HC Deb 29 June 1939 vol 349 cc709-39

(1) For the purposes of armament profits duty, the standard profits of a business shall be computed in accordance with the following provisions of this Section:

Provided that in relation to a chargeable accounting period which is less than twelve months, the standard profits computed as aforesaid shall be proportionately reduced so as to correspond with, the length of the period.

(2)If the business was commenced on or before the first day of July nineteen hundred and thirty-six, the standard profits shall be ascertained by reference to the profits of the standard period as hereinafter denned and, subject as hereinafter provided, shall be, where the standard period is one year, the amount of those profits and, where the standard period is two years, half the amount of those profits.

(3)If the business was commenced on or before the first day of January, nineteen hundred and thirty-five, the standard period shall be, at the option of the person carrying on the business, either the year nineteen hundred and thirty-five, the; year nineteen hundred and thirty-six, the years nineteen hundred and thirty-five and nineteen hundred and thirty-seven or the years nineteen hundred and thirty-six and nineteen hundred and thirty-seven.

(4)If the business was commenced after the first day of January, nineteen hundred and thirty-five, and on or before the first day of January, nineteen hundred and thirty-six, the standard period shall, at the option of the person carrying on the business, be the year nineteen hundred and thirty-six or that and the following year.

(5)If the business was commenced after the first day of January, nineteen hundred and thirty-six, and on or before the first day of July in that year, the standard period shall be such consecutive period of twelve months ending not later than the end of June, nineteen hundred and thirty-seven as the person carrying on the business may select.

(6) If, on the application of the person carrying on the business, the Board of Referees are satisfied that, in the standard period, the rate of profit or the volume of business was less than might then have been reasonably expected, they may direct that the standard profits shall be ascertained as if the profits for that period were such greater amount as they think just:

Provided that where the person carrying on the business is a company, the said amount shall not exceed the amount necessary to provide dividends for the standard period— (a) as respects the paid-up ordinary share capital of the company, of six per cent, per annum; (b) as respects any other paid-up share capital of the company, at the fixed rate per annum payable in respect thereof;

unless the Board are satisfied that owing to some specific cause peculiar to the business it is just that a greater amount should be allowed.

(7)If, in the case of any business to which Sub-section (a) of this Section applies, the average amount of the capital employed in the business in any chargeable accounting period is greater or less than the average amount of the capital employed therein in the standard period, there shall, in relation to that chargeable accounting period, be added to or, as the case may be, subtracted from, the standard profits the statutory percentage of the increase or decrease.

(8)In the case of a business commenced after the first day of July, nineteen hundred and thirty-six, the standard profits shall, in relation to any chargeable accounting period, be the statutory percentage of the average amount of the capital employed in the business in that period.

(9)In this Section the expression "statutory percentage" means— (a)in relation to a business carried on by a company (other than a company the directors whereof have a controlling interest therein) eight per cent.; (b)in relation to a business not so carried on, ten per cent.;

Provided that, in relation to any decrease of capital the statutory percentage shall be in all cases six per cent.— [Sir J. Simon.]

Brought up, and read the First time.

6.54 p.m.

Sir J. Simon

I beg to move, "That the Clause be read a Second time."

I think the Committee is well acquainted with the provisions of this Clause, which are clear. I should, of course, be prepared to offer any explanations which hon. Members might desire; but I think that the Committee would wish me at this stage simply to move the Clause. There are on the Paper one or two Amendments to the Clause, and I shall, of course, endeavour to deal with them as well as I can.

Mr. Pethick-Lawrence

The right hon. Gentleman the Chancellor of the Exchequer was quite correct, as the points of difference between us and the Government on this Clause will be brought out in the course of the discussions on the Amendments. We do not wish' to delay the proceedings by having a discussion on the Motion for the Second Reading of the Clause, but we propose to discuss the Amendment in the name of my hon. Friend the Member for Derby (Mr. Noel-Baker), which is of considerable substance.

Question, "That the Clause be read a Second time," put, and agreed to.

6.55 p.m.

Mr. Noel-Baker

I beg to move, as an Amendment to the proposed new Clause, in line 12, at the end, to insert: (3) If the business was commenced on or before the first day of January, nineteen hundred and thirty-four, the standard period shall be the year nineteen hundred and thirty-four. I move this Amendment for the purpose of inviting the Chancellor to make a change in the standard years by which the standard profits under this proposal are to be calculated. In the Clause, the Chancellor proposes to offer the manufacturer of arms a fourfold option—1935, 1936, an average of 1935–36, and an average of 1936–37. On Monday last, I ventured to say that at least 95 out of every 100 manufacturers will choose the last, and, indeed, the Chancellor's name will go down in history as blessed among manufacturers of arms for having given them the chance of choosing. It is little short of amazing that, in putting forward a proposal of this kind, the Chancellor should have thought it possible to choose the years 1936–37 as a basis for the scheme he propounds. I cannot conceive how he did it, except that he must have been too busy to have time to look at any of the relevant facts and figures. We know that he has had troubles about various matters, but whatever may be the cause, certainly he cannot have examined the annual armaments expenditure the country has made year by year, the purchases of the Government from private firms, the profits which those private firms have made from their sales of arms, or the dividends which they have been able to pay as a result of their profits; for if he had examined the figures, I venture to think he would not have made the speech that he made on Monday.

After all, this is the very crux of the scheme. Everything depends upon the kind of profit that was being made in those years. If it was already excessive, if it was already much above the normal, it is fantastic to take a certain, not a very large, proportion of the sum above that standard. It is on this that the country will decide, and we shall decide, whether the Armament Profits Duty is intended as a serious effort to deal with excess profiteering in the preparations for war, or whether it is what the hon. Member for Mossley (Mr. Hopkinson) called "eye-wash." I think that on Monday the Chancellor was conscious that he had something to defend. He said in the course of his speech that hon. Members might refer to 1937 because it was the case that before the end of that year the rearmament scheme was in progress. He went on to defend his choice of years. What defence did he make? He said that the beginning of the rearmament scheme was very much more in the region of planning and preparation than in the region of very active production—in other words, that the private firms were not getting abnormally increased orders in 1936 –37—and he went on to add that it was only with those increased orders that the costing machinery had proved to be ineffective for limiting the profits that were made.

Of course, the first answer to the second part of that argument is that made by my hon. Friend the Member for Kennington (Mr. Wilmot), that before 1937 the costing machinery for controlling profits was a good deal slacker, and a good deal less satisfactory, than it is now. The Government, including the Prime Minister in April, have admitted that this is true. But the principal answer, and the answer which I hope to show is really quite conclusive, is that the Chancellor is entirely wrong on the facts on which he bases his defence.

The Chairman

May I interrupt the hon. Member? I should like the Committee to be quite clear. Do I understand that he is moving this Amendment and proposing to discuss later Amendments in the names of other hon. Members?

Mr. Noel-Baker

No, I made a mistake. I should have said in my own name only.

The Chairman

Then the hon. Member must confine himself, of course, to the Amendment.

Mr. Noel-Baker

I am endeavouring to argue that the years 1936–37 are extremely unsatisfactory as the basis for a calculation of excess profits.

Sir J. Simon

And 1935, too?

Mr. Noel-Baker

I am going to propose that 1934 is a much better year, though 1935 would be better than 1936 or 1937. I am trying to show that, by 1937 there had in fact been a great expansion in armament expenditure. As I said on Monday in 1932 the expenditure was £ 103,000,000; and in 1934 £ 113,000,000; which was about the average over the 12 years from 1922 onwards. In 1936 it was £ 186,000,000 and in 1937 £ 269,000,000. In other words the average for the two standard years is about £ 230,000,000, more than double that of 1934. I reminded the Committee on Monday that the great part of that additional expenditure went, not on man-power, but on armaments and ammunition. We had not reached the stage of increasing man-power and therefore more went to those who manufactured armaments, I further pointed out that the share of one of the private manufacturers was abnormally great, far more than was normally given to them before, and the share of the Royal dockyards and arsenals was less. It followed that the orders which the private firms had received by 1937 were not only double what they had received in 1934 or earlier years; they were much more than double. I suggested on Monday that they might be as much as four times.

This is of such importance that perhaps I might try to substantiate these statements with a few figures, all taken from Estimates and other Government White Papers on the armed Forces. They show that I under-estimated the increase. In regard to the Army, for example, the increase on expenditure on war material only, rose from 1934. when it was £ 3,000,000, to £ 7,000,000 in 1936 and to £ 28,000,000 in 1937. That is an average increase of nearly 10 times. In the Navy it increased from £ 24,500,000 in 1934 to £ 64,500,000 in 1937, an increase of nearly three times. In the Air Force it increased from £ 7,250,000 to £ 43,500,000 in 1937, an increase of six times. That proves, I submit, conclusively that the expenditure of the Government was on war material much more than on man-power. I have further figures and percentages if they are desired. One typical figure is that of the Army whose expenditure on war material rose from 6 per cent, of the whole of the expenditure in 1934 to 35 per cent, in 1937. That proves that the increase of the expenditure on arms was about four times. But that does not mean that the arms firms got only four times as many orders as they were getting in 1934, because their proportion of the whole was also increasing.

The Government did not extend the Royal arsenals, factories and dockyards as fast as they were giving orders to the private manufacturers. As I have said, I have looked up the matter with some particularity since then, and I have come to the conclusion that it must be at least six times. Again I have all the details here if they are of interest to the Committee with regard to the Army, Navy and Air Force. I only mention that with regard to the Navy, and in respect of new construction, which is the important item for the manufacturers— repairs bring small, profits— private firms were receiving in 1937 93 per cent. of the whole. If you look at the details, they were making 132 vessels while the Government yards were making 16 of which the largest were six cruisers and the rest only submarines and mine-sweepers. The private firms were making five battleships at £ 8,000,000 or £ 10,000,006 a time, five aircraft carriers, and 15 cruisers, against six which the dockyards were making, and 48 destroyers. They were having 93 per cent, of the whole. You cannot show with regard to the Air Force that the proportion between Government and private manufacturers had increased, because the Air Force never had any Government manufacture at all. It has always been 100 per cent. mono- poly for the private firms. But the "in crease of expenditure"— I am quoting from a statement accompanying the Air Estimates for 1937— "falling on the Vote for war materials is indicated by the fact that the net provision for 1937 is more than six times the corresponding figure for 1934."

I submit that if the Chancellor's justification for this standard which he takes is, as he said on Monday, the fact that armament expansion had not seriously begun by 1937 his case falls completely to the ground. He has not a leg to stand on. He ought either to find a new standard or a new defence for the standard he has taken. I submit respectfully to him that he cannot find a new defence because there is not one. The essence of the matter is the profits which are made. The orders have increased. Yes. I have tried to show that the Chancellor's argument was wrong. But what did it lead to in the profits which we all want to prevent from being excessive? I showed on Monday that by 1937 many of those firms who specialised in armaments and which supplied the vast bulk of the finished arms which the Government bought were already then making profits so high as to make his scheme absurd. I showed that for a total of 30 firms the joint profits of those firms, which were the principal firms supplying armaments, had risen from £ 3,800,000 in 1934 to £ 11,700,000 in 1937. That is an increase of £ 8,000,000 in three years and a trebling of the profits they were making. They were doing quite well in 1934. I do not think the Chancellor can defend such a standard year as that.

I do not want to repeat all the details I gave with regard to particular firms but let me put it for one moment in terms of dividends. What kind of dividend does an investor expect to get? What does he hope for from something which is as safe as armament shares have shown themselves to be? Five per cent.? Six or seven per cent.? No one could deny that that was very reasonable. I think it is the kind of thing which the Chancellor himself has had in mind when considering what ought to be counted as a normal profit. In this very Clause he has a provision about allowance for increase or decrease of capital since 1937, the standard year. In that, he allows that a profit of 8 per cent. or 10 per cent. shall be exempt from this Excess Profits Duty. There is a passage in his speech in which he says: In a case where an exceptional standard is allowed to a company we propose that it is not to exceed the amount necessary to pay its fixed preference dividend and 6 per cent. on its other share capital."— [Official Report, 26th June, 1939;, col. 70, Vol. 349.] Accepting 6 per cent— I think it is pretty high— as being the kind of thing, what dividend were these firms actually earning in 1937? Let me start with Vickers. In 1934 they were paying 6 per cent. In the following year they paid out a capital bonus of 50 per cent., and on their increased capital they paid in 1936 10 per cent. and in 1937 10 per cent. Everybody knows that the finances of the Vickers group are extremely mysterious and there may well have been other earnings in other forms. It is extremely difficult to trace all that is well earned. Handley Page in 1936 paid 50 per cent. and the following year they paid out a capital bonus of 50 per cent. and on that increased capital paid 30 per cent. tax free.

Mr. Higgs

Will the hon. Member tell us what these firms were paying in 1929 and 1931?

Mr. Noel-Baker

They were paying quite good dividends. Handley Page in 1937 put to reserve £ 125,000. If you take a small firm like the Projectile and Engineering Company you will find that it was making a good normal profit in 1934. In fact in that year it made 10 per cent., which was very high; in 1936 20 per cent. and in 1937 20 per cent. The English Steel Corporation in 1936 and 1937 were paying 20 per cent, each year tax free. Thomas Firth and John Brown Limited paid in 1934 5 per cent. tax free. In 1936 they paid 15 per cent. and in 1937 17 ½ per cent. Tube Investments paid in 1934 10 per cent. and in 1937., 23 ¾ per cent. White head Iron and Steel paid in 1934 15 per cent., and in 1937 35 per cent. plus 25 per cent. capital bonus. I suggest that it is grotesque to take dividends of 20 per cent. tax free or 30 per cent. tax free on capital inflated by a bonus distribution of shares, or 35 per cent. plus 25 per cent. distribution of bonus shares as the standard for estimating excess profits under this scheme. I hope the Government will take the course we propose. I know the Chancellor is going to say it is difficult because of the civil firms who have only recently begun to make armaments. Perhaps there is a difficulty. But if he does argue that I will make a second proposal to get over that difficulty later. I do not do it now because I hope that in the light of the figures I have given he will say that he will reconsider this matter and come back at a later stage with new proposals for the Committee.

7.15 p.m.

Sir J. Simon

The hon. Member has made, as he always does, a speech illustrated by a great many facts and figures. I have followed his argument as well as I can and I propose to deal with it at once. The actual Amendment proposes that the standard to be taken for this purpose should be the standard of the profits for the year 1934. As the hon. Member has commended this suggestion to the Committee on the score of fairness and reasonableness, it may be interesting to observe that his view is that to get a fair standard for this purpose, the method is to take the year 1934 and that year alone. I certainly would have imagined that to take that year alone would be exceedingly unfair to those with whom we are now seeking to deal in this tax proposal, as compared with the suggestions which have been made in the other direction. I suggest that it cannot have been seriously suggested. It can only be an illustration of the methods of the bazaar by which you start with a price very different from that which you seriously intend to adopt. Of course it would be outrageous to take as the only standard the year 1934 but that is the method proposed in the Amendment.

The hon. Member, as I have said, used a wealth of detail of figures and percentages, but, as it seemed to me, the early part of his argument, at any rate, was quite fallacious and was, if I may respectfully say so, making an illegitimate use of the figures for the purpose of what he sought to prove. He was pointing out that between 1934 and 1937 there was, unhappily, a greatly increased expenditure on armaments. That is, indeed, true, but I think it must be obvious to any Member of the Committee that that has nothing to do with the point which we are discussing.

Mr. Noel-Baker

I introduced those figures because the right hon. Gentleman said on Monday that there had been no substantial expansion of armaments in those years. That was the only reason which he gave in defence of his choice of a year.

Sir J. Simon

The point which I wish to make is plain. The fact that very large sums have been spent in those years has absolutely nothing to do with the question of whether we have chosen the proper year or not. Neither has that anything to do with the fact that the expenditure which has grown, has been largely expenditure on war materials. The only question is what would be, in the circumstances, fair alternative years or fair average years to take for the purpose of establishing a standard. The hon. Member has explained quite fairly that he was addressing that part of his argument mainly to my observation, that 1937 hardly brought us into the full blast of production. I still think that my observation is justified. It is true that the year 1937 was the first year of the five-year period. It was the first year of the expansion, the first year of the period in which a series of special efforts was organised. It is certainly true that in that first year, it was not the case that armament production had gone up to that intensity of rapid delivery which has occurred since. Everybody can remember how in this House, again and again, we had Debates in which the Government were greatly reproached for their failure to produce aeroplanes and guns and so on. Allowing for whatever exaggeration there may have been in those criticisms, they were based on the plain fact that when you start a five-year period of intensive rearmament, you do not get into the full swing of production at the beginning. That was what I was referring to in that statement and I had perfect justification for it.

I beg the Committee to remember that this duty is not the main instrument by which we seek to limit armament profits. The main instrument by which we seek to do so is the method of fixing proper contracts on the basis of proper calculations and we shall reinforce that by the activities of the future Ministry of Supply. This is a secondary method and it is addressed principally to this situation that although your contract system may be a very good and effective one, still, if production becomes immensely increased, the method and the calculations which gave you reasonable results as long as production was not excessive, will give the most enormous return from the point of view of the ordinary shareholder by the mere fact of those calculations being multiplied again and again. An hon. Member opposite has, more than once, put that point to the House and has recognised its difficulty. One of the results of enormous production is that the application of a contract method, I do not care what that method is, can become completely falsified by the mere fact of that enormous production.

That was not the case at the beginning of the quinquennium, but the situation is very different now. I am very glad to think, and I imagine that the whole Committee in the circumstances are entitled to take some comfort from the fact, that as a matter of fact our production to-day is extremely intense and the production of aeroplanes is at the most remarkable level. That is the situation as we would wish it to be, but the result is as I have described. That was the meaning which I intended to convey in my previous statement and if I did not express it as precisely as I ought to have done, I accept the hon. Gentleman's criticism and correction in all good part. But that was what I was trying to say. It is true, therefore, that the year 1937 is different from the later year of the quinquennium and the incidence which we now are trying to correct arose from that vast mass of production which has taken place later.

There is a second point. My most earnest desire was as far as I could— I cannot hope to have succeeded entirely— to produce a scheme which would be simpler and therefore better than the former Excess Profits Duty. One of the things that was done under the Excess Profits Duty scheme was this. There were alternative standards left to the choice of the taxpayer. He could either take his profit or if he preferred it, he could take a standard which was a percentage on his capital— capital, in this connection, meaning not his share capital but the capital which was employed in his business, the physical thing which he had acquired for that purpose. That was a possible way of proceeding in this case. I thought however that it would be of great advantage if we could devise a scheme which did not introduce, as a main method of settling the standard, this most difficult calculation on capital. It is very difficult indeed to go back for many years and to put the right value say upon a machine which has been in use for many years and is still being employed when it is possible that it has been written down in the books. It would have been a most elaborate and a most unsatisfactory method to have relied upon calculations of the capital employed in the business. I think I was right to avoid that feature. But if I do that I am depriving the taxpayer of one of the two alternatives which he previously enjoyed.

Mr. Bellenger

The right hon. Gentle man is doing it in one case.

Sir J. Simon

I think I know the case to which the hon. Member is referring. I have to do it where there is alteration in the amount of capital.

Mr. Bellenger

Or where the business started after 1936.

Sir J. Simon

That is so, but I think it is mainly right to avoid that method. That being so, it seems to me we have to determine how the line is to be drawn for the purpose of giving a standard that is fair and at the same time provides a reasonable basis against which to compare the excessive profits which in some cases may have been made, and which, I am certain, the whole Committee is anxious to put under contribution. It would be wrong to choose a year like 1934 or a figure of the kind suggested by the hon. Member opposite. It is easy enough for the hon. Gentleman to take certain instances such as he gave. I have no doubt his figures were accurate because I know how careful he is about this matter. It is all very well for him to do that, but I have to find a standard which is to be applied to everybody. I cannot pick the biggest strawberry out of the basket and say that it is the only one that I will consider. I have to provide a standard for everybody, for people who may have been badly hit in one or other of those years, for people who, for aught I know, in the year 1934 may have been struggling. While it is right that we should not fix a standard which is monstrously high at the same time my business is not to pick out instances which show bloated profits and to forget the rest. My business is to strike a balance between all the people concerned.

That being so, and having considered this question with great care, I have arrived at this decision. This is a very important matter, and it is my responsibility. I have to take, and I do take, the responsibility for it, but I say that the standard which we have here is the only possible standard to apply to deal fairly with the great variety of firms with which I have to deal. With their different experiences I had to give them a choice, and I did give them a choice. I gave them the choice of the year 1935. The hon. Member's Amendment would not allow them that. I gave them the choice of the year 1936. The hon. Member would not allow them that. It is not true to say that I gave them the choice of 1937. What I did say was that I thought, on the whole, it would be right, in order to provide for the various classes of cases, that there should be a fair choice which would be an average of two years, the later of which might be 1937. That year must be combined with cither 1936 or 1935. It is for the Committee to judge of these proposals. If I can get, as I hope I shall get, substantial sums from this duty, so much the better, but I think I have shown the Committee that that has not been the sole consideration. This is the result of careful and deliberate consideration of the whole of the facts and figures involved. I hope the Committee will feel disposed to support the Government in this matter. The hon. Gentleman opposite wants us to take the year 1934, but there is an hon. Gentleman behind me who says we ought to take the year 1937. Some people want to push me more rapidly and other people want to hold me back, so, on the whole, I rather think it is very likely that in what I am proposing I am right, and so I intend to stick to that.

7.31 p.m.

Mr. Silverman

The concluding observations of the right hon. Gentleman prompt me to say a word or two. With his extremely long experience in this House and in another profession outside it, I suppose it is not only my perhaps over subtle mind that suspects that there might have been a reason for his hon. Friends behind him putting down the Amendment which they have put down, because it cannot be merely an accident that he was enabled to say, "After all, my proposal does happen to be something like half way between, and, therefore, it must be fair." I think he does an injustice to the ingenuity of his friends behind him when he assumes that. The right hon. Gentleman will remember that when the Prime Minister was Chancellor of the Exchequer he introduced a form of tax from which he ultimately withdrew— the National Defence Contribution, 1937.

Sir J. Simon

Number 1.

Mr. Silverman

Yes, and he withdrew that. I am glad to see the hon. Member for North Paddington (Mr. Bracken) back. I wish he had heard the previous part of the Debate. I missed him very much. He has taken so leading a part in the discussions which we have had in Committee which have been designed to induce the right hon. Gentleman to make his proposals more effective that I was relying confidently on his support on this occasion.

Mr. Bracken

The hon. Member could not have it on this occasion, because I think the Chancellor has struck an even balance. The years 1935 and 1936 were recovery years, and the year 1937 was a slump year, so that my right hon. Friend, I think, has shown marvellous; ingenuity in striking a right balance.

Mr. Silverman

The hon. Gentleman can be forgiven for that interruption, be cause, as I have already said, he did not hear the speech of my hon. Friend in moving the Amendment, and I think he heard only part of the right hon. Gentleman's reply. If he looks at the Official Report to-morrow, I think he will see that his interjection does not meet the argument at all, and if that be the case, I hope I may still rely on his help in trying to induce the right hon. Gentleman to do better than he has done. We do not in the least mind the hon. Member poking fun at us. We have observed that he always pokes fun at us when he supports us. It has happened on every occasion when he has found himself suffering from the mental anguish, as he described it, of having to vote against the Government that he has relieved it by poking fun at his reluctant allies. That is all right, and we are quite prepared to pay that price. We will pay it again if he will come with us on this occasion. The National Defence Contribution, 1937, No. 1, was withdrawn because of what was eloquently described by one hon. Member the other day as the howl which arose from the Stock Exchange, and when I asked the right hon. Gentleman why we had not got a howl on this occasion, he replied that perhaps it was because the tax was regarded as perfectly fair. It is rather remarkable that there has been very little protest against and very little interest in the Clause which we are now discussing. The right hon. Gentleman does not seem to agree.

The Chairman

I would remind the hon. Member that we are not discussing the Clause now. The Clause has had its Second Reading.

Mr. Silverman

I dare say I trespass a good deal on the patience of the Chair, but I think I may be able to convince you, Sir Dennis, that I am not so far out of order as perhaps you are tempted to think. I am arguing that the reason why the Clause which we are now discussing arouses so little protest and opposition as compared with the National Defence Contribution is precisely because of the years which the right hon. Gentleman has chosen and because of the options which he has given. The people concerned know very well that if you choose those years, this tax will hit them very little, if at all, whereas if you had chosen an earlier year, as we suggested, the difference would have been very great, and I think the right hon. Gentleman's real reason for not accepting the Amendment now before the Committee is that if he did accept it he knows very well that he would get the same kind of howl of indignation and protest which forced his predecessor to abandon the earlier tax.

7.37 p.m.

Mr. Noel-Baker

The Chancellor argued, firstly, that it did not greatly matter what standard you took, because the real way of stopping excess profits was—

Sir J. Simon

I did not say that it did not matter what standard you took. I agree that it is important. What I said was that that is not the primary way in which you should seek to limit the profits.

Mr. Noel-Baker

That is the way I should have stated it. I agree that it is the primary way, which the Government have adopted, but in our view it is not the right way, and I think the Prime Minister's admission in April really supports that view. I do not believe that new powers of the Minister of Supply will help, unless and until he creates national factories on a very large scale to check the prices which private manufacturers charge. I am sure he will not do that, and until he does I shall not believe in the efficiency of costing only. Therefore, I shall continue to think that this is a matter of great importance and that the standard year taken is really fundamental. I recognise, with the Chancellor, that if you took 1934 you would do an injustice to some firms. For a great many firms that year was a year of slump, and it might be unjust. But not for armament firms— those firms which are still selling a great proportion of the finished arms which the Government buy. The great majority of finished arms are still being sold by firms which are principally engaged in the manufacture of arms and were so principally engaged in 1934. But I agree that it may be difficult to have a standard which is fair both to the armament firms and also to the civil engineering firms which have been brought into armament manufacture as a result of what we used to call industrial mobilisation. Perhaps you cannot take one standard that will apply equitably to both. Can you make a distinction between them? I think you can. The year 1934 was a year of normal profits to the armament firms. They were paying reasonable dividends and making a profit on capital which could easily be assessed. It was assessed by the Royal Commission on the Private Manufacture of Arms at £ 53,000,000, and they were earning a profit of £ 3,800,000, or 8 per cent., which is not a bad profit on the capital as it was declared to be to the Royal Commission.

If you have that as a fair standard to start with for the armament firms, I put it to the Chancellor of the Exchequer that to take the years 1936–37 for such firms is grotesque, because there are the basic facts, on which the right hon. Gentleman has not answered me, that by 1937 these firms were having money paid out to them by the Government for finished armaments six times as much as they had received in 1934, and they were paying those very high dividends and earning those very high profits of which I have spoken. Can you make a dis- tinction between the two and keep 1934 for armament firms and another standard for civil firms? I think you can. If the Chancellor would bring in a Clause that laid it down that for firms on the contractors' list of the Admiralty, the War Office, and the Air Force in 1934, firms which in that year received £ 200,000 in orders for armaments as now denned by the Minister of Supply, you would be setting them a standard that would be fair, and you could know quite easily which they were; and for other firms which were not on the contractors' list and did not fall into that category you could take some other formula, which I should propose would be the average of 1935 and 1936, because, as the hon. Member for North Paddington (Mr. Bracken) said, that would be generous to them, but perhaps not too generous in the present circumstances. I make these proposals and hope the Chancellor will promise to consider them before the Report stage; otherwise we shall be obliged to vote against this Clause.

Sir P. Hannon

Does the hon. Member realise that in Coventry, which he once represented, that during series of years firms now engaged in armament production were passing through very bad times, and that those firms carried an enormous amount of invested capital with no return at all?

Mr. Noel-Baker

I am well aware that at no time, even in the year when unemployment in Coventry reached as high as 30,000, has unemployment there been anything like what it has been in many other parts of the country. Some firms which had watered their stock very considerably in the course of the last War were not able to pay much dividend on that stock, but most of the owners of those firms had taken out their money and put it into other investments, and it was the public who lost the money; and those people remain to this day immensely rich. You have only to mention their names to know that they are immensely rich.

Mr. Bracken

Will the hon. Member tell us their names?

Mr. Noel-Baker

I do not want to do that, but they need not be ashamed of it. It is the fact, as I have stated it. I ask the Chancellor to reconsider the matter and to bring in new proposals on the Report stage. If not, we shall have to divide the Committee.

Mr. Gallacher

If this Amendment is not accepted, then we are faced with a situation where, if a firm during the years 1936-37 has made what in ordinary circumstances would be considered excess profit, that excess profit would become the standard profit. There is a provision whereby any firm in the year that is chosen as the standard year has a very low profit. It can make an appeal to the Board of Referees, and the Board of Referees, after considering the circumstances, can declare a higher rate of profit than the firm has actually made as the recognised standard profit for that firm. I want to ask the Chancellor whether he is going to make any provision to ensure that, just as a low rate of profit can be increased, so an excessive rate of profit can be reduced. Is that not possible?

7.44 p.m.

Sir Hugh Seely

I did not agree with either the first speech of the hon. Member for Derby (Mr. Noel-Baker) or the reply from the Chancellor of the Exchequer. I think the 1936 standard too low, and I do not think the Chancellor's explanation that other people were asking for an even higher one was the way in which one would want to deal with the matter. I think the second speech of the hon. Member for Derby was much nearer the mark. It certainly will be a very high figure which the Chancellor has accepted. In regard to firms which are now making armaments, the years chosen are very favourable ones and will come out favourably for the companies. What happened in the slump years does not affect this Clause one way or the other. Some may have made a great deal in those years on other work. We are dealing with the arms that are being made to-day. If the Chancellor of the Exchequer could give an assurance that he would think of some formula other than leaving it purely to this one of years, it would be more satisfactory, because as it is proposed there will be a feeling that you are choosing years in which the standard profits were the highest. During the War in the coal trade we had a standard profit; certain years were taken for the purpose of standard profits, but they were not chosen from those years when the War was on, because the profits then could have been too high. In the present case we are choosing years in which very high profits undoubtedly were made. It is these high profits which are making the people of this country suspicious, and they have a very strong feeling that very high profits are being made now. I hope the Chancellor of the Exchequer will be able to give attention to the proposal made by the hon Member for Derby (Mr. Noel-Baker).

7.47 p.m.

Sir J. Simon

I must, in the first place, explain to the Committee that we reached the formula in the Bill after a great deal of consideration. Naturally, hon. Members have not had the same opportunity of considering this matter with the same prolonged detailed examination which we have been able to give to it. After that examination, we came to the conclusion which is incorporated in the Bill. On the whole, my opinion is that the course we have adopted is the right one. I will consider what has been said, but I do not think that I should be justified in saying anything or giving a promise which might persuade the hon. Member for Derby (Mr. Noel-Baker) and his friends from dividing, if they wish to do so. If they desire to express their views in the Division Lobby, it is better that they should do that. I will, however, examine the question further. Since the matter was raised to-day I have only been able to make a perfunctory inquiry. I would have hon. Members bear in mind that this is a complicated standard. It is not one standard but two, and it is not a very easy thing for anyone to say how you are to draw the line between one and the other. I will look at the matter in all honesty, but I do

not wish to use words of soothing encouragement. There is one question which I have been asked, which I will answer at once. I was asked whether or not there is any provision in the scheme by which if the year 1936 or 1937 gave a high figure something could be taken off on the ground that it was excessive. The answer is, no. What is and what is not excessive is a question of judgment until you can define it. We do define in this Clause what we mean.

Mr. Gallacher

Let me put this question. Two firms are working and they both choose this particular year. One firm has a profit of 3 per cent. and the other a profit of 10 per cent. The firm making 3 per cent. profit makes an appeal to the referee and the referee may decide to raise their standard to 6 per cent. as the standard profit which they should be allowed. Is there any power to bring the 10 per cent. down to the standard of 6 per cent.?

Sir Irving Albery

I hope my right hon. Friend will not for one moment consider adopting a standard based on a single year.

Mr. Noel-Baker

I thank the right hon. Gentleman for his promise to consider this matter. I think he must have in his mind the difficulty of the old conundrum: Can you define an armament firm? I hope he will give careful consideration to the matter, but I am afraid that we must divide the Committee.

Question put, "That those words be there inserted in the proposed new Clause."

The Committee divided: Ayes, 115; Noes, 161.

Division No. 205.] AYES. [7.52 p.m.
Adams, D. (Consett) Cooks, F. S. Griffiths, J. (Llanally)
Adams, D. M. (Poplar, S.) Collindridge, F. Hall, J. H. (Whitechapel)
Adamson, Jennie L. (Dartford) Cove, W. G. Hardle, Agnes
Ammon, C. G. Cripps, Hon. Sir Stafford Harris, Sir P. A.
Anderson, F. (Whitehaven) Daggar, G. Harvey, T. E. (Eng. Univ's.)
Banfield, J. W. Dobbie, W. Hayday, A.
Barnes, A. J. Dunn, E. (Bother Valley) Henderson, A. (Kingswinford)
Batey, J. Ede, J. C. Henderson, J. (Ardwick)
Ballenger, F. J. Edwards, A. (Middlesbrough E.) Henderson, T. (Tradeston)
Benson, G. Edwards, Sir C. (Bedwellty) Hills, A. (Pontefract)
Bevan, A. Foot, D. M. Hopkin, D.
Broad, F. A. Frankel, D. Isaacs, G. A.
Brown, C. (Mansfield) Gallacher, W. Jenkins, A. (Pentypool)
Buchanan, G. Gardner, B. W. Jenkins, Sir W. (Neath)
Burke, W. A. Garre Jones, G. M. Jones, A. C. (Shipley)
Cape, T. George, Megan Lloyd (Anglesey) Kennedy, Rt. Hon. T.
Charteton, H. C. Graham, D. M. (Hamilton) Kirkwood, D.
Chater, D. Greenwood, Rt. Hon. A. Lathan, G.
Cluse, W. S. Grenfell, D. R. Lawson, J. J.
Clynes, Rt. Hen. J. R. Griffith, F. Kingsley (M'ddl'sbro, W.) Leach, W.
Leonard, W. Parkinson, J. A. Summnerskill, Dr. Edith
Leslie, J. R. Pearson, A. Taylor, R. J. (Morpeth)
Lunn, W. Pethick-Lawrence, Rt. Hon. F. W. Thorne, W.
Macdonald, G. (Ince) Price, M. P. Tinker, J. J.
McEntee., V. La T. Pritt, D. N. Viant, S. P.
McGhee, H. G. Quibell, D. J. K. Watson, W. McL.
MacLaren, A. Richards, R. (Wrexham) Welsh, J. C.
Marshall, F. Riley, B. Westwood, J.
Maxtor, J, Ritson, J. White, H. Graham
Messer, F. Robinson, W. A. (St. Helens) Whiteley, W. (Blaydon)
Milner, Major J. Seely, Sir H. M. Wilkinson, Ellen
Montague, F. Sexton, T. M. Williams, E. J. (Ogmore)
Morgan, J. (York, W.R., Doncaster) Silkin, L. Williams, T. (Don Valley)
Morrison, Rt. Hon. H. (Hackney, S.) Silverman, S. S. Wilmot, John
Naylor, T. E. Simpson, F. B. Wilson, C. H. (Attercliffe)
Noel-Baker, P. J. Smith, E. (Stoke) Woods, