3.38 p.m.

Mr. Churchill (Woodford)

During the last five years the Socialist Government have spent or are spending more than £19,000 million. The Estimates for the year now before us amount to nearly £4,000 million. No one can say, therefore, that a five days' Debate and a twoand-a-half hours' speech from the Chancellor of the Exchequer are disproportionate to these colossal figures which mark the most amazing dissipation of national resources on record in any civilised community of our size. Not only is our taxation the highest in the world, not only have we used up every available resource and asset on which the Government could lay their hands, not only has the future been mortgaged in every possible way, but we have enjoyed during this period of extravagance, upwards of £1,700 million of financial aid from the United States and from our Dominions.

There is the first formidable set of facts which glare upon us today. However, I wish to state the case with sobriety and accuracy. We must not judge by the figures alone. The £4,000 million we are to find this year are, owing to the depreciation of our money, really worth not much more than £3,000 million compared with the goods and services they would have represented five years ago. The purchasing power of the £ sterling at home has fallen during this period by nearly 4s. We hear a lot of talk about the word "inflation," with its refinements of "disinflation," and so on, but that word carries little meaning to the average man. What is meant to him by the word "inflation" is the fall in the buying power of the wages he earns or of the pension on which he lives. This is a serious and homely point both to himself and in many ways even more so to his wife.

We see in our national Budget that Income Tax and Surtax provide 42 per cent. of our tax revenue, but it must not be overlooked that the continued fall in the purchasing power of our money—of the £ sterling—is a tax on the wage earners of the utmost severity, and that it falls upon pensioners and those living on fixed incomes with cruel and devastating force. It finds no place in the balance of the Budget, but it ought to hang heavy on all our minds. If we take the wages earned and the pensions drawn in Britain in the last financial year and deduct 4s. in the £ from them—that is a little more than it actually is, but I take a simple figure—we shall see how much these five years of Socialist Government have taken from the wage earners.

I have had a calculation made on the basis of the official figures of wages, pensions and Government grants for social services which shows that all these classes and masses were deprived of £1,500 million last year alone, which they would have had in goods and services if only the money values of 1945 could have been preserved. And what right have the Socialist orators to talk to us of the exploitation of the toiling masses when the Socialist Government themselves have deprived the wage earners on a gigantic scale by this devaluation or depreciation of the money they work so hard to earn? Even more has the power of our money to buy goods across the dollar exchange been reduced. As the result of devaluation, British industry and workers have now to do 12 hours work to buy the same quantities of necessary goods and raw materials as nine hours would have produced before the devaluation of the £.

It is quite true that we have not spent all this money that I mentioned just now upon ourselves or upon the revival of British industry. The Chancellor boasted in the election that he had given away over £1,300 million in loans or in repayment of so-called sterling balances—otherwise British debts incurred during the war from the countries we had defended from invasion. Indeed, he and his predecessor begged and borrowed immense sums from the United States with the one hand in order to transfer the treasure thus obtained to foreigners or overseas wartime creditors with the other.

It is common ground between all parties, and it was the main theme of the speech of the Chancellor, that we have now entered upon a period of the utmost difficulty and anxiety. The Chancellor made it clear that greater stresses lie ahead. Expenditure in his opinion, will increase irresistibly; Marshall Aid will stop in the near future; German, Japanese and other competition will rapidly and steadily increase; taxation, direct and indirect, has reached its limit. At home the cupboard is bare. Here, then, is the background, the unchallengeable background, upon which the present Budget must be examined and judged.

What, then, is the upshot of the Budget speech? Let me quote from the Economist," a well-informed and independent organ which each side is always ready to quote when its observations are in harmony with their political views. This is what the "Economist" says of the Budget: It is a recipe for ever-increasing Government expenditure, and for a permanent structure of high taxes with no hope of relief —a guarantee, in sum, of ultimate economic decay. The speech of the Chancellor showed that there was no prospect for years to come -of any improvement in the cost of living or in the rate of taxation. So, in a certain sense, we have reached finality. Utopia is no longer a dream of the future. This is it. Here we are. It is here now on top of us, and here to stay if only it does not get worse. The one thing, the Government say, is to know when you are well off and rejoice while good things last. What we are going through now is the result of five years of Socialist management and control with far more power and vastly larger financial resources than any other peace-time Government in history.

Now I come to some of the specific proposals of the Budget. None of them affects in any appreciable way the general depressing picture which the Chancellor:has painted.

We on this side of the House are naturally pleased that the Government have adopted the policy of lessening the discouragement of P.A.Y.E. to overtime and highly efficient piecework. This is one of the points on which we fought the General Election, and we are very glad to have gained this limited concession for the most active and industrious class of wage earners. I was particularly gratified myself to hear the Chancellor announce the doubling of the petrol ration. As has been pointed out in this Debate, when I raised this matter during the election I was assailed with a storm of abuse for irresponsibility, for asking for the impossible in order to gain votes. How wicked, it was said, to squander the dollars needed to buy food and raw materials without which full employment cannot, be maintained, in order to indulge the luxuries of pleasure motorists. The storm was severe but I survived it.

Now, the Government are themselves 'forced to do the very thing that was urged upon them and which they sought to discredit by mockery and misstatement. All this talk of dollar spending was, as I was advised at the time, and as the Government knew well at the time, quite unfounded. Only a few weeks later they have done themselves what they had so vehemently denounced. I gladly forgive them their abuse, the only result of which has been to deprive them of any claim upon the good will of the motoring community.

The continuing reductions of control and release of articles of food from "points" are, of course, all welcomed by us. There is no reason why they should not have been done in still greater numbers two or three years ago

Mr. Shurmer (Birmingham, Sparkbrook)

What about sweets?

Mr. Churchill

—just as there is no reason why extravagances now detected and purged, should not have been corrected three or four years ago so that we should have had the advantage of the savings. We have suffered loss and inconvenience in the interval, for no good reason except that in those days the party opposite had more hope of carrying us irrevocably into Socialism than they have now.

We are also glad, in reference to the Amendment which we moved to the Address, that the reduction of the housing target from 200,000 to 175,000, against which we voted, has been repaired and that 200,000 for this year has been restored. Why should we have to kick the party opposite into doing these things? It is not the need for giving houses to the people that has enforced this change in the last three weeks upon the Government, but only the fear that they might lose votes by refusing to alter their policy. Obviously, if it can be done now, it need never have been brought into question. Even so, we do not accept 200,000 as the target for three years to come.

Lieut.-Colonel Lipton (Brixton)

What is it?

Mr. Churchill

I have nearly finished that passage of approbation and commendation which I felt it my duty to make upon the proposals contained in the Budget. I have nothing to say against the Chancellor's proposal to exempt the high-class motor cars from Purchase Tax. I remember five years ago pointing out how a thriving and fertile export trade could only maintain its continuous perennial quality by being based upon a strong domestic industry, and how I was rebuked by the Chancellor of the Exchequer, then President of the Board of Trade, for such reactionary ideas.

I am glad to see that the right hon. and learned Gentleman's education in finance, for which we have to pay so much, is not wholly devoid of some signs of progress. He is not a star pupil but it would be too soon to say that he is completely unteachable. Of course, however, in this and some other aspects of finance he may have to encounter the criticism that he is, to use an American expression, "taking the poor man's money away from the millionaire to give it to the plain rich."

This brings me to the attitude of the Government towards wealth and large fortunes. Four years ago I travelled back from America with Lord Keynes, who had been on a Government mission and was working at the Treasury. I asked him why the then Chancellor of the Exchequer, when reducing the Income Tax by a shilling, should have made sure that the Surtax on these largest incomes was retained at the confiscatory rate of 19s. 6d. in the £. I shall never forget the look of contempt which came over his expressive features, on which already lay the shadow of approaching death, when he replied in a single word, "Hate." [HON. MEMBERS: "Cheap."] Hate is not a good guide—[An HON. MEMBER: "We have only your word for it."]—in public or in private life. I am sure that class hatred and class warfare—

Mr. Manuel (Central Ayrshire)

How do we know that he said it?

Mr. Churchill

—like national revenge, are the most costly luxuries in which anyone can indulge. The present Chancellor has boasted of the number of persons who have net incomes of £5,000 or over a year. He has boasted that it has been reduced from 11,000 before the war to 250 at the present time, and that the number of those over £6,000 has been reduced from 7,000 to 70. Those are great achievements. However necessary this extreme taxation was in the war—I was responsible, as Prime Minister, for its imposition—it certainly is not a process which increases the long-term revenue of the nation or its savings.

I will take a simple illustration. I always find these financial matters better explained by simple illustrations. I will take that which occurred to me the other day when I was looking at a cow. Late in life I have begun to keep a herd of cows, and I find that quite a different principle prevails in dealing with cows from that which is so applauded below the Gangway opposite in dealing, with rich men. It is a great advantage in a dairy to have cows with large udders because one gets more milk out of them than from the others. These exceptionally fertile milch cows are greatly valued in any well conducted dairy, and anyone would be thought very foolish who boasted he had got rid of all the best milkers, just as he would be thought very foolish if he did not milk them to the utmost limit of capacity, compatible with the maintenance of their numbers.

I am quite sure that the Minister of Agriculture would look in a very different way upon the reduction of all these thousands of his best milkers from that in which the Chancellor of the Exchequer looks upon the destruction of the most fertile and the most profitable resources of taxation. I must say the cows do not feel the same way about it as do the Socialists. The cows have not got the same equalitarian notions and dairy farmers are so unimaginative that they think mainly of getting as much milk as possible; they want a lot of political education. The Lord President of the Council is turning his attention to the agricultural sphere and, no doubt, this will stimulate his fancy as to some suggestions he may make to the farmers.

I will pursue this point, I hope not unduly. Rich men, although valuable to the Revenue, are not vital to a healthy state of society, but a society in which rich men are got rid of, from motives of jealousy, is not in a healthy state. This brings me to the applause from his own side—a comparatively remarkable event —which the Chancellor gained last Tuesday when he announced that retroactive taxation would be imposed on two individuals who had received large gifts from the shareholders of the companies for which they worked. It is not a case of sympathising with these gentlemen, or with the action of the firms concerned. Indeed, I shared the general feeling that such a transaction was unworthy of a time when the trade unions were loyally endeavouring, in the national interest, to prevent wage increases, justified by the ever-increasing cost of living

I have no doubt that the promise that the Chancellor made to introduce retroactive legislation to hit these two men was worth many votes to him in the election, and it certainly gave him his loudest cheer when he opened his Budget. It is true also that there are precedents, especially in the war, for retroactive legislation in such matters. Nevertheless, I found myself in full agreement with the statement of the leader of the Liberal Party last week in condemnation of the principle of retroactive legislation and of the idea that a warning by a Minister which had no force of law should be accepted as a justification

After all, the law, as pronounced by the highest courts in the land, was clear. It was not new; the judgment was seven years old. The Government could easily in their five years of office, have introduced into any of their Finance Bills the Clause which they now propose to deal with this matter. The transaction was open—more than open, it was blatant. It was effected and made in full confidence of the validity of the law. It would have been more in accordance with the broad principles which guide our way of life to alter the law for the future than to use retroactive legislation, however popular it may be to penalise a couple of wealthy individuals.

The Chancellor's new proposals are on a comparatively miniature scale and affect only £80 million or £90 million of money one way or the other in the immense bill of nearly £4,000 million we have to meet. They do not appreciably affect the finance of the year; 1 per cent., or 2 per cent., is the most involved in all of it. It cannot be said that they affect the life and effectiveness of the Budget which is before us. But the gravamen of the case against them is to be found in the new taxes which are now to be levied.

The increase of the tax on petrol is a new burden to the travelling public and has already led to a rise in cab fares. Bus fares, I am told, will inevitably follow. The imposition of a heavy purchase tax on vans and lorries is a direct attack upon the economy and efficiency of our production and distribution, entirely out of harmony, indeed absolutely contrary, to the exhortations and lectures which we hear so often from the Chancellor's lips.

Both the raising of the fares and the deterrent now placed on the sale and use of commercial vehicles and the tax on their fuel are, as everyone can see, designed to force the travelling public and our industry to use nationalised railways and thus offset by a countervailing evil the impending rise in railway freights and passenger fares. The Government bought the railways by compulsion, of their own free will, at a singularly odd moment in railway history and they feel they owe it to the cause of nationalisation to make them into a paying proposition, no matter what that may cost.

Moreover, I submit that it is intolerable that any new taxes should be imposed at a time like this. Remissions are welcome, but they should be made by economies in Government expenditure and not by additions to taxation. We shall feel it our duty to vote against both these new taxes when the Resolutions concerning them are reported to the House on Wednesday next. Not to do so would be to abrogate the rights of Parliament out of fear of precipitating an appeal to the people. The Government have raised these provocative issues themselves, and we have no choice but to express our sincere conviction that both the new taxes are wrong in principal and will be harmful in practice.

I always try, especially in a new House of Commons, to study the opinions of those to whom I am opposed, their expressions and moods, so far as I can. I confess I am surprised that hon. Members opposite who hold Socialist conceptions —there are, I believe, some of them—were not shocked at this rise in the bus and taxi fares. Is this not a case of rationing by the purse? Ought they not to ask themselves, on their theories, whether this is not allowing mere money to decide who can ride in a bus or taxi and who has to walk? And what about the pleasure motorist and so forth? Is it really fair that some poor man who voted Socialist at the last election, who spends his increased bus fare by lingering too long on the Chancellor's stronger beer in the public house, should have to walk home?

We on this side of the House stand for the policy of reducing both expenditure and taxation. I am repeatedly asked, "How would you cut down expenditure?" The object of the question may indeed he to procure guidance, but it could also be used for election misrepresentations. We have not the detailed information which alone would allow a precise and detailed statement to be made. We do not know what we should find if we gained access to the secrets of Whitehall. I do not accept the statements of Ministers as giving a complete or even perhaps a correct picture. We are assured that they wish to hold on to office until after the next appeal to the country is made because they fear exposure at the hands of any incoming Administration.

Be that as it may, it is not possible for an Opposition to make a detailed plan without full knowledge of the true situation and the aid of the Government Departments. But I have no doubt, after a long experience of affairs, even longer than that of the Father of the House, if I may say so, that substantial economies could be made which could be passed on to the taxpayer in a manner which would be highly beneficial to production and to savings, and that they could be made in such a way as would effectually safeguard the weak and poor. [Laughter.] Do not laugh at the weak and poor. I know that in Socialist jargon they are described as "lower income groups." These concessions, secured by a reduction of taxes, might even restore to the weak and poor a portion of what they have lost through the depreciation of the wages they earn or the pensions they receive.

I will, however, say that our Defence Services, now costing nearly £800 million, require searching attention, and that I am sure there never was a time when we got less value in fighting power from the immense sums which Parliament has voted. Our foreign dangers, which seem to he sharpening, will not be warded off by the wasteful and ineffectual expenditure of money but rather by concentration upon the modern forms of war power in the light of our knowledge. The spending of vast sums of money in ill-conceived ways may salve people's consciences and make them feel that it is all right, but that in itself affords no guarantee for our safety although, of course, it may be described as a most full and generous provision for defence.

I turn to another point. If the National Health Service is to yield, over a longterm period, the results we hoped for when the policy was adopted by the war-time National Government, it will undoubtedly be necessary to purge abuses and waste and prevent the exploitation of State benefits by thoughtless or unworthy methods or habits.

In regard to food subsidies, now fixed at £410 million—the "floor "and the" ceiling "have come together--I say without hesitation that they should be recast in such a way as to concentrate the relief upon those who really need it, and not to squander enormous sums on the majority who could well afford to pay for their own food at prices which would soon be established in a free market, and which might easily fall to the level or below the level of the existing subsidised price.

I am sure that a scheme can be rapidly evolved which would achieve a substantial reduction of Government expenditure without causing hardship to the lower income groups; and that this present time, when there is a glut of food in the markets of the world, affords the opportunity of regaining the economies, flexibility and conveniences of a free market such as has been successfully re-established in so many European countries, some of which were defeated in the war or long occupied by hostile garrisons.

There is also the general field of Government expenditure—travelling, advertising, wasteful State trading, mistaken investments in enterprises such as we have heard of before, hosts of officials, enormous hosts of officials, never needed to manage our affairs before. All these provide a fertile field for additional economy. I was asked the other day "What would you do to economise? "I have, within the limits which are open to anyone who has not access to official information, offered a full and considerable statement of the field upon which I am bound to say I think we might hopefully advance with our blue pencils.

I have referred to the advantages of a free market, subject to proper safeguards, and provision for the lower income groups. We are all agreed that we are not going to make our great reforms and advances at the expense of the poorest of the poor. On this question of a free market, I am much interested in this experiment in regard to fish, which has been liberated after nine years of control. The Minister of Health—I do not think I see him in his place—said, in one of his more exalted moments, that we were an island of coal surrounded by fish. Perhaps it was later that he added that it was mainly populated by "vermin." I think it was a different occasion. But what about the fish?

I believe that in this and in similar matters the higgling of the market will, under healthy and improving world conditions, after a month or two, give the people a far better diet than all the planning of all the planners. No doubt the markets would jump about, as we saw the fish market do, for a month or two, but in the end, and probably soon, they would come down to the true and natural level where the customer—not the "gentlemen in Whitehall "—and the consumer, know best. This is of course an old-fashioned idea, but it does not follow for that reason that it is necessarily wrong.

I have now surveyed the details of the Budget; those that I have felt it my duty to pay my tribute to, and those which I am bound to say it is equally our duty on this side of the House to resist by every means in our power. The Chancellor of the Exchequer stands before us at that Box when he speaks, uplifted, austere, almost ecclesiastical, pronouncing sombre judgments. A different aspect of his personality and outlook was presented to us at the General Election. At Bristol on 11th February he said: We are sharing out more fairly the national resources that exist. We have not shared them all out equally yet. It takes a bit of time to do these things. These were deplorable words. Never has a Chancellor of the Exchequer, with all his influence upon domestic and international credit, spoken in such a way. How the right hon. and learned Gentleman could reconcile language of that kind with the appeals in which we are asked to join to save money and invest in Savings Certificates, it is difficult to explain. What he said, in the words I have quoted, is not even fair shares for all, whatever that may mean, and undoubtedly to have any meaning it depends on who is the judge of what is fair—it is equal shares for all, a condition which is contrary to nature and to every form of progress and civilisation.

But in his Budget speech last Tuesday the right hon. and learned Gentleman fell into heresies of the opposite character, and extremes of the opposite character. This is what he said: The real difficulty is that there is still "— he was explaining why he could do nothing for the lowest paid workers- some cases of low earnings which are very difficult to correct without upsetting the relative wage levels that have been established within each industry for the different grades and classes of workpeople employed in it." —[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 65.] I fully agree that respect must be shown for what that robust trade union leader, Mr. Arthur Deakin, has described as "differentials" in industry. But to draw from this the principle that the lowest paid workers cannot have their position improved without all the classes above them receiving simultaneous and similar advances falls into an error which is antisocial. That error is to feel aggrieved because someone less fortunate than you gains an advantage which does you no harm. The principle of levelling up is right, and is free from the hate and envy which accompanies the process of levelling down.

I am astonished that the fine intellect of the Chancellor of the Exchequer, even if all else failed him, has not guarded him from self-contradiction and erroneous doctrines of the character I have described. I trust that the right hon. and learned Gentleman will search his conscience in the matter, because, in my opinion, it is absolutely wrong to say that the lowest paid worker is not to have his wages brought up unless or until similar advances can be made to others. One of the very first Measures I had the honour to pass through this House was the "sweated trades" Bill, for the very purpose of "bringing the rear-guard in," as we used to say in those old days; and I am not at all prepared to admit that there is any excuse for the exclusion of the poorest paid workers from all help and assistance in a Budget drawn up by a Chancellor who had a few weeks before given expression to the wildest levelling and equalitarian and totalitarian views upon equal shares for all.

I hope to detain the Committee very little longer. I have tried as well as I can to present the case as we feel it; an Opposition aggrieved at the maltreatment and mismanagement of our finances. But I think it also right to say that in my long life I have never seen the nation divided quite as it is today. It is not so much divided in enmity as in opinion. The question forces itself upon us—how long can we afford to be dominated by this "ideological conflict which, as it paralyses our national judgment and action, must be deeply detrimental to an island like ours, with its 50 millions growing only half their food? I must confess that I cannot get these 50 millions out of my head. They keep recurring in one's mind —50 millions crowded in this small island, growing only half their food.

The floor which separates the two sides of the House, so evenly balanced now, is not a gulf of class; nor does it mark a breach in fundamental brotherhood. It is one of theme and doctrine. The Conservative and Liberal Parties stand for a way of life which at every stage multiplies the choices open to the individual. The Socialist devotees—I will not say the Party opposite, for many would repudiate it—stand for the multiplication of rules. There is planning on both sides, but the aim and emphasis are different. We plan for choices, they plan for rules, and in this lies one of the aspects of our melancholy domestic quarrel.

Let us look, if possible without party bias, at the effects of the present political tension as it governs our actions and our fortunes. Everyone knows that free elections, such as we have in this country, are the foundation of democracy. But no community like ours can thrive permanently in an electioneering atmosphere. It is not giving the people a fair chance, with all their hard work and other preoccupations, to ask them to live for prolonged periods under such conditions. Every word in this Debate, and others, which hon. Members opposite or we on this side speak, will be considered by large party machines with regard to the forthcoming trials of strength in the constituences.

I listened to several of the maiden speeches which were made and which have won approval from every part of the Committee. I sympathise particularly with these maiden speakers, because I felt that perhaps you, Major Milner, from the Chair might have said—this is not a criticism—" I have to warn you," as the police formula runs, "that anything you say may be used in evidence against you." Here we are, in the supreme economic crisis of our whole history, watching each other like cat and mouse. And who shall say who is the cat and who is the mouse?

I was relieved when the Prime Minister announced in the beginning of the year that there would be an election in February. I thought that at any rate this would give us a solution one way or the other of our deep-seated domestic quarrels. The election was held, and I suppose everybody did his best according to his lights. But, far from ending the electioneering period, the results of the voting have been only to prolong it. We are split half and half as I have never seen this country split before, and the question arises: How long have we got to go on with neither one side nor the other having the power to do anything to grapple effectively on its merits with the national needs.

The fortunes of other countries are no guide in these matters. Party names do not mean the same things, nor is their parliamentary government in any way the same as ours. In Belgium, for instance, which we rescued in the war, they are not worried apparently about material 'things and are entirely absorbed in a question affecting their monarchy. In France, whatever else happens, the fertile soil gives abundant food for all its people.

In Germany, everyone has the natural resolve to recover from defeat. They want to have free petrol. They want to reduce their income tax below ours. Oh, how shocking ! They even want to sing their National Anthem. But none of those countries is in the same position as our island, with our 50 million people, brought here in the great Victorian age by a vast expansion of manufactures and now left in a perilous plight.

I was thinking when I was preparing this speech about the whales who come ashore and are caught by the tide, but I remembered that I had used that before. However, when I woke up yesterday morning I found that the poor whales have come ashore again, and I must say it does seem to me that we run very great risks of finding ourselves stranded, with our immense population, on a shore which leaves very little hope of escape.

To change the metaphor, suppose we were, 50 million of us, on the fifth or sixth floor of one of these steel-structure buildings the foundations of which were being undermined and the major girders sawn through. Many societies have vanished in the past and found no recorded or recognisable place in history. But never has this hideous fate presented itself more brutally to so numerous, complex and powerful a community as we are, and never has it presented itself to a victorious nation on the morrow of its triumph in saving the freedom of the world.

Of course, there are politicians who say that it is only by suffering that the people learn, and -that the English people, above all others, insist on buying their experience fresh and new every time. Things, we are told, must get worse before they are better. I am not comforted by this. We may easily get so far downhill that we have not strength left to climb back. In the modern world everything moves very quickly. Tendencies which, 200 or 300 years ago worked out over several generations, may now reach definite decisions in a twelve-month.

I hate to feel the lowered opinion of British strength, will-power and life-thrust, which now prdvails alike in countries we have defeated and in those we have rescued. But, of course, if we go on year after year absorbed in our internal party and class fights, there may never be any chance for the might and glory of Britain to show itself again. Somehow or other we must reach firm ground again and have a Government that is not afraid or unable to do things if they are in the national interest.

I was pondering the other day upon what a difference it would have made to our fortunes if what happened in the 1950 election had happened in the election of 1945. Undoubtedly there would have been a national coalition. The old ties that had bound us together through the perils of the war had not been severed by the rough talk of the election as they have now been severed by all that has since occurred. The task before us was the completion of all we had worked for. We had won the war. We could have won the peace. An equipoise of parties would have been a national mandate for the continuance of the united action which had saved us from destruction. We had a common programme and a far-reaching four years' plan.

But darker fortunes and more harassing ordeals were reserved for our exhausted people. The conditions of 1945 have passed away. It is 1950 now. Great disasters have come upon Britain, both in the economic sphere and in her standing among the nations. With them have grown antagonisms felt on each side by millions of men and women here at home. I do not believe in coalitions that are formed only as the result of party bargainings. It is vain to suppose that anything but a blinding emergency, internal or external, would revive the comradeship of the war-time years, or that an artificial arrangement between party leaders would meet our needs.

Therefore, it is with deep anxiety, into which my personal feelings do not enter at all, that I try to read the mysteries of our immediate future. How deep shall we have to descend the dark stairway which lies before us no one can tell. This should be an awe-striking thought for this new Parliament, so rich in earnestness and quality, so baffled and so bewildered, and so near, apparently, to its latter end. All the more should it be an awe-striking thought when we remember that we are responsible for all the millions of our people who fought so well, who endured so much and who try so hard.

4.41 p.m.

The Minister of State for Economic Affairs (Mr. Gaitskell)

As the right hon. Gentleman the Member for Woodford (Mr. Churchill) has said, we have enjoyed a number of excellent maiden speeches during this Debate, and they have had one great advantage to all of us in that what was said was generally novel and less familiar. I should like to refer only to two of those speeches, because those who made them have been personal acquaintances of mine for some considerable time.

My hon. Friend the Member for Gloucestershire, South (Mr. Crosland) adopted a rather new line in deciding that he could be non-controversial and yet attack the Government. He did, and, to use his own words, he "threw down upon the Front Bench some pebbles." Some maiden speakers on the Opposition side of the House appeared to me to misunderstand this example and to suppose that they, in turn, were entitled to make non-controversial speeches, equally throwing pebbles at the Government. I am bound to say that the proper analogy would be for them to throw their pebbles at the Front Bench opposite, and I hope that in future maiden speeches that course will be taken.

The other speech to which I want to refer is that of the hon. Member for Chelmsford (Mr. Ashton), whom I can remember many years ago as being the first Englishman to make a century against that famous Australian touring team in 1921. Although I myself was singularly bad at cricket, somehow or other I took the greatest possible interest in the play of those who could play. I found myself some years later attending the wedding of the hon. Member, and after that wedding I became a rather close relative by marriage, and I was therefore able to take a certain fraternal pride and interest, though strictly non-political, in the hon. Gentleman's speech. One of the features which unite us here—and I had better say this, because a good deal of what I am going to say will not unite us—is that even relatives who differ politically can agree to enjoy personal friendships.

The right hon. Gentleman the Leader of the Opposition has given us a somewhat familiar speech, and I think that during the election some of these phrases were used, and indeed some of the figures as well. We always enjoy the right hon. Gentleman's speeches, which are perhaps more lively than they are thoughtful, more witty than they are relevant, but always entertaining, and sometimes they entertain those on this side of the House rather more than hon. Members on the other side. We know that because, although the right hon. Gentleman can study the faces over here, we can study the faces on the other side, and occasionally, I must tell him, looks of great anxiety pass over them as he is speaking.

We are interested to find that the right hon. Gentleman describes as the "dissipation of our resources" all the great expenditure on the social services in the last few years. We are interested, too, to discover, after a different opinion had been put forward by other Members on the Front Bench opposite, that the party opposite have evidently decided to oppose the proposals of my right hon. and learned Friend for dealing with the cases of Sir John Black and Mr. Lord. We know that it is their intention to let these two gentlemen get away with it, and we cannot understand why that should be so, if they claim to take the same view fundamentally on this issue as we do. We know, too, that they are anxious to relieve as soon as possible, above all things, the Surtax payer.

I thought the right hon. Gentleman was getting rather far afield with his milch cow illustration. I keep no cows myself—

Mr. Churchill

It is only one of the right hon. Gentleman's examples of self-denial.

Mr. Gaitskell

—but I have always understood that it was necessary to remove the surplus milk from cows at regular intervals. Perhaps the right hon. Gentleman, when he studies the matter a little further, will see how that fits in with his own argument. As for his remarks on wages policy, they seem to me to show a misunderstanding of what my right hon. and learned Friend said on that particular subject.

The main criticism of the Opposition, and the speech of the right hon. Gentleman was no exception to it, has been directed less against the Budget proposals as such than against the general economic policy of the Government and the economic climate in which the Budget is presented. Of course, in view of the generally favourable position of production, foreign balances and employment, they have found it somewhat difficult to criticise, and have resorted instead to the now familiar dodge of threats of disaster, prophecies of gloom and suggestions of wrath to come. These were shown again very clearly in the closing passages of the right hon. Gentleman's speech, but the right hon. Member for Aldershot (Mr. Lyttelton), at an earlier stage in the Debate, put it like this: … it is quite clear that what is waiting for us round the corner are deadly economic perils … It is upon a very precarious foundation of shifting sands that the Government seek to build their economic edifice."—[OFFICIAL REPORT, 20th April, 1950; Vol. 474, c. 338-9.] Although the original Cassandra came to a bad end, the modern disciples of Cassandra are really pretty safe, because I always feel that those who foretell doom have a great advantage; it is only if they are right that people remember what they said, and only if they are wrong that it is forgotten. Those who are more cheerful, on the other hand, will be remembered only when they are wrong and be forgotten when they are right.

The right hon. Member for Aldershot described the balance of payments position as precarious. That was one of the three parts of the infrastructure, as he described it, which he criticised. In one sense nobody would deny that, but we must add the words "precarious as compared with what? "When one turns to the records and considers just how things have changed in this respect, it is impossible not to feel that the balance of payments position is far less precarious than it has been at any time during the last five years, and actually less precarious than it was even before the war.

There can be no doubt—and I think that even the right hon. Gentleman will agree—that the volume of our trade has expanded very substantially in the last few years. I do not want to weary the Committee with figures, which can be read in the White Paper itself. Nor will the right hon. Gentleman deny that the deficit on current account even in 1949 was far less than it was a few years before. We are now in surplus on current account, and we are for the moment in balance so far as our dollar account is concerned. It is a fact that not since 1935 have we had a surplus on current account, and that was the only year between 1930 and 1939 in which that was true.

The third point regarding our balance of payments position to which I would draw attention is this. We have substantially altered the pattern of post-war trade. While our imports from the dollar area have remained more or less stationary, our imports from the sterling area have doubled, our imports from the O.E.E.C. countries have trebled, and, broadly speaking, our exports correspondingly. Therefore, we are now far less dependent than we were a few years ago upon the dollar territories, and that, from the point of precariousness, of security, is surely something in our favour.

The right hon. Gentleman based his argument, as I understood it, largely upon the export of capital. He said that on the basis of having to export £250 million of capital a year, and on the basis of certain assumptions made as regards the terms of trade, it was all very difficult and we would have to get exports up to 170 per cent. of the pre-war volume. Frankly, I would not agree with everything he says there. He assumes that there is to be no increase in invisible exports, although the Survey made exactly the opposite assumption, and I certainly would not say that we must achieve that level of capital exports. But what is he trying to say? Is he suggesting that the Government are to be criticised because he believes we should export capital at a rate far higher than we did before the war? Is that his criticism of the Government, that they are not—

Mr. Oliver Lyttelton (Aldershot)

A higher money figure, but a lower percentage of the national income.

Mr. Gaitskell

Certainly not. At £250 million a year, that could not be sustained for a moment. Indeed, I would like to know where the Opposition stand on this whole matter of capital export. The right hon. Gentleman just now brought forth his usual familiar argument that we had mortgaged the future, that we had borrowed vast sums from abroad; but, at the same time, he is criticising us for repaying our debts too fast. He cannot have it both ways. Either we are accused of squandering our patrimony, as he would put it, in which case he cannot accuse us of repaying debts too fast because both those things move in opposite directions, or we are not. We would really like to know where the Opposition stand in this matter.

Perhaps I might make a few remarks about the specific subject of the sterling balances to which the right hon. Gentleman referred. Of course, everybody knows that the total of these liabilities increased very substantially during the war because of overseas expenditure, because of military expenditure. But it must be pointed out that they existed before the war as part of the sterling area capital fund—if I may use that phrase—and certainly, when adjusted for post-war prices, a large proportion of the present outstanding liabilities would be the currency reserves of sterling area central banks and the trade balances which are held here for the purpose of facilitating commerce. Those individual balances will, in any case, move up and down according to the deficit or surplus in their trade of the particular countries with the rest of the world, exactly like a private individual and his banking account.

I mention this, not because I want to go into detail on technical matters of this sort, but because I think it important that we should realise that sterling balances are not all debts which overseas countries now want to collect in repayment. I doubt whether there would be a desire for a rapid repayment of more than a part—and that a smaller part—of the total liability, according to the movement of trade. As the Committee is aware, where there has been a desire on the part of these countries, we have made annual agreements governing the rate of release. These arrangements have been made public and the figures are known, but I want to emphasise that these decisions to release part of these balances have been made not in order to maintain employment here—it was entirely unnecessary from that point of view—but because of the needs of the countries concerned to rehabilitate themselves.

I cannot see how we could possibly have justified a refusal to allow these countries to draw upon their balances at a time when we had a loan from the United States of America, to begin with, and then Marshall Aid. A refusal to do this, such as has been suggested from time to time by the Opposition, would have undoubtedly created a crisis in the sterling area and might even have led to its complete break up. The other day my right hon. and learned Friend the Chancellor of the Exchequer, in announcing the gold figures, pointed out what a great achievement in Commonwealth co-operation it was that we had all managed to carry out the plan put forward last July at the Finance Ministers' Conference. Can it be seriously supposed that we should have got that co-operation had we taken the line, so often recommended to us, of refusing to allow them to draw down the sterling balances?

Nor can it be forgotten that these countries are mostly in South-East Asia, in the Middle East, in the front line of the fight against Communism, and that in allowing them to draw down these balances we have clearly been assisting our own strategic interests. I was sorry to hear the right hon. Gentleman once again take the same sort of line about these countries. It really does not help our relations with them very much, and as a great creditor nation we really have to be rather careful about what is said on this matter. Well, we have been a great creditor nation and we are a central banker for the sterling area. The right hon. Gentleman knows this perfectly well, and we have to be careful regarding what is said in public. Anything that is likely to give the impression that we repudiate this debt is bound to cause immense damage. Nevertheless, with Marshall Aid declining, we have made it clear that we cannot go on so fast, and we hope to reach agreement on this basis as the existing arrangements come to be negotiated again.

I turn now to another point of criticism by the Opposition specifically mentioned again by the right hon. Member for Aldershot, but also by others as well—our policy on personal incomes. This is what the right hon. Gentleman said: There should not be an economic system which depends for its stability upon two such impermanent, ephemeral and insubstantial policies as wage freeze and dividend limitation."-[OFFICIAL REPORT. 20th April, 1950; Vol. 474, c. 3441 The same line has been taken by other speakers. I do not want to repeat what my right hon. and learned Friend said. It is already clear that the right hon. Gentleman has misunderstood it, and I will leave it to my right hon. and learned Friend to clear up the confusion. But I want to ask, what does the right hon. Member for Aldershot mean by that? What is the Opposition's attitude towards this problem? How would they propose to deal with it? Do they just want to do nothing? Do they want to leave the thing completely open? Because there is not a sentence, not a word, in "The Right Road for Britain" about this extremely important problem. Do they want to allow wages and prices to rise in an inflationary spiral? If not, what is their policy? How do they propose to avoid it? They say they are opposed to our policy. What do they suggest?

I believe there is only one alternative -if they are not prepared to allow a wage-profits inflation to take place-and that is by a policy of deflation, a policy, in fact, which makes this problem nonexistent only because the trade unions are so weak that they dare not ask for an increase in wages. The only way in which to make them so weak is, in effect, to create enough unemployment until that happens. As I see it, that is the only logical alternative. If there is another, perhaps the right hon. Member for Bristol, West (Mr. Stanley), would tell us this evening what it is. What is their attitude towards this vital problem? We recognise that it is the major economic problem of democracy to hold full employment without inflation.

Mr. Molson (The High Peak)

May I ask-because this is most interesting and important-are we then to envisage from this dilemma with which the Minister is attempting to confront us, that the policy of the wage freeze will have to be quite permanent unless and until there is a great increase in unemployment?

Mr. Gaitskell

Certainly not. Our policy has been made perfectly clear by my right hon. and learned Friend. He certainly would not agree, nor would I agree, to the use of the term "wage freeze "in that connection. If we want to keep full employment and avoid inflation we must have some arrangement under which increased earnings, justified by an increase in output, are distributed among the various classes of workers. The Opposition say "No, we do not even want to contemplate this problem. We would rather it were not there at all." How do they propose to get rid of it? We shall have an answer no doubt this evening.

One would conclude, therefore, that as fat as concerns these two dangers, both of key importance—the precariousness in the balance of payments and the personal incomes position—the balance of payments is certainly in far better shape than it has been since the war. As far as the threat to stability by wage-cost inflation is concerned, we say this problem is inherent in our attempt to maintain full employment without inflation; and we say it is better to have a problem of this precarious kind rather than just give it up and have a lot of unemployment.

I turn to the issue of taxation. Here there are two different questions to which we have to address ourselves. First of all, on the assumption that the present level of taxation is to be maintained—which I know is not accepted by hon. Members opposite—do we agree with the changes in the Budget? Secondly, do we think that taxation as a whole should be cut and are we prepared to pay the price? These are the two taxation issues which are raised. I propose to take the first one first, although I recognise that in many ways it is the minor issue. Nevertheless, on the assumption that we believe that it was impossible to reduce taxation without cutting off benefits we value more highly, we face the question whether the changes proposed by my right hon. Friend should have been made or not.

I should like to say a word about commercial vehicles. When the right hon. Gentleman the Member for Woodford introduced the petrol tax in 1928, curiously enough he himself used the term "commercial vehicles" and not "lorries." We are proposing this tax on commercial vehicles not for revenue purposes nor for helping the railways, but simply for limiting investment. Here again I should like to know where the Opposition stand. Do they accept the necessity of imposing some control on the rate of investment?

Do they accept the doctrine in the White Paper on Employment Policy, 1944, which deals with this subject at considerable length?

If there is no control over investment will they agree there is considerable danger of inflationary pressure here? Indeed I can tell them that there is no doubt at all that if there were no control we should have a very substantial increase in the demand for capital equipment. Do the Opposition say the whole of this control must be confined to what is sometimes called the "public sector"? If that is the case, how does the right hon. Gentleman defend his statement that the Opposition intend to go further still with the housing programme when, in fact, the housing programme is the major part of the public sector?

Mr. Churchill

If the right hon. Gentleman challenges me, it is only a fortnight ago that his decision was that 175,000 houses were the maximum. We told him it was possible to go further. He has now gone further. He seems very changeable in these matters

Mr. Gaitskell

It merely bears out the great importance of exercising control over the whole of the investment field and indeed in finding some savings elsewhere. I should like to know what proposals the Opposition are going to put forward if they are opposing this. Here are the figures for investment in this field. In 1948 the programme of investment in these vehicles, lorries and vans, was £35 million and 50,000 vehicles. The actual production and sale in the home market was £59 million and 85,000 vehicles. In 1949 the same disparity occurs. The programme was £35 million, the actual value £72½ million, and in fact twice as many motor vehicles came on the home market as were planned in that programme.

Hon. gentlemen opposite of course do not like planning. They do not like to suggest to private industry how much they should invest. If that is the case how do they propose to impose control at all? One hon. Member suggested we should actually have used physical controls, a rather surprising suggestion coming from the Opposition. We have tried to deal with this problem on that basis over the last two years. I should have expected the Opposition to welcome our attempt to deal with this problem by fiscal methods. I ask the right hon. Gentleman the Member for Bristol, West, to think this over and give us an answer this evening. It may be that they take the view that if the whole position were less inflated we would not have this demand. Perhaps they want general deflation, and disinflation on a stronger scale than we have now.

Mr. David Eccles (Chippenham)

If it be that the makers of these vehicles cannot sell the whole of their output abroad, I suppose the Government intend to direct the industry. What is to happen to production if they are not allowed to sell at home and cannot sell abroad?

Mr. Gaitskell

We are satisfied they can sell a good deal more abroad. It is worth pointing out that the motorcar industry, which has a very much higher proportion of exports than this industry, is an industry where there is a 33½ per cent. purchase tax. The right hon. Gentleman has told us that, just like the problem of personal incomes, this is another problem the Opposition would rather were not there. They would like to avoid it. The only way they can avoid it is by disinflation on such a scale that the demand will not be there for the lorries.

I should like to say a word about the Petrol Tax. I see the right hon. Gentleman the Member for Woodford is leaving the Chamber. I hope he will be coming back, because at this point in my speech I am going to refer to him.

Mr. Churchill

I was not intending to be away very long.

Mr. Gaitskell

I am most grateful to the right hon. Gentleman. I will not detain him very long either. This tax, of course, is in contrast to profit revenue. It is in fact to finance reliefs in income tax. Logically, if the Opposition vote against this they will also be voting against the proposed changes in income tax.

Mr. Churchill

Why?

Mr. Gaitskell

Because that is the reason for bringing it forward. I find on looking up the history, that the Petrol Duty introduced by the right hon. Gentleman himself in 1928 at 4d. a gallon was to provide money for the derating of industry. It was defended by him—he probably recalls the situation—partly on the ground that oil was an import competing with the basic industry of coal which was in a bad way. I do not think we need worry about that one now. He also defended it partly because of the desire of the right hon. Gentleman to help the railways which he undoubtedly felt were suffering from unfair competition. I will refresh his memory by reading out what he said on this subject in introducing his Budget. He said: We have only a limited fund of capital to employ every year in every direction,"— as a matter of fact it was not true then; it is true now— and it would not be in the public interest—and this is one of the foundations of my argument—to spend in the next few years several hundreds of millions of additional money upon our roads, apart from the present grants upon the roads, if the result were to render artificially and prematurely obsolete the splendid British Railway systems which represent a thousand million pounds of national capital, and afford employment to nearly 700,000 men."—[OFFICIAL REPORT, 24th April, 1928; Vol. 216, c. 856.] To avoid any misunderstanding I must make it plain once more that that has not been the motive so far as we are concerned. I may say that the right hon. Gentleman at that time did not seem to have much anxiety about the effect on industrial costs. The person who showed most anxiety was Mr. Snowden, and he opposed this duty but it did not prevent him when he became Chancellor a year or two later from twice increasing it, first of all in the early part of 1931 in one Government and then in the latter part of 1931 in another Government. So it certainly has a very respectable ancestry. One can say that it had the full support of both political parties in the past.

Of course, we recognise that the increase in the Petrol Tax is bound to put up some costs in some industries, but we are satisfied that substantial economies are possible particularly in road transport, and there can be no doubt at all that the remarks of the right hon. Gentleman and others on the effect on fares are greatly exaggerated. I will repeat the figures which my right hon. and learned Friend gave. The general increase in the duty will put up costs in road transport by 4 per cent., and that cannot be regarded as exceptionally high. I should like to know whether the Opposition really object in principle to the Petrol Tax. I noticed that the right hon. Gentleman used that phrase. It seems a little odd, seeing that he was the originator of this particular tax, that he should now be objecting to it in principle.

Mr. Churchill

I was objecting in principle to the imposition of additional taxation at the present time in lieu of making economies.

Mr. Gaitskell

The right hon. Gentleman also said that he objected to this tax in principle. I am sure he will find that he said that, because I was listening very carefully at the time as I knew quite well the history of it. Are the Opposition then to say that in other circumstances they think it would be appropriate to put up the tax? We now understand that they are not opposing it in principle. Do they say that there might be circumstances in which it might be increased?

Mr. Churchill

Certainly. I do not say that the Government should cut themselves off from such a source of revenue in the future. But I say that at this particular moment they have no right to impose fresh taxation, and they ought to find the money for remissions from economies in this vast expenditure.

Mr. Gaitskell

We will come to the economies in a moment. The fact is that the case for an increase in the Petrol Duty is a very powerful one, and I am certain that a number of hon. Members opposite recognise that. They know it is a dollar import. They know nothing has been put on to this tax since before the war, so that in proportion to national income or any other index one may like to take, it is much lower. The Opposition know that the cost is still very low in comparison with other countries, and they know too that it is in practice—I have always admitted this—extremely difficult, if not impossible, to ration commercial vehicles by the coupon system.

I turn to the more general issues of taxation. I am not going to deal with the suggestions put forward by the right hon. Member for Leeds, North (Mr. Peake), that we could, in fact, afford a reduction in taxation without reducing expenditure, because somehow or other it would be balanced by increased savings. I do not wish to get the right hon. Gentleman on to his feet. I am not going to deal with that. If I misunderstood him he need not worry about it because—

Mr. Osbert Peake (Leeds, North)

I really must interrupt the right hon. Gentleman. I did not suggest that he could do this. I said that a Conservative Government could do it.

Mr. Gaitskell

That seems to me to be hardly a difference that can be applied in this instance, though it might well be applied in other cases. I shall not deal with it, because with the exception of the right hon. Gentleman and perhaps my hon. Friend the Member for Gloucestershire, South, most of us recognise that one cannot and should not reduce taxation unless expenditure is reduced. That is a proposition which by and large is accepted in the Committee generally.

Of course, the great attack of the Opposition has not in fact been on the Budget. It has been on expenditure. As the right hon. Gentleman said, in their view only by cutting expenditure can we get reduced taxation. I am bound to say that the Opposition still decline to give us very much help in this matter. The right hon. and learned Member for Montgomery (Mr. C. Davies) suggested that it is for the Government to produce proposals because Private Members do not know the details. All I can say is that Private Members have no difficulty whatever in putting forward proposals for increasing expenditure on every possible occasion, and I cannot see that there is any inherent difficulty in their putting forward serious detailed proposals for cutting expenditure.

Yet the fact remains—and hon. Members know it perfectly well—that on every Supply Day we have speech after speech putting forward arguments not for decreasing but for increasing expenditure. It is not confined to this side of the Committee either. The hon. Member for Chippenham (Mr. Eccles) referred to some remarks by two of my hon. Friends during the Debate on the Supplementary Health Estimates. He will recall the passage in his speech. I would like to point out to him that demands for increased expenditure on that day, with a Supplementary Estimate of £99 million under consideration, came just as much from hon. Members opposite. One, I think, indeed suggested that we should have to spend another £200 million on the National Health Service. It really is no use their trying to evade this issue.

The same thing is true on Defence, housing and education.

The plain fact is that this issue is a policy one. It is a political issue. I know that some hon. Members realise that. The hon. Member for Chippenham made it perfectly plain in his speech, and the same applies to the hon. Member for Flint, West (Mr. Birch). They realised that this was a political issue, a policy issue, and that there had to be some degree of facing up to it on the other side. As for the right hon. Gentleman and other hon. Members, we still await anything at all precise in the way of proposals which might deal with' the situation.

There are two great issues which transcend all others in importance in this Debate, and which are at the heart and core of our economic and budgetary policy. First, should we take as our aim the full employment of our people—[Laughter.] An hon. Member laughs; I hope he will listen—in the sense that that phrase has come to be understood in these last few years when unemployment has remained for the most part between 300,000 and 400,000—below half a million? Secondly, should we accept that great system of social services, which has come to be known as the welfare State, with all that it necessarily implies in the way of high taxation and redistribution of income? These, I suppose, are the two great issues of our economic policy today.

The attitude of His Majesty's Government to both questions is abundantly clear. As to full employment, our policies and our record, so much attacked by the Opposition, prove not merely our acceptance of this aim but its achievement. We have deliberately set out, while gradually diminishing the extent of inflationary pressure, to ensure that the level of home demand was adequate for full employment. We have refrained from carrying out a policy of severe deflation which has been again and again enjoined upon us by the Opposition.

We accept the implications of this policy, that it does involve the maintenance of certain controls—for example, over building, investment and some materials which are still scarce. We accept that at present it requires the continuance of rationing of some commodities which might not be necessary if wages were lower and unemployment was greater. We recognise that it creates a most difficult problem in the sphere of personal incomes where obviously the power of the Government to prevent inflation is necessarily much less. We accept all this, because we believe not merely that unemployment and the threat of unemployment is one of the greatest single causes of unhappiness, but also because in our view the productivity of industry, on which after all our whole standard of living ultimately depends, can be increased most rapidly in an atmosphere of economic security.

As for the welfare State, we believe not merely that what has been achieved there is desirable—most people accept that—but we believe that it is worthwhile, despite the cost. Of course, this does not mean that we should not ensure that we get the best value for the money which is spent nor that we should not constantly be looking for every possible economy which leaves the structure intact. We recognise, too, that we have travelled fast and far in the last few years along this road and that for the time being no further substantial advance can be afforded. We must wait until our national income is higher, from higher productivity, before it can be afforded. But we believe that what has been done so far is right, that the country desired it and that we can afford it. We do not propose to put the clock back.

What is the attitude of the Opposition on these great issues? One thing at least is clear—that their attitude is far from clear. They are divided. They are split. They speak with different voices. Some say one thing and some say another, and not a few contradict themselves. Of course, in public most pay lip service to both these ends, but they do not will the means. They do not accept the consequences of those ends. They say they want full employment, but on every practical issue, whether it be on wages, on investments or controls, they go out of their way to attack the use of the very instruments which are necessary to its achievement.

Half the time they are back in their dream world where, as they put it, we would no longer be pressed against the ceiling, where there were ample margins, reserves of unemployed labour and where that dreadful word "priority," which is the product of full employment, was never heard. It is just the same with the welfare State. They try to deceive themselves and others that they can have their cake and eat it. Just as they pretend that full employment can be had without controls against inflation, so they make believe that there can be, here and now, substantial reductions in taxation without cutting, indeed combined with the expansion of, the social services.

They must face the choice. Some are doing so; they have already referred to it and they wish to see their party do so. It is quite clear from the speeches of the hon. Member for Chippenham, the hon. Member for Flint, West, and some others that they do not, in fact, believe in these ends. They believe we ought to have more unemployment. They are quite entitled to that view. They want to cut the social services. They want to do these things perfectly sincerely because they believe that a reversal of present tendencies is necessary for the country. As I say, that is a perfectly legitimate opinion to hold. At the other extreme, I venture to say, within the Conservative Party there are some who know that our policy in this matter is right and who are prepared to pay the price for it. They can say nothing, because they have no serious criticism of the Government to offer.

Between these two extremes there is the great amorphous mass of Conservative opinion, with its near-Socialist slogans which it does not understand, with its heart away back in the past, and led by one who has all the charm but also all the limitations of Peter Pan, who never grew up.

Mr. Oliver Stanley (Bristol, West)

He pulled you through the war.

Mr. Gaitskell

Thus divided, where will they go; on what will they stand? Will they have the courage and the consistency to say that they do not accept full employment as we have defined it? Will they have the courage openly to attack the welfare State? If so, we accept the challenge; we will fight it out and, in due course, the people shall decide on this clear cut issue.

Or—and this, I am afraid, is the most likely—will they evade the issue, will they try once more to impose upon the country their great act of political chicanery; will they try to make the people think that they need not pay the price of the Tory programme in higher unemployment and reduced benefits? I believe profoundly in the political maturity of the British nation and in their refusal to be gulled or lulled by any political party. I may say that if that is the course chosen by the Opposition, then they will get what they deserve—not merely defeat, but defeat with dishonour.

5.25 p.m.

Mr. Molson (The High Peak)

Before I begin to reply to the arguments which the right hon. Gentleman has advanced, I should, if I may, like to say that there was one passage in his speech in which I thought he fell below his standard. To refer to the right hon. Member for Woodford (Mr. Churchill) in a disparaging way, as one who has never grown up, is surely hardly what we should expect. Had he put it in another way and said that, at 75, my right hon. Friend shows an extraordinarily alert mind and still possesses a great deal more vitality than many people half his age, then I think he would have been paying a more proper tribute to the perpetual youth and vigour of my right hon. Friend.

In the few moments for which I intend to detain the Committee, I wish to take up the two main points upon which the right hon. Gentleman sought to challenge the Opposition. He asked do we accept the objective of full employment and do we accept the welfare State? He twitted us with those slight differences of opinion and emphasis which exist in all vigorous and vital parties, such as our own, and which have frequently been seen in his party. In view of the fact that the White Paper on Employment Policy was issued during the war and was the work of a Government presided over by my right hon. Friend the Member for Woodford, the answer clearly is that we do accept it.

Mr. Gaitskell

May I ask the hon. Gentleman whether he takes the view that the level of unemployment presupposed in that White Paper is one which he would support?

Mr. Molson

I know very well the point which the right hon. Gentleman is making and my answer is that I do not believe it is likely that the present extremely low figure of unemployment can permanently be maintained.

Mr. Gaitskell

Would the hon. Member attempt to maintain it?

Mr. Molson

Most certainly we should attempt to maintain it, but I would point out that it is a matter of how it is to be maintained. Let me, for example, point out that even under this Government of planners the coal crisis of 1947 resulted in a very great deal of unemployment at the time.

Mr. Gaitskell

For two weeks.

Mr. Molson

Further, if the policy of increasing exports sufficiently to be able to balance our payments failed—and it is a policy which I support—then it would not be possible to maintain full employment, even if this Government were in office.

I want to turn to what I believe to be the underlying fallacy of the policy which this Government have followed. I do not believe that there are the necessary savings in this country at the present time to enable the present economy to be maintained and developed in the way which is necessary. This is a point which I have made for three years in this kind of Debate. Last year I was not fortunate enough to obtain a reply from the present Financial Secretary to the Treasury. It was when the present Minister of Town and Country Planning was Chancellor of the Exchequer that I first asked, in a Budget Debate, where he thought the savings could be found for the great programme of capital developments in the coal, steel, electricity and gas industries and on the roads, and I quoted the Government's own estimate of what that programme would need to be.

Now we find that for two consecutive years the Economic Survey has given a figure of what it was hoped that personal savings would be. In both these years it was pointed out that the figure was not to be regarded as an estimate of the volume of personal savings which would be required if inflation were not to ensue. As was said in the Economic Survey last year: The figures of personal savings are balancing items: that shown for 1949 is not a forecast, but depends on the assumptions made about the other items. I hope that before this Debate ends, we may have an explanation of the extraordinary change in the figures of personal savings given in the Economic Survey this year and last year. Last year, in Command Paper 7649, it was stated that the personal savings in 1938 had been £221 million; that in 1948 they had been £220 million. So that, despite the immense increase in the national income, the proportion of the personal disposable income saved was in that Economic Survey taken to have fallen from 4.9 to 2.7 per cent. In the Survey this year these figures have been corrected, and it is now said that the savings in 1948 were £409 million and in 1949 £427 million—that is, an increase of nearly 100 per cent.—showing how unreliable all these figures are.

The conclusion the Government derive from that is that the proportion of personal savings now, under the present burden of taxation, is the same as it was in 1938. Now, I venture to say that I should be very much surprised indeed if the volume of savings were as great as it was before the war. First, the rich at present cannot save with Income Tax and Surtax as great as they are. That, I think, will hardly be disputed by the Government. Indeed, I believe it is one of their objects of policy to transfer incomes, so that the rich cannot save. Secondly, the rich have no inducement to save when Death Duties are as high as they are, and when there was the Special Contribution two years ago, when last year—I am sorry to see that the Financial Secretary has gone—both the Chancellor of the Exchequer and he were at pains to say that, although the ceiling might have been reached of taxable income of the rich, there was still a large amount of capital which would be available for taxation. That idea was repeated by the hon. Member for Stechford (Mr. Jenkins) in the course of this present Debate.

I wonder whether the Chancellor, when he gave the analogy of the bees who were improvident and consumed their honey before winter came, may not have thought that, if they knew that the beekeeper was going to remove a large amount of that honey himself during the summer months, the bees took a mere step of reason and precaution in consuming those sweet things themselves instead of leaving them to the bee-keeper to remove.

Finally, so far as personal savings are concerned, we come to the relatively poor, and there, as the Chancellor of the Exchequer himself pointed out last year, £68 million more were withdrawn from the small savings than were paid in. Therefore, I say that I should have thought that it was unlikely that the volume of personal savings was still 4.9 per cent., or the same as it was in 1938. I said last year, and I say again now, that if the Chancellor's financial and economic policy is based upon the expectation of substantial personal savings, then the whole of the financial policy of this Government makes it unlikely that that expectation will be fulfilled.

In effect, what we have been now obliged to do because of the—as I believe—great decline in personal savings is to rely to an increasing extent upon company undistributed profits. I welcome the change of attitude on the part of the Chancellor of the Exchequer since last year. Last year he said, on 18th May: One of the reasons why prices are so high is because profits have been so frightfully high over the last few years."—[OFFICIAL REPORT, 18th May, 1949; Vol. 465, c. 563.] He went on to give a figure of the profits; but it was a figure, in fact, which was quite meaningless because he did not state upon what total capital or upon what turnover those profits had been earned. This year the attitude has changed, and the Chancellor gave an interesting calculation in which he pointed out that some three-quarters of the gross profits were already being utilised for essential purposes which otherwise we should have to finance in some other way.

I should like to ask the Minister of State how it is that in the Chancellor's Budget Statement he expected there to be larger company undistributed profits. He has based his expectation upon there being larger undistributed profits—and that in spite of the fact that he said earlier in his speech that in the middle of last year the rise in the graph of company profits had come to an end, and that we could not expect a further increase in profits; and the recent figures I have seen in the "Economist" and elsewhere show that company profits are declining. Would it not, therefore, have been wiser for him to have reduced the tax upon undistributed company profits, which, ex hypothesi, companies will use either for the modernisation and expansion of industry or in the purchase of gilt edged securities, which tend to make those savings available for other productive enterprises?

It is because we on this side of the Committee believe that the savings of the country are really inadequate at the present time to maintain and to develop and to expand and to modernise the industrial system, and to carry out the necessary social development, that we criticise the level of taxation as it is. The effect of devaluation, and the consequent increase in the price of raw materials, surely means that companies are going to require larger working capital as a result of that increase in prices than they required before; and I should have thought it would have been undisputed that the general effect of this burden of taxation upon industry at the present time is to cause a steady depletion of the working capital of industry.

Again, the cost of replacement of worn-out machinery is now three times the cost of machinery acquired before the war. While I am glad to know that there is a committee looking into this matter of depreciation, it is manifestly impossible for industry, bearing this burden, to replace machinery bought before the war when still, and despite the concessions made last year, the maximum of the depreciation allowance is the price that it originally paid for the machinery.

When we are considering the welfare State, we say to the Government that, while we desire as much as the Government to maintain and preserve this welfare State and these social services—which, after all, were originally outlined during the war in a memorable broadcast speech made by my right hon. Friend the Member for Woodford—we desire to be realists in this matter, and that it is futile simply to go on saying, as do the Government, that we insist upon maintaining this great, costly and admirable structure unless it is financially possible to do so.

One more point and I have done. The Chancellor referred to the considerable deterioration in the terms of trade that has taken place since devaluation. I have myself referred several times to the likely trend of the terms of trade, and I regret the general optimistic, and indeed complacent. tone of the Govern- ment speeches about our balance of payments. There was a very remarkable article published some two years ago by Professor Arthur Lewis in which he analysed the terms of trade. Taking 1913 as 100, they were up to 140 in the 'thirties; they then fell in 1946 to 131, and in 1947 to 122.

In the light of what the Chancellor has now said, I have had a calculation made as to how they are moving, and they are moving very fast against us at the present time. In September, 1949, they had slightly improved to 125.7; but by February, as a result of devaluation they had fallen to 113.9. They may fall very much lower, because in 1908 to 1913 they were 97, and in 1875 to 1883 they were as low as 84. Now there are no new virgin prairies to be developed for the production of food overseas, and with an increasing demand for raw materials of all kinds import prices will probably rise; at the same time, with the return of Germany and Japan and other overseas producers into competition with ourselves, I believe that there is likely to be a downward trend in the price we shall obtain for our manufactured goods.

I therefore believe that from the point of view of our export trade, as well as from the point of view of our finances, the 'fifties of this century are likely to be more difficult than the 'forties. I believe that this present burden of taxation can only be precariously maintained as long as the conditions are as favourable to us as they are at the present time—and they are extremely favourable. We have still only incipient competition overseas; we have high activity in the United States of America; we have the stimulus from devaluation; and we have, as I think is the case, the use of sterling balances to stimulate exports. But these conditions will not continue. There may be a recession in the United States of America; there will be higher costs as a result of devaluation; the buyers' market is rapidly disappearing, and some of our industries, like the shipbuilding industry, cannot expect a general continuation of the present rate of activity.

In the 'twenties it was, I think. Monsieur Andre Siegfried who said, in comparing France and Britain, that while the national budget of France is always in chaos the budget of most Frenchmen is well balanced, whereas in the case of Britain the national budget is always perfectly balanced but often at the cost of the chaos of the budgets of private individuals. I say to the Government that this present level of taxation by which they are still, in favourable circumstances, able to balance the national budget is only being done at the cost of depleting the reserves and the resources of industry; that an increasing number of people in this country have lost all belief in the virtues of thrift; and with the level of taxation and expenditure by the Government maintained as it is the budgets of the people of this country are becoming more and more bankrupt.

5.46 p.m.

Miss Burton (Coventry, South)

In the short time available to me today I want to develop a point made by the right hon. Member for Saffron Walden (Mr. R. A. Butler) last week when he spoke about fundamentals. The right hon. Gentleman said: 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."—[OFFICIAL REPORT. 19th April, 1950; Vol. 474, c. 146.] That, I think, is a contention which would not be disputed by either side of the Committee. But listening this afternoon to the right hon. Gentleman the Leader of the Opposition, it did seem to me that at the next General Election there really would be no need for separate parties; that we should have both sides of the House fighting with a Labour policy. Now that, I am sure, would be repudiated very heartily by hon. Members opposite as much as my hon. Members on this side. I therefore thought we might try to see—particularly as the Opposition intend to put this matter to the vote on Wednesday