horse.

I suggest that a new method should be adopted and that the Chancellor should himself first decide what the country can afford to raise by way of taxation. We cannot afford to raise the amount we are raising at the present time. The Chancellor could fix the figure, for example, at £3,000 million. It would then be his duty to divide up this sum among the Ministers and tell them what was their allocation. It might be that a Minister could satisfy the Chancellor or the Cabinet that his allocation should be more. I would point out that the method which I am now suggesting that the Chancellor should adopt for the nation from a financial point of view is the method which every family has to adopt. Last night the Chancellor was appealing to the family, and that is what every family has to do. They can only spend the money coming into the house week by week. If they spend more they get into difficulties. To my mind, there is no reason why this new method should not be adopted, since the nation cannot go on paying taxation on the present scale.

I would refer to one sentence of the Chancellor in his broadcast last night. I did not put it down until he had finished, but I think that these were the words he used: If anyone tells you that Government expenditure should be cut, ask him what he would cut.

Sir S. Cripps

indicated assent.

Sir S. Holmes

I will endeavour to show him, and I propose to refer to the food subsidy. For the year 1950–51 the food subsidy is put down as £401,944,000—

Sir S. Cripps

The hon. Member is quoting the figure from the Estimate and I attempted to point out yesterday that that does not really represent the food subsidy. The food subsidy will be £410 million.

Sir S. Holmes

Then I will alter my sentence, and say that the food subsidy for the year 1950–51 is put down at £410 million. I will try to show to the Committee that this sum is unnecessarily high because of the system of bulk buying pursued by the Minister of Food. It is very difficult to get at the true facts, because the Minister of Food always refuses to inform the House at Question Time what he is paying for any commodity. I am sure that every hon. Member has welcomed the outspoken and genial way in which the new Minister of Food has answered Questions since his appointment, compared with the lofty disdain of the previous Minister. But the new Minister also withholds information. One of the first Questions put to him after his appointment was by the hon. Member for Banbury (Mr. Dodds-Parker) who questioned him about soya beans. The hon. Member asked: …what is the average price at which soya beans are bought by his Department; and at what price they are sold to manufacturers in the United Kingdom. The Minister replied: Soya beans are sold to manufacturers at £59 per ton, but my Department is a trading concern, and I am not prepared to disclose the prices at which we are buying. When the hon. Member for Banbury suggested that the Minister had been buying at £34 a ton, all the Minister would say was: I am not necessarily accepting the figure of £34 a ton."—[OFFICIAL REPORT. 15th March, 1950; Vol. 472, c. 1081–2.] That makes it easy for the Ministry to conceal what they are doing under bulk buying. However, we have seen enough of the representatives on the Front Bench opposite to know that if anything which gives credit to them is accomplished, it is loudly acclaimed in the House, in the Press and on the wireless. Therefore, it is not unfair to assume that the refusal to give information about bulk buying means that it has been unsuccessful.

Although I have said that it is difficult to get the truth of the matter, I propose to give an example of bulk buying which is within my own knowledge. During the winter of 1947–48, a number of food canners in this country negotiated through their agents for the purchase in Norway of the whole 1948 seasonal supply of cod roes. It was their intention, if successful, to sell one-half for export, particularly to America and Canada, thereby obtaining valuable dollars, and to distribute the other half in the United Kingdom.

The agents were successful and they sent back contracts based on a very reasonable figure. The British canners then approached the Ministry of Food for import licences. These were refused, as the Minister decided to deal with this commodity by means of bulk buying. He sent his representative to Oslo. The representative informed the Norwegian authorities that the contracts entered into could not be approved because the Ministry of Food were prepared to buy the whole season's supply, but at a lower price than was stated in the contracts. The Norwegians refused. They realised that the Government were now in the market and, far from offering to sell their goods at a lower price. they actually asked for a higher one.

In a very short time 90 per cent. of that season's supply had been bought, mainly by America and Canada, at a higher price than that stated in the contracts of the British canners. The Ministry then thought that they must do some—thing, and they bought the remaining 10 per cent. The result was that the people of this country, who would have got 50 per cent., got only 10 per cent. and paid higher prices than they would have paid, and the rest of it which would have gone to America and Canada or other hard currency countries was entirely lost to us.

That is a concrete case. How many more there are one does not know, because the Ministry of Food will not give any information. In the example I have quoted, as a result of Government interference and insistence on bulk buying, 90:-:er cent. of our domestic and export trade in this commodity was lost. That is something which has happened in the past, but bulk-buying contracts which have been made in the last few years are having their effect upon the food subsidy this year, and they will continue to have their effect on the subsidies for the next two or three years.

World conditions have changed appreciably in the last 12 months. There is no longer a world shortage of most of the major food commodities. In fact, heavy stocks have been accumulated, particularly in the United States and Canada under those countries' Governments' support-price programme. Agricultural production in nearly every country in Europe has rapidly expanded, with the result that many countries, such as Holland, France, Italy, Belgium and Germany, which were large importers of foodstuffs during the early post-war years, are now self-supporting. In fact, most of those countries are looking for export markets to get rid of their surplus over their domestic requirements.

The United Kingdom is the only worthwhile market for any country which has an export surplus of food. This rapid change in the supply situation alters the necessity of maintaining bulk purchase to secure supplies and to safeguard against shortages. Prices of nearly every food commodity have reached a peak, and many have started to decline; but the normal decline in world prices of food is being retarded because of the bulk-purchase contracts of the Ministry of Food, which automatically give a floor to each market. With this tendency for lower prices, no experienced trader would be prepared today to commit himself far ahead. He would adopt a hand-to-mouth policy. There is no reason which can justify the Ministry of Food continuing bulk purchase by contracts which are at a fixed price for more than a very short period.

Mr. Jenkins (Birmingham, Stechford)

Is the hon. Gentleman advocating the abandonment by the Ministry of Food, or by any buying organisation, of all the long-term contracts with the Commonwealth—for instance, those with Australia and New Zealand?

Sir S. Holmes

Of course I am not. The hon. Gentleman had better hear the rest of what I have to say. The greatest economic danger to which this country could expose itself at present would be caused by fixing the price of its future imports at a high and almost irreducible level while the prices realised by its manufactured exports are subject to the effects of world competition. On 27th March, the hon. Member for Maldon (Mr. Driberg) put a Question in which he asked the Minister of Food: …if he will make a statement detailing the various bulk-purchase contracts entered into by his Department since 1945, with particulars of the duration of such contracts and the price-revision clauses contained therein."—[OFFICIAL REPORT, 27th March, 1950; Vol. 473, c. 9.] It will be observed by anybody who looks at the list printed in the OFFICIAL REPORT that in very many cases it says: Annual review within agreed limits of variation. I will give one or two examples. The contract for New Zealand meat goes up to September, 1955, and the same phrase is used in respect of that contract. Then there are Danish bacon, Dutch bacon, butter and cheese from Australia, butter and cheese from New Zealand, butter from Denmark, oils and fats from Nigeria, the Gold Coast, Sierra Leone, Gambia, Australia, and New Zealand. After all those, we find the words: Annual review within agreed limits of variation. I want the Committee to realise that in nearly all these contracts the variation is 7i per cent. either way. That means that if the price in the contract is, say, £50 a ton, the most we can get it reduced to until 1955 is £46 5s. [HON. MEMBERS: "Seven and a half per cent. per year.")

Sir S. Cripps

The hon. Member said that it was a reduction or an increase of 71 per cent. per year—not over the whole period?

Sir S. Holmes

Yes, certainly. As I was saying, if the price of the contract is £50 per ton, and if the world price of the particular commodity falls to £30 per ton, we have to go on paying £46 5s. per ton.

The Minister of Town and Country Planning (Mr. Dalton)

Only for one year.

Sir S. Holmes

That is the information given to me. If the right hon. Gentleman means 7½ per cent. one year and then another 7½ per cent. the next, I will accept that.

It is probable that world prices will fail considerably, in which case the food subsidy being paid owing to bulk purchase contracts will be unnecessarily raided, or the public will have to pay an unnecessarily high price for foodstuffs, which will mean additional indirect taxation.

I want to call attention to what the bulk sellers think about this. On 9th March, the chairman of the Uganda Chamber of Commerce said: It is nearly five years since the end -ot the war, and I am sure that in 1945 few of us thought it would take so long to get back to free scope enterprise or that politics would to such a degree affect our dealings. Perhaps the most contentious aspect facing us at the present time is that of the bulk selling of part or the whole of certain of our crops. We are well aware of the necessity of this during the war years, but in my view it is fundamentally wrong not to permit, as far as can be done within currency considerations, the free movement of our produce to countries which may prove of appreciable value to us in future commercial relations I realise that the reason given for arresting the move towards free marketing of our main crop which has taken place, was the revaluation of our currency, and we cannot insulate ourselves from the economic forces against which the British Commonwealth is battling. Nevertheless I feel that such a reversal of the previous years' trend was unnecessary and could have been handled with better results to our selves and without detriment to the Commonwealth's interest. I particularly draw tilt Committee's attention to the last sentence, which is the most important of all: Long-term contracts which, fortunately, have not applied to our main crop, may surely lead us into a fool's paradise. They strike fundamentally across the law of supply and demand. We may well find that at the end of any long-term contract the price paid by the purchaser is way above the world market price and unnecessarily holding up the cost of living of that country while the selling country has built an economy on a false price with disastrous results on the termination of such a contract. Any country must base its production economy on world prices. It must produce at a rate which enables it to sell profitably on those markets. Surely, if we create false prices—as long-term bulk selling does—then, instead of being able to weather a trade recession, we shall have to face economic anarchy. There are other points regarding the result of bulk purchase with which I should like to deal, but they are outside the scope of a speech on the Budget. Bulk purchase results in worse quality and a deterioration through so much food being kept for so long in cold storage. I should like the Chancellor to say whether his officials have the opportunity of examining the accounts of the Food Ministry, so far as bulk purchase is concerned, in the same way as do the auditors of public companies under the Companies Act. If they do, perhaps they know all the secrets.

I know that the example which I have given is a true one, and it would be interesting to know whether it was ever reported to the Chancellor himself or to his Department, and also whether any action has ever been taken by the Treasury in a case where it has been found that the bulk buying was being carried on at a loss. I suggest that information concerning bulk buying is not being disclosed to the Committee or to the House at Question Time, and that therefore we have every right to believe that it has been a failure. I hope that this House will have the opportunity of appointing a Select Committee to go into the matter so that we may know the whole truth.

5.40 p.m.

Mr. Crosland (Gloucestershire, South)

The Committee hear for the second time this afternoon a plea from a new Member for that friendly and indulgent hearing which, I know, will be given with the same generosity as on similar occasions in the past. I believe it is a tradition of this House that maiden speeches should not be controversial, which I take to mean that in my humble way I should not throw any stones at the other side of the Committee. But, as far as I know, there is nothing in the traditions of the House which should deter me from throwing a few pebbles at the right hon. and learned Gentleman the Chancellor of the Exchequer.

Before I come to that, I should like to say one word about the earlier part of the Chancellor's speech of yesterday afternoon, in which he discussed the state of our economy in rather general terms. It is a good moment to sit back and consider the state of our economy as a whole, because, to a large extent, the post-war transition period, the period of recovery, is now over. Our economy is in balance so far as the foreign account is concerned, which is an enormous change from the position two or three years ago. It is also in balance so far as internal affairs are concerned. As the Chancellor said, we have an approximate balance between total supply and demand. I agree very strongly with him in his statement that there is no serious inflation in our system now and that the degree of disinflation we have achieved is certainly greater than at any time since the end of the war.

We can form a judgment on our economy, now that it is settled down and not disturbed by any temporary post-war factors. I am certain that that judgment must be a favourable one. No matter what index we take, whether of productivity, total production, total exports or dollar exports, I think the verdict must be that the sort of controlled full employment we are trying to run in this country not only works—which we always knew it would—but also works a great deal more efficiently than many people expected. Undoubtdly, much of the credit must go to the policy of disinflation associated with the present Chancellor of the Exchequer. He has played a very large part in carrying this policy through and undoubtedly this policy, to a very considerable extent, has been responsible for our present much more favourable state of affairs.

Given that the objective is to maintain our present equilibrium we come to the question of what kind of Budget we ought to have this year. This is where I begin to differ from the Chancellor. I take the view that on the whole we have not had the Budget we should have had. I find myself in somewhat of a dilemma and faced with some conflict of loyalties. Although I do not suppose that the Committee is interested in my opinions, I may say that in the past I have supported very strongly the Chancellor's policy of disinflation. At the time of the last Budget for example, I thought that that unpopular Budget was absolutely correct and, if anything, that it should have been more unpopular. I also think that some of the very wild figures thrown at his head during the pre-Budget period this year were, for the most part, complete nonsense.

However, despite the fact that my instincts would be to defend him, particularly when he introduces a not very popular Budget, I think that in this particular year he has erred very seriously on the side of excessive caution. In his speech yesterday the Chancellor said, very properly, that the Budget must now be a balancing item in the accounts of the whole nation, and that the sort of Budget we have must be determined by the way various other trends in our national economy are going. He put estimates on a number of these trends and in every single case I think he erred somewhat on the side of caution. He knows very much better than I do that these estimates are not really extremely accurate figures, that they are, to a certain extent, a matter of guess-work and that there is a very large margin of error. They are, to a large extent, prophecies about certain things which, even in a fairly efficiently planned economy, are not entirely under the control of the Government.

The Chancellor estimated an increase of production of 21 per cent. this year, compared with 4 per cent. last year. He agreed that this was a conservative estimate, and he said that the figures for January and February this year already showed that it was proving a conservative estimate. There is no doubt whatsoever that the actual increase in productivity will be substantially greater than the one for which he has budgeted.

Then there were his estimates of the general level of investment. There has been a great deal of argument as to what will happen to the level of stocks in 1950–51. Again, extremely wild figures have been put forward suggesting that industrial investment will run down by 300 million. I do not think that will happen. But I think the Government have taken the most cautious view possible of the behaviour of investment and that it is arguable that investment in 1950–51 will be below the Chancellor's estimate.

As far as the foreign balance is concerned, the Chancellor estimates that we shall move from a deficit to a surplus of £50 million. It seems the most optimistic estimate that could possibly be made, and I am not entirely convinced about what he said on the desirability of at once achieving a surplus in the foreign balance in all circumstances. At any rate, I would myself expect the rise in inflationary pressure resulting from changes in the foreign balance over the next 12 months to be somewhat less than he expects. All these figures are subject to a very wide margin of error. It would be quite possible, on calculations equally plausible and equally likely to be right as the Chancellor's own calculations, to reach a situation in which overall concessions could have been made on a substantial scale in this Budget. Moreover, the Government are now in some danger of underestimating the extent to which the underlying trends in our economy are now disinflationary. We have come to the end of the post-war inflation period, when our affairs were dominated by a very high rate of restocking, of rehabilitation of industrial equipment, and of improvement in the foreign balance.

More and more, from now onwards, the dominant factor each year will be the increase in productivity which, of course, will exercise here a regular disinflationary effect. I think we are moving to the end of the really serious inflationary period and that the trend is towards disinflation. But even if he did not accept the whole of this analysis, on his own figures the Chancellor might have taken a slight risk. The argument for taking that slight risk is that it seems that 1950 is certain to be dominated economically by the wages question. I think hon. Members would agree that the policy of wage restraint, which, I think is a matter of agreement on all sides of the Committee, is now in serious danger of breaking down.

Moreover, this policy could have been substantially strengthened if we had had a Budget containing more concessions than were contained in the Budget presented yesterday. In fact, the crux of the matter seems to be that even if the Chancellor of the Exchequer thinks that the situation as a whole is more inflationary than I do—and, clearly, he does think so —it would have been worth gambling, worth taking the risk of a slight increase in what I might call the savings-investment kind of inflation, which he discussed last night, in order to avoid a more serious risk of a very much more damaging type of inflation—a wage and cost induced inflation.

That is the size of the problem which he had to face, and that is why I think he might have been wise to have accepted a slight increase in inflation of the traditional kind in order to preserve a much greater degree of restraint on the wages front. By not doing so he has certainly condemned himself to the necessity, later, of a very dramatic and possibly very spectacular Government intervention of some form or another in order to try to buttress the whole policy of wages restraint. As the opportunity of buttressing that policy by the Budget has not been used, some other intervention by the Government will, I believe, be called for later in the year.

Everybody has advised me that the one really crashing erro