§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR (VISCOUNT SIMON)
My Lords, I move the Second Reading of the Finance Bill. As Finance Bills go, this is not a very long Bill. It contains fifty-two clauses and five Schedules, but it will not be the wish of the House that I should attempt to explain the provisions of the Bill in any detail. In looking through the Standing Orders of this House to-day, I was interested to find that Standing Order No. XXVIII prohibits this House from "taxing speeches," but I apprehend that there the word is used in a different sense from that which we have to bear in mind in discussing the Finance Bill, and I am not entirely relieved from making a few remarks upon the Bill. It would seem to me that it may be of interest to the House if, quite briefly, I attempted in the light of this Finance Bill to make a short survey of our war finances.
This is the fourth Finance Bill of the war, embodying the fourth war Budget, and in order to get the correct perspective we have to look at the successive efforts as a whole. In brief retrospect I think the lines of our war finance from September, 1939, have been very plainly shown. In the first Budget, the emergency Budget which I had the honour to introduce in another place after some three weeks of war, we had an unmistakable warning that the financial demands of this war would be tremendous; but at the same time a recognition that there was need for some time to adjust private commitments and standards of life, all the the more so because even before the war the rate of taxation was exceedingly high. I remember that in the debate which took place in this House on that emergency Budget one or two prominent speakers inclined to the view that there had been too steep and too swift an increase in the rate of Income Tax, which went up to 7s. 6d. in the pound.
Well, my Lords, a severe operation looks very much less alarming in retrospect 645 than when it is to take place in the immediate future. Though it may be that then the taxpayer was scourged with whips, there is no deubt that he now has to endure the assault of scorpions. The first Budget and the second must be read together because an announcement was made at once that the rate of Income Tax would be at 7s. 6d. in the pound for some time—indeed it was enacted for most of 1939. When you come to April, 1940, you complete a plan which involved the imposition and collection of new taxation, additional taxation, amounting to £300,000,000 a year. These figures sound quite puny and frivolous now, but £300,000,000 extra taxation is, in itself, a stupendous sum. By July, 1940, the face of the war had changed. The suddenly increased tempo of war production and expenditure required a correspondingly intensified sacrifice by our citizens, and higher taxation 111 the third Budget, to the amount of £239,000,000 a year, was enacted together with of course, increasing restrictions on the materials and services which were available to consumers.
Now we come to the fourth Budget contained in this Finance Bill. As war production reaches ever higher and higher stages of development, as the volume of war materials to feed it swells, and as the goods available for civilian consumption consequently shrink further, we get closer and closer to grips with what is the pinch of the whole problem—the; problem of avoiding inflation. Indeed I think you may say that the keynote of the Budget to-day is rot so much what amount of money we have to provide, but how we shall provide it, for whatever the amount may be, provided it must be. The real Budget problem is to raise the money in the manner best calculated to protect our economic and social life, now and in the near future, from the insidious and destructive malady of inflation.
Some of your Lordships may recall that in February last we had a debate on this aspect of the matter in which several noble Lords whom I see here took part and in which I endeavoured at some length to deal with the problem. As every well instructed person now understands, for war is a great schoolmaster, the danger occurs in the impact of rapidly increasing purchasing power upon a rapidly diminishing supply of goods and services, and the contribution which the Budget and the 646 Finance Bill and the financial policy embodied in the Finance Bill must make towards averting this danger is—I think I am using the words used by the Chancellor of the Exchequer in his Budget Speech—to abate the torrent of purchasing power which would otherwise flow towards available supplies. In other words, the Budget task is to ensure that the vast and increasing total of Government expenditure, so far as it is laid out in this country, does not remain in the hands of citizens as increased purchasing power, and this is achieved when a compensating amount returns to the Exchequer either by way of taxation or by way of loan.
That being the principle that lies behind this enormously important financial policy, let me remind your Lordships of a White Paper, a most notable innovation in the Parliamentary exposition of finance, which was issued for the first time this year at the time of the Budget—it was "Command Paper No. 6261—which analyses the sources from which our vast expenditure was financed in the first eighteen months of war. It is a technical analysis and a complicated analysis, though I think most people would find it a very interesting document. It was on the basis of the material provided by this means that my right honourable friend the Chancellor of the Exchequer in his Budget Speech was able to say—it was a deliberate opinion which he then expressed—that the difference between total expenditure and Budget revenue had not, he considered, so far introduced inflationary dangers into our system. That is a very important proposition. If it is correct, it is a very comforting proposition. It does not in the least excuse any of us taking our eyes from the constant duty of watching any change in the elements which affect the rise of inflation, but it is particularly interesting to me and to others who took part in the debate last February when, not unnaturally, some prophecies as to the imminence of serious and very large inflation this year were brought to the attention of your Lordships' House.
That is the background and, while I would not dream of inflicting upon your Lordships many figures, possibly two or three figures may be interesting in order to remind your Lordships how these totals now stand—not indeed that any one of us can comprehend what any given total means, but we can at least compare the 647 size of one total with the size of another. What is the total expenditure which it is estimated will have to be met in this current financial year? Using the roundest of round figures the answer is £4,200,000,000, which has to be raised somehow or other. Let us see what can be taken away from that formidable total before we approach the proceeds of taxation or a loan. This element must not be omitted. Some of this enormous expenditure will be covered by borrowing growing balances in this country which the Dominions and other overseas suppliers have accumulated in payment for the supplies which they have made to us. They have in this country credits for a certain amount. That amount need not be raised by domestic loan or taxation, it is available without burden to us, for the time being, and the amount so covered is estimated at about £500,000,000. Let us take away this £500,000,000 from the total, and that leaves us with £3,700,000,000, of what I may call "domestic expenditure"—rather a convenient short phrase that is coming into use to denote expenditure to be covered by domestic loans or domestic taxation.
Towards that £3,700,000,000 how much is going to be got by the yield of taxation? I take first taxation as it stood before the last Budget, when Income Tax stood at the modest figure of 8s. 6d. in the pound. Approximately, the taxation which was ruling in this country before the last Budget would have produced £1,600,000,000 and it was estimated that the rate of savings current at the time of the last Budget would result in Exchequer receipts, as it happens of the same amount—£1,600,000,000. Putting these two things together you had, therefore, £3,200,000,000 as it were in hand or in sight when the bill to be met was £3,700,000,000. Now it is the difference between these two figures—that is, the critical £500,000,000—which is the thing that matters to-day. If you do not meet that by effective means now, then indeed you are on the high road to inflation, and one of the great inconveniences of inflation is that it is like riding downhill on a bicycle without a brake. You may be able to control the machine for a certain distance, but if the slope is steep enough there comes a moment when you control it 648 no longer, and it will run away with you. That is profoundly true of this danger of inflation. When I say savings were calculated to produce £1,600,000,000 I am including savings by public authorities ! and corporations and savings by private individuals. It is perhaps convenient here to say that probably something less than half of the £1,600,000,000 was estimated to be made up out of the private savings and investments of individuals.
Now I return to the £500,000,000 which is the key to the whole matter. I am quoting the language used by the Chancellor of the Exchequer when he described this £500,000,000 as a figure which, from the point of view of inflation, is "the potentially dangerous gap, to the closing of which we must bend all our energies." Manifestly, there are two resources to be examined. One is taxation—can we do better from taxation this year than we did last year? Then there is the amount to be raised by loans. The whole country owes an enormous debt to my noble friends Lord Kindersley and Lord Mottistone and others for the continuous work which they have done to bring the country to its sense of duty on this head. In view of the trend of savings figures, the Chancellor of the Exchequer judged that there was good ground for expecting in the new financial year, 1941–42, savings to produce £200,000,000 to £300,000,000 more than the previous figures, and substantially, if that increase is secured, it will be found out of the genuine savings of private individuals. The future will show whether that estimate is justified. I believe that I am right in saying that up to the present there is reason to think that it will be jusified, though of course no precise figures are, as yet, possible.
Therefore, facing this £500,000,000 which has to be obtained somehow or other, you have got £200,000,000 to £300,000,000, apart from what is to be obtained by the imposition of further taxation. As your Lordships well know, and as the country as a whole well knows, very stiff extra taxaton has been imposed as well. It seems, perhaps, a little extraordinary that such efforts have to be made to produce what is, as compared with the gross total, such a comparatively small fraction. The truth is that you cannot get out of our population, or out of any population, enormous increases of taxation without the most prodigious 649 exactions. The Budget proposals are designed to produce in a full year £250,000,000 extra. That is the effect of running up the Income Tax to 10s. in the pound, of the increase in what is called the "reduced rate," of the reduction in the allowance for earned income, of the reduction in personal allowances and in the exemption limit, and of the alteration of the basis of assessment of farming profits. That is in a full year; but, of course, as everybody knows, in the first year in which the Income Tax is raised—and this is true of some other taxes also—there is not a full year's yield, and in the year of which we are speaking, the present year, the amount which is expected to be raised additionally out of the Budget taxation is about £151,000,000. If the fiscal year ended in midsummer instead of at the end of March, the figure would be a larger one. I do not know that very great importance is to be attached here to the minutiae; the broad proposition is that the bold proposals of the Chancellor of the Exchequer bid fair to meet this £500,000,000 of deficit which must be met in this year. I will not delay the House on the minor changes in taxation which are proposed.
There is an interesting proposal to credit to the taxpayer after the war the amounts now involved in the reduction of Income Tax allowances. In the same way, there is an interesting provision for making available after the war and on certain conditions twenty per cent. of the Excess Profits Tax which is paid. There is also a most ingenious and remarkable set of provisions, introduced into the Finance Bill not at the time of the Budget but later, which in effect provides that where anyone has by covenant or by bequest, made before the war, provided an annuity in the recipient's favour which is to be paid free of Income Tax, such pre-war annuities are to be understood as covenants or bequests to make the payment free of Income Tax at 5s. 6d. in the pound, and the balance is to fall on the recipient, notwithstanding that the language of the covenant spoke of the payment being made tax-free.
I have endeavoured in these few words to present to the House, in as clear a fashion as I can, a general view of the financial effects of the Bill, without going into details. There is, however, another side to war finance, another side to the 650 Finance Bill, which is just as important as the taxation side. The operations of the Chancellor of the Exchequer, like the quality of mercy, are twice blessed; and, while we concentrate attention through the Finance Bill on taxation, do not let us forget the complementary effort that the taxpayer, in his other capacity as a saver and a lender, must make in what I may call the Battle of the Budget. If you were to have these enormous sums raised and spent in these islands—at the cost, of course, of tremendous fiscal burdens imposed upon the taxpayer—you would not really meet your problem at all unless at the same time you had adequate arrangements for securing that those who received increased remuneration under war conditions, and some who did not receive increased remuneration, joined in the battle against inflation and against the dangers which inflation holds not only for our social and economic life but consequentially, and it may be at no distant date, for the further intensification of our war effort. The Battle of the Budget, therefore, has to be fought on two fronts, and it will not be won unless the country's magnificent past achievements in saving and lending are not only sustained but improved.
I have been consulting my friends at the Treasury, and they tell me that the savings of private individuals in all forms and by all channels must in fact be increased by a third over those of the latter half of last year. On the average we must get by this means £4 instead of £3, and so on all along the line. It is too soon yet, of course, to say how far that goal will be achieved, but it does appear to me, from what I have seen of the spirit of the country in a great number of War Weapons Week meetings, from the reports which I have the good fortune to read from time to time from Lord Kindersley's Committee, and from the reaction as one observes it in the ordinary man or woman whom one meets, that there is every ground for believing that on this side too the Battle of the Budget can be fought and won. We are dealing in this Finance Bill with figures which are almost past human comprehension. This Finance Bill sets out to exact from the people of this country a far greater sum than they have ever found before in peace or in war. Is there one of us who has the smallest doubt in his mind that it will be done? It is part of the 651 contribution that every one of us is willing to shoulder in order to help to produce victory for freedom not only for ourselves and for our own country but for the whole of the habitable world. I beg to move that this Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
§ LORD ARNOLD
My Lords, the noble and learned Viscount has, I am sure it will be agreed, moved the Second reading of the Finance Bill in a comprehensive speech. I have been told on good authority that the noble and learned Viscount is sick and tired of hearing his speeches described as "lucid," and therefore I shall not use that word, but will say that he has put the financial position before your Lordships with great clarity. I think that this Finance Bill may in general terms be described as a good and courageous effort to meet an unprecedented position, and in my view the Chancellor of the Exchequer is entitled to most of the bouquets which he has received, and he has received a great number. I am not sure, however, that he is entitled to them all. As I see it, the most notable feature of this Finance Bill is that it docs, according to the Chancellor of the Exchequer and according to what the noble and learned Viscount has said, present what may be called, taking everything into consideration, a balanced Budget.
There has been much discussion from time to time in your Lordships' House about what is called the "gap," the difference between the total war expenditure and other expenditure—the total expenditure of the Government—and the receipts of the Government from taxation, new savings and so forth. In his Budget speech the Chancellor of the Exchequer spoke very frankly about these matters. He estimated that he has bridged the gap, at any rate for the future. That means that he sees his way to meet what he calls, and what the noble and learned Viscount has called—it is a very fair description—a "domestic expenditure" of £3,700,000,000. That really is the figure with which we are mainly concerned. He sees his way to meet that by the yield of taxation, and by new savings and so forth. It may be so, but I must emphasize not once, but again and again, 652 that the estimate of £3,700,000,000 for domestic expenditure is certainly not excessive. In fact, good fortune will be with the Chancellor if it is not exceeded. If it is exceeded, and in so far as it is exceeded, there is only too much reason to fear that some gap (will come into being. The trouble, as I see it, is that the Chancellor of the Exchequer has left himself very little margin.
I am not going to discuss in detail the taxes of the Budget. The noble and learned Viscount said that he found a rule in your Lordships' Standing Orders to the effect that "taxing speeches" are not permitted. I was under the impression that the phrase was "teasing speeches," but I have no doubt he is right, and that that does not apply to finance. Under the Parliament Act of 1911 power to reject the Finance Bill was taken away from your Lordships' House, but it was made quite clear that the function of discussion was left to your Lordships' House, and indeed it was expected that it would be employed. May I just say a very few words about the changes in the Income Tax, because some very striking figures emerge from that? The Chancellor of the Exchequer reduced some of the allowances which affect all Income Tax payers. He reduced the personal allowance for married people from £170 to £140 per annum; and for single persons from £100 to £80, and earned income allowance is reduced from one-sixth to one-tenth. Actually these three changes alone will bring the Chancellor £125,000,000. The increase in the standard rate of the Income Tax from 8s. 6d. to 10s. will bring him £88,000,000, but these other changes will bring in nearly one and a half times as much in a full year—namely, £125,000,000. I am not sure whether in existing circumstances some of these changes ought not to have been carried further. If that had been done it would have brought in a great deal of money without, in general, any undue hardship on the taxpayer, at any rate with less hardship than vast numbers of people are enduring. People in Germany, I am told, though I cannot confirm it, are paying Income Tax which begins on incomes of 25s. a week—that is, on a minimum of £65 a year as against £110 a year here. There is therefore a very wide difference there.
653 Leaving the Income Tax, first let me say that the Chancellor has been very wise to reject various proposals made to him for what I may all fancy taxes. All taxation should be equitable, economically sound, and productive. The Chancellor wants money in big amounts, very big amounts. It really is not sound finance to impose taxes which, although very attractive in various ways, do not in fact bring in large revenue. In this Budget the Chancellor of the Exchequer has entirely confined his expectation of additional revenue to direct taxation, and a considerable proportion of it will come from persons who have incomes between £110 and £500. In these days that is as it should be, because many of these persons, owing to munitions work and so forth, arc making distinctly larger incomes than they used to do. Moreover, the Lord Chancellor told your Lordships some time ago—and it is a very remarkable figure—that about two-thirds of the consumption of the country is on the part of people who have incomes of less than £250 a year. If that is so—and it is probably right—the purchasing power of this class is enormous. The additional taxation on those with incomes below £500, and still more on those below £250— because there are so many of the latter—will be an important factor in the fight against inflation.
The noble and learned Viscount spoke at some length about inflation. On the general question of inflation it should be not only admitted but affirmed, and gratefully affirmed, that the Chancellor of the Exchequer was very frank with the country. Actually he has gone a long way to do what he can to ward off inflation. He has spoken with great candour about the gap—that is, as I say, the difference between "he total domestic expenditure and what the Government expect to receive from taxation, new savings, and so forth. As the noble and learned Viscount has said, the Chancellor of the Exchequer began by facing a gap in the current twelve months, as he saw it, of about £500,000,000. As regards new savings, he looks for an increase, as the Lord Chancellor has told us, of about £250,000,000—he said between £200,000,000 and £300,000,000. The changes in the Income Tax will, in a full year, also bring in £250,000,000 a year so, taking one thing with another, the 654 Chancellor of the Exchequer estimates that the gap or deficiency of £500,000,000, will be filled. That may be so. Only time can show. All figures and estimates must have an element of doubt, especially in present circumstances, and not merely of doubt, but almost of speculation; but, taking the balance of things, it may prove that the Chancellor's estimates will not be very far out. To-day, as far as can be seen, he has been justified as far as new savings arc concerned in the prospect he held out. Therefore, if he is right the gap of £500,000,000 will be bridged.
But let me come back to the very important factor to which I have already referred, and that is that he has allowed the sum of £3,700,000,000 for domestic expenditure, and no more. That may prove to be too low. For one reason or another, the estimates of expenditure put forward by Chancellors of the Exchequer since the war began have generally been too low. If the figure of £3,700,000,000 should be too low, there will almost certainly be a deficiency or uncovered gap which must be, to some extent, inflationary. I want to make this point, and I do not think it was made by the noble and learned Viscount on the Woolsack. If there should be no gap at all, it should be emphasized that inflation is not fully guarded against. Even if the national accounts balance, there may still be inflation. Other causes may bring about, at any rate, some degree of inflation, particularly if increased purchasing power is demanding goods which are in scarce supply. The Government have done a good deal to stop inflation of this kind, but more measures will be needed if the position is to be safe. An important step forward in this direction was made only two or three weeks ago by the system of coupons for clothing. I cannot help thinking that it is a great pity that was not done twelve months ago. It was pressed on the Government. Why it was necessary to wait till the war had been going on nearly two years before this scheme was introduced I do not know. I think it ought to have been done earlier.
Another cause which does give rise to anxiety about the gap in the future is the continued absence of a national wages policy. The Budget is framed on the assumption that wages can be more or less 655 stabilised round about the present figures. If that should not be so, and if wages should continue materially to rise, the Chancellor's calculations would be upset. He said so himself; he said in his Budget speech—these are his words:It is clear that persistence of the tendency towards rising wage rates, which necessarily increases the cost of production at every stage of the productive process, would compel abandonment of the stabilisation policy.The fact is that despite the additional subsidies made by the Chancellor with a view to keeping down the cost of living, the wages problem has not been adequately grappled with, and it remains one of the outstanding dangers of the situation. No doubt there would be difficulties in the way of legislation for the purpose of dealing with or stabilising wages, but there is little evidence that the Government in other ways have been taking any effective part in evolving a national wages policy.
It is true the Government have done their best to keep the cost of living down. The cost-of-living index, on which these things are based, is criticised a good deal, and I dare say justly; anyhow, it is the only official criterion we have for the time being to work on, and it is only fair to say the Government have done a great deal to control the cost of living. I think these figures are broadly correct. It is estimated that out of the total of 100 of the cost-of-living index, 60 per cent. of the cost is spent on food, about 16 per cent. on rent, about 12 per cent. on clothing, and about 4 per cent. on fuel. I think these four items come to 92 per cent. of the total, added together, and the Government measures in regard to food and rent, and now clothing, and also with regard to fuel, have done and will do much to keep the cost of living down. But, if I may say so, the Government must not weary in well doing; they must be vigilant in watching these matters from many points of view.
Now as regards taxation, that can hardly be increased at the top, and the chief reservoir as far as the Income Tax is concerned is in the smaller incomes up to about £750 a year. It has to be recognised that many munition workers are getting higher wages than they used to do, some of them much higher wages, and though the Budget will levy its toll upon them it will still leave many of them better 656 off—in a better position than they used to be before the war. It is difficult to understand why this anomaly (if I may so call it) should exist to the extent to which it does. Nearly everybody else in the country is no better off because of the war; many, at any rate, are worse off. Moreover, despite the overtime and so forth of many munition workers, the hardships which they are going through are, on balance, surely less than those of soldiers and sailors. I think the soldier gets somewhere about 2s. 6d. a day and his keep and an allowance for his family. He is separated from his family and he may be abroad undergoing the greatest hardships and dangers. I submit, therefore, it is not clear why munition workers, despite overtime, should be receiving so much higher pay than the soldiers and sailors.
Of course this whole question is bound up with that of a Wages Board, and if from the start there had been a strong Wages Board which had laid down the principles for the regulation of wages, it is very likely the present position would not have arisen. This matter has been pressed upon your Lordships' House more than once during the war, but nothing seems to be done. Also, if I may say so with respect, no adequate reply is given by the Government to the contentions advanced in this matter of a Wages Board or a national wages policy. Looking at it from another angle, I think it is a pity the Chancellor of the Exchequer did not take the opportunity of obtaining a bigger share of taxation from those whose incomes have been increased largely owing to the war. Pressure has been brought upon the Government to institute what is called an excess income tax, but the Chancellor declined to do it, and, if I may say so respectfully, I did not think his arguments against the proposal were very convincing.
In conclusion, may I just make two further points about this matter of the cost-of-living index? The first is that a few points in the rise of the cost of living since the war are due to the Purchase Tax, and surely those points are not to be taken into account if wages are adjusted to meet the increased cost of living. If that is done would it not mean that the Purchase Tax was not in effect being borne by those making the purchases? That would be contrary, as I understand it, to the intention of the tax. The other point 657 I want to make is this: I do not think it should be assumed chat all workers can expect that their earnings should be adjusted to the increase in the cost of living. In short, they cannot all expect their wages to be made up to pre-war conditions. True—I would emphasize this—in the case of the poorly-paid wage earners, where there is no margin above the level o: subsistence, the adjustment should be made, keeping their wages at, so to speak, the pre-war level or its equivalent. But that cannot be expected to apply to some of the highly-paid wage-earners. A large proportion of the better-to-do classes are very much worse off than they were before the war, and I suggest that highly-paid wage-earners should bear, at any rate, some part of the burdens which have fallen upon the wealthier sections of the community. That is all I wish to say except this I hope the arguments which are advanced in these debates in your Lordships' House on the Finance Bill do receive, and will receive, careful consideration from those who are responsible for the country's economic and financial policy.
§ LORD MANCROFT
My Lords, I took down some words which fell from the lips of my noble and learned friend on the Woolsack. He spoke of the whips and scorpions of taxation as represented by the Income Tax and Surtax. But however bitter may be the blows inflicted upon the population by Income Tax and Surtax, it would be right, if I may say so without impertinence, to point out that there is a much crueller form of taxation, an infinitely crueller form of taxation than that; and it is called inflation. No taxation can do the mischief that inflation can do. Therefore, while I recognise in this Finance Bill that it is not founded on a Budget which is consistent with formal economic principles and axioms upon which most Budgets have been constructed, I feel that the main pivots on which it hinges are these: first to pay for the war, to have the financial weapon with which you can wage the war, and something which next only pays for the war, but which strikes against inflation by restriction of purchasing power against a restricted supply of necessary commodities and luxuries of life.
I would like here, if I may, to make this observation to my noble friend Lord Mottistone. I have helped to start a local 658 war savings movement and have done some good, I hope, in getting savings into the National Exchequer, and in so working I have been struck over and over again by the fact that frequently people have come and asked me to explain what inflation means. People do not understand what the word inflation really means. They do not realise that if it goes beyond controlled limits it means, as my noble and learned friend on the Woolsack suggested, that when the brake: is gone from your cycle you go rushing downhill without any stop; the end is that your cycle crashes to disaster. It means famine, starvation and ruin. That is the ultimate result of inflation. I think my noble friend Lord Mottistone would add to his many services to the country if he took steps, in conjunction with Lord Kindersley, to explain to the public what inflation means. I think if he would do this it would also have the effect of reconciling many people to their troubles about rationing. Some people say, "I don't want to be bothered with coupons and with this rationing system." It ought to be explained to these people that one of the main reasons for rationing and for quotas and restriction of supplies is to protect their savings and their wages so that they may be able in future to buy with their currency money that which they need and at reasonable prices. If inflation were to come those savings and wages would vanish as purchasing power out of their hands. I think it should be made plain to the public now rationed that one of the main reasons for the rationing system and all it includes is the necessity to avoid the most cruel form of taxation on themselves which is called inflation. I do not know whether my suggestion appeals to my noble friend Lord Mottistone, but I beg to offer it. If we keep down inflation now, as we are doing, we are rendering the cost of war materials that we have now to buy less dear, besides at the same time protecting the purchasing power of men's wages and savings after the war.
The point which my noble friend Lord Arnold made was a valuable one. He talked about the stabilisation of wages. During the last war hands were thrown up in horror by people who said, "You must not touch wages, you must never touch the wages of people who are entitled to have them." Consequently we created the inflation which caused the high cost 659 of living. I have noticed that, although the Chancellor of the Exchequer has said from time to time that he intends to take steps to stabilize wages, he has touched this thing with very long fingers. Only recently a trade board for the Midlands gave an increase of wages and two of the members of that board who were appointed by the Ministry of Labour as independent judges simply cocked a snook at the Government's policy and put up wages, evidently paying no attention whatever to the policy laid down by the Chancellor of the Exchequer. It would be all very well for the Minister of Labour to say, as he did not say in this particular case, but has said in another case, that he was nauseated. He may refuse to face nauseating facts in this case, but he will not be able to escape the nauseating results by refusing to face facts.
One of the things he has to face is this fact: that if wages are now put up that rise will increase the cost of production, which, in turn, will increase the index figure of the cost of living, which will, again, give rise to demands by people to have their wages increased, saying that their wages are based on the index figure of the cost of living. I had sent to me just before I came into the House a little cutting which I will venture to communicate to your Lordships, because I think it is extremely germane to the discussion which is taking place. This is a resolution passed by the principal association dealing with trade and industry, the Association of British. Chambers of Commerce. It contains 40,000 firms—not a few great firms like the Federation of British Industries, but 40,000 firms, large and small, representing home and export, wholesale, retail, shipping, banking and every other form of industry, commerce and trade all over the country. This is the resolution that this Association unanimously passed, and if I am not wearying your Lordships I hope you will forgive me for reading it. It is as follows:That the attention of the Government and of Parliament be drawn to the following four points:I ventured to offer that for consideration because I think it sums up the position truthfully and temperately. I hope that the Chancellor of the Exchequer will take his courage in his hands and say to the Ministry of Labour: "If you do not intend to carry out the Government's policy, which includes a proper, honourable and just rate of wages, by means of the stabilisation of wages, then the Government must find someone who will do that."
- (1) The cost of coal acts and reacts at every step upon the cost of all that we eat and use, and upon the cost of everything that needs any form of transport.
- (2) Increased costs of coal and of transport defeat any policy designed to prevent
660 increase in the cost of living, and to ward off inflation.
- (3) Any increase in the cost of living, and the effects of inflation, inflict hardship on the whole community, of which miners and transport workers are themselves a large part.
- (4) Until these inescapable facts are understood and acted upon it is folly to expect that rationings or quotas can prevent increases in the cost of living or ward off the cruel effects of inflation."
Taxation of the kind which we art-considering is not economically sound although it is necessary. I support it for war purposes, but it cannot go on too long for reasons which I will try now to explain. I do not think for a moment that this country will ever adopt State Socialism as opposed to honestly run private enterprise. It has seen enough of State control of trade and industry to make it very tired of it. You will never in any case get much fresh enterprise where there is State control. Penalising or excessively high taxation on employers and those engaged in industry discourages those willing to take those risks to their property, their health and their skill which follow enterprise just as a man's shadow follows a man on a sunny day. You will not get them to take those inevitable risks unless you allow them to take their wage in the form of profit. You must have a profit-wage that will encourage enterprise and you will not increase the pool from which taxation for social and other benefits is drawn unless you increase enterprise and increase wealth through enterprise.
It is true that during the war the majority of men, even among the miners, will work without any hope of making anything out of their war profits because of their patriotism. But there are some at the other end of the scale, just as among the miners, who say, "We are not going to work to get any more coal out of the pits if you are going to take 661 some of our wages away from us by taxation." Human psychology has to be taken into consideration. If taxation is penal and discouraging and is not economically justified you will stop enterprise both by the employers and by the workers in the end. In that connetion I think some responsible speakers should go and address the miners and explain that Income Tax is a war weapon and should not be used as an excuse for absenteeism.
We must bear in mind that at the earliest moment the current burden of taxation must be reduced and resort must be made to stronger forms of attracting savings. About that I would say this. We hear people rebuking the Government because they do not reduce their payment to 1s. or half a crown per cent. per annum for loans. If people do not get something for their money they will say that they might as well spend the money as save it. For this reason I say that an inducement—although it seems to be a reversal of our cheap money policy—to greater saving would be to issue much longer term loans with a little better rate of interest in order to attract the savings of people for permanent holding.
My noble and learned friend on the Woolsack said that war is a great schoolmaster, and so it is. There are very many lessons to be learnt. I have heard my noble friend Lord Arnold, when we were together in another place—I forget which of the three Parties he belonged to then—advocate a capital levy. We see a capital levy silently in operation to-day. What man can live on his income without falling back on his capital, with taxation as it is now? Some taxation today is based on spite. You can read that in the speeches of certain members of political Parties. You hear them talking about millionaires, and about a tax of 19s. 6d. in the pound as if numerous persons were liable or that rate. There is nothing in the point. When I study the Inland Revenue Report which has always been very familiar to me—the Revenue Return for the latest year—I find that about 100,000 people are liable for Surtax—people with incomes of over £2,000 and more, and their total assessable income is about £500,000,000 or £550,000,000. The total amount of the incomes of the very rich men who pay 19s. 6d. in the pound—there are under 662 200 of them—is about £25,000,000. If you took the whole, it would only pay for two days of the war.
The men who are really hurt are not the very rich men. The people who are hurt are those—there are about 65,000 of them out of the 100,000—whose incomes are between £2,000 and £4,000 a year. The £2,000 to £4,000 man is in a difficult position to-day when he has to pay Income Tax at 10s. 0d. and then Surtax. It is not a question of reducing his standard of life. It goes much further than that. It does not mean that he must dismiss a servant or give up a motor car or stop smoking cigarettes. It means upsetting his whole scheme of life and his life's liabilities. He has never lived upon only half his income. If he has been prudent he has perhaps lived on at least three-quarters of his income. If you take away half his income or more he cannot bring up his children as he would wish and he cannot engage in industrial undertakings as he would wish. You have paralysed him entirely. He is the man who is hurt and not the very rich, the wicked millionaires who are singled out in speeches. I therefore think that those who talk about a capital levy will have to learn from this schoolmaster of war that if this form of taxation goes on very long the £2,000 to £4,000 a year men—or, if you like, the £2,000 to £6,000 a year men, the majority of the Surtax payers—must sell, if they are not now selling, their capital.
The Government cannot go on paying an airman or a sailor or a soldier with a cottage or a picture, a diamond ring or a share certificate, or a piece of land. These things do not pay for a tank or a machine gun. All these things must be turned into liquid money. And as you turn them into money by sale, if there are a great number of things to be turned thus into money, so you depress prices, so you get by this system of trying to avoid inflation by a taxation so severe that it causes capital to be sold, what is known as deflation. If you get violent deflation you may get unemployment and riot in the industrial cities of the north. We know that deflation a few years back threw men out of work. The one thing we prayed for in the economic blizzard 15 or so years ago was for a rise in prices. Anything which is done by indirect means 663 to bring about a capital levy of any magnitude brings misery on the people. The thing we must do is to take the middle course so as to avoid such taxation as will bring about deflation with all the misery which we experienced in unemployment and bad export trade after the last war owing to deflated prices. There are many things which the schoolmaster of war has taught us. The noble Viscount, Lord Samuel, will remember the controversy about the sugar beet subsidy. Imagine what would have happened if that subsidy had not been granted, and we had not obtained a great acreage of sugar beet.
§ LORD MANCROFT
Never mind the other roots. The money has been well spent. We got sugar. We have got half a million tons of life-giving food and removed the war risk to our seamen in bringing that food in ships. That is one of the lessons which I hope fanatical free traders will have learnt from the schoolmaster of war. Another lesson to be learnt is this. We were told over and over again that we must have a war chest abroad by investing in foreign countries. Many millions were invested and have been lost in South America—in Argentina, in Brazil and Chile and in every country in South America, I believe, except Venezuela. With the exception of a few debentures in Argentine railroads not one of those investments is worth much to us now. It would have been very much better if we had not invested and lost that money for the benefit of bond-mongers. There should be after the war no unregulated investment of our savings in foreign countries—not sterling countries, but foreign countries. It would be very much better to leave these foreign countries to shift for themselves and use the money to develop agriculture here and irrigation and railways in our dependencies like India. In my opinion we must put an end to uncontrolled, unregulated foreign investment in the future which benefits no one except perhaps the issuing houses.
Finally, there is a point to which I think the Chancellor of the Exchequer might well direct his attention. Large numbers of undying, immortal, non-trading institutions hold, and have very properly taken 664 up, large sums of war loans. That is all right, but as non-trading institutions they pay no Death Duties. Large sums of money are now passing into the hands of institutions which are non-trading, undying institutions, which are benefiting by the protection which the country has given them but in respect of which they pay no Death Duties. Those institutions should be made in some way to pay for the benefits of defence which they share with the rest of us. I support this Bill and I only have to say two minor things in conclusion. Do not squeeze and discourage the man who is likely to engage in enterprise after the war. He has had his machinery shaken to pieces, he has had the walls of his factories cracked by overworking, he has had to put in machinery and equipment of a kind which he cannot use after the war. He must have money to re-equip his factory and rehabilitate himself. If you take everything away in E.P.T. and Surtax you do not give him a chance of rehabilitating himself and of rehabilitating the country, for he is the country. I think that that is a matter that should not be overlooked. I am sure that we can bridge our gap troubles by instigating a stronger movement for private savings; that will be the solution of our difficulties. The case for saving should be put to the people not that it is as a punishment but particularly as a means of preventing inflation. "Inflation" should be explained to the public. You will also persuade people to put by their money if you offer some form of security of longer date and with a little more interest than is now given. I apologise to your Lordships for having detained you so long and I thank you for your attention.
§ LORD MOTTISTONE
My Lords, I had not intended to address your Lordships, but it has been pointed out to me that it would be of interest to you to know what is the prospect of obtaining this very largely increased sum from the people's savings through the movement for which I as Chairman and Lord Kindersley as President have been responsible for about fifteen years. What are the prospects of success? I have consulted those on whose judgment I have been accustomed to rely, and who have been proved to be good judges, and I can say that given the same measure of generous support which we have received from all classes—and notably 665 from your Lordships in your capacities as Chairmen of county councils, Lord Lieutenants and in other ways—there are good prospects, in their judgment—and I think they are right—that we hall obtain this very great additional sum. It is a fact, as my noble and learned friend who sits on the Woolsack has pointed out, that this forms a very large part of the total of £500,000,000 which has to be found, and, of course, it would be a serious thing if we did not come up to the scratch—I cannot think of a simpler phrase at the moment.
I think this thing can be done. I had before me only this morning the final figures for the War Weapons Weeks. They were very impressive. The total amount raised by these weeks was £395,000,000, and it will be within your Lordships' knowledge that Greater London alone contributed some £120,000,000. It was apparent to us all, and especially to me, that there must be a falling off immediately after this tremendous effort, for a tremendous effort it was. There has been a reduction, but not so large a reduction as one might have expected. If you analyse the figures, you will find, when you look into statements relating to the Post Office Savings Bank and the trustee banks, that there are indications tending to show that people arc continuing to save in ever increasing degree. But, of course, we have to carry our work further, I am very grateful to the Lord Chancellor for the kind words which he has said about Lord Kindersley and myself and the multitudes of other people working in this cause., and I can assure him, and through him your Lordships, that if we do not succeed it will not be for the want of trying. For the moment we are endeavouring, and we shall continue to to do so during the next four, five, six or seven weeks, to perfect our machinery for this great effort. As autumn cames along, Lord Kindersley and I will be addressing your Lordships—those of you who are Lord Lieutenants or hold other official positions—begging for further support in an intensive drive to make sure that through the autumn and again in the beginning of next year we shall achieve the task which we have set before ourselves; that is to do what the Chancellor of the Exchequer asks: to bridge the gap and to make certain that 666 our finances are sound enough to ensure for us final victory in the war.
My noble friend Lord Mancroft, who spoke just before me, will forgive me if I do not follow him into questions about Free Trade and Protection which he raised, or into the question of subsidies. So far as the question of making plain the dangers of inflation to the millions of people whom we can reach by propaganda is concerned, we, of course, realize that by ensuring that our finances are on a sound basis we may avoid inflation, which indeed might place us in some danger of starvation. I thank him for the suggestion, and we will consider how best to carry it out. Of course, how best to appeal to the 10,000,000 people to whom we are appealing is a highly delicate and difficult art. If you put forward anything in the way of a threat, such is the interesting nature of our countrymen, you may do more harm than good. We shall bear that in mind, for it is a truth which must be carefully considered in connection with any form of propaganda in this country. I thank all your Lordships who have helped us so much in this great cause, and I assure you that we will do our utmost to see that the work produces results which will be a prelude to victory.
§ LORD TEVIOT
My Lords, I propose to address your Lordships for a very short time only. I should like, if I may, to ask my noble and learned friend to pass on something of what I have to say to the Chancellor of the Exchequer. I do so with some trepidation as I know there are some very strict rules with regard to speeches on the subject of finance in your Lordships' House. There are, however, one or two appeals which I want to make through my noble and learned friend to the Chancellor of the Exchequer. I would say at the outset, that so far as this appeal is concerned, I have no financial interest whatever in what I am going to say.
The Chancellor of the Exchequer has made certain concessions to companies which are finding themselves in a very disadvantageous position by reason of the fact that they were just coming to maturity—and this particularly applies to some small metal-producing companies such as gold mines—which were just coming into the profit-making zone when the 667 war started, and, in fact, in some cases, since the war began. Although the Chancellor of the Exchequer has made certain concessions with regard to these companies, there are some of them, particularly metal-producing companies, which have short lives, and which find themselves in this position, even after the concession has been made, that not only will they be unable to pay any dividends during their life of operation, but certainly, in one case of which I know, half the capital will not be returned to the shareholders when winding up takes place. I feel, and I hope, that I am in order when I ask the Chancellor of the Exchequer to think again, to go into some of the instances where this is going to happen, and, if he would, to permit a deputation to wait upon him with reference to this subject. That is all I have to say on that question.
My second appeal is this. I notice that there is to be given a concession to what are termed the weekly wage-earners who come under Income Tax regulations. I think it is in Clause 23 of the Bill. There are some people who are in exactly the same position as weekly wage-earners, although they may be paid monthly. Let me give an instance. There may be two individuals living in the same street, one a weekly wage-earner and the other being paid by the month, but both receiving exactly the same remuneration. Owing to the war, both their homes are bombed and they both, being friends, seek accommodation elsewhere and find it ten miles away. This means that instead of living near their work they have to incur extra expenditure for travelling to and fro. In the case of the weekly wage-earner, £10 a year of his remuneration is exempt from Income Tax because of this extra expense, but that is not the case with the skilled draughtsman, or whoever else it may be, who is paid monthly; he has to meet this extra expense without any kind of help. I cannot believe that that is really what the Chancellor of the Exchequer wants, because to have this spirit of discrimination between one worker and another in these days, when we want unity and good feeling among all, is bound to give rise to annoyance and to a sense of unfairness.
I have put these two points quite shortly, and I hope that as a result of my appeal this allowance of £10 will be given to all those who receive a certain salary, 668 no matter what work they do or how they are paid. I also hope that the case of the companies which I have mentioned will be gone into further. Lastly, I hope that I have not transgressed in dealing with a Finance Bill, which I know is a touchy business. I trust that my noble and learned friend will put these matters before the Chancellor of the Exchequer.
§ THE LORD CHANCELLOR
My Lords, I should like to reply to two or three matters which have been raised in this short but interesting debate. First of all, with regard to what was last said by my noble friend Lord Teviot, I would assure him that I am myself a stout supporter of the Parliament Act, but there is nothing in it which prevents your Lordships making suggestions or raising complaints on any item of taxation; and it seems to me that your Lordships perform a very useful function in being able to make those criticisms and suggestions from the point of view of your own experience and reflection, while at the same time you can disclaim all responsibility for the consequences! I shall certainly not: fail to communicate to my right honourable friend the Chancellor of the Exchequer both the points raised by my noble friend Lord Teviot, the first connected with Excess Profits Tax and the second in relation to the clause which provides for an allowance of as much as £5 a half-year from the wages assessed in the case of weekly wage-earners. I thoroughly understand the force of my noble friend's observations, and I shall do my best to convey them faithfully to the Treasury.
My noble friend Lord Arnold, as we have become accustomed to expect, has made a thoughtful and interesting contribution on this occasion. I would almost call it a stimulating contribution, if, properly speaking, a stimulus is a goad. There has been a certain painful sharpness in some of his reflections, but his main object was to encourage us to go on as we are going on, only more so. It is in that spirit that I receive his speech and shall do my best to convey it to the Chancellor of the Exchequer. It is quite true, as my noble friend said, that you cannot, in examining the figures in this Budget, find a great deal of spare ground before you come close up against the actual presence 669 of inflation. That may well be so, although I would observe that if, as he warns us may be the case, the expenditure is even larger than the estimated figure, such expenditure will very largely take the form of additional payments to various classes of people in this country, and will mean that they have increased incomes, which in turn will have its effect on the produce of taxation. I agree, however, that we are steering a narrow way between difficulties. The fact is that we are in the middle of a great war, a war of life or death, and we have to face all sorts of risks. The best that we can hope to do in this matter is so to plan our financial arrangements as to reduce this danger to a minimum. I do not think that we are living in times when we can keep the bogey of inflation at so great a distance that we need not think about it any more.
Not for the first time, my noble friend raised, in connection with the Budget debate, the subject of a wages policy. He will not expect me to deal with that vast, complicated and difficult subject now. I would only say—and here I also address myself to my noble friend Lord Mancroft—that the Chancellor of the Exchequer has before him the resolution which my noble friend quoted., and that the House may at any rate be quite sure that this very important aspect of the general financial problem is one which is being very vigilantly watched and considered by His Majesty's Government.
There is one other observation which I should like to make about Lord Arnold's speech. I do not think that he disapproved of the reductions made in this Budget in the allowances for Income Tax; I think he applauded them. Their effect is, of course, to produce a vastly increased sum of Income Tax from the wage-earring population, from those at the lower end of the scale. There is one thing, however, which I find is always omitted in considering these changes, and which I shall take leave to mention now. No doubt it is present in the noble Lord's mind, but it is not stated. Take for example the reduction which has, now been made for married persons, so that the personal allowance is now £140 instead of £170. That, of course, does not mean that somebody gives them or allows them in account either £140 or £170; it means 670 that the figure named may be deducted from the assessment liable to tax. If the tax is comparatively low, the amount of actual relief in taxation from such allowances is small; if the tax is high, the actual relief from taxation afforded by such allowances is great.
For example, when the Income Tax is 10s. in the pound, but the married allowance is reduced to £140, what really happens is that the married taxpayer gets off £70 of tax (half of £140) because the tax is 10s. in the pound; but, if the tax was 5s. in the pound, then, even though the allowance made to him was £170, he would get off only one-fourth part of that £170. There is therefore a certain reason for revising these allowances in a downward direction when the rate of tax becomes very high. As any simple calculation will show, it really means a relief from a larger amount of taxation when the tax is high than it would be when the tax is low. That is only one consideration. It is a consideration which has often been in my mind in the years I was Chancellor of the Exchequer, and I do not find, as a rule, that it is allowed for in discussing these subjects.
I must not yield to the temptation, severe as it is, to discuss in the most friendly way with my noble friend Lord Mancroft some of the topics he touched on delicately in his interesting speech, for that would take a long time and I should be sorry to get into any controversy. With regard to his main point—the point that it is the danger of inflation which is the real peril always to be remembered and to be faced in our financial arrangements—I feel, if I may be allowed to say so, he is perfectly right. I do not think my noble friend Lord Mottistone and those who work with him by any means omit to emphasize that in their innumerable public meetings. Certainly on the occasions I have been there, I have explained it with penetrating clearness, though whether when I have finished I have increased the amount of contributions to the loans I do not know, for it is not an interesting subject to an ordinary audience. At the same time there is no question on which it is more important for us to direct all our energies in guiding and instructing our fellow citizens. I thank your Lordships for the kindness and patience with which you have received the Finance Bill, and I now put the Question to the House.
§ On Question, Bill read 2a; Committee negatived.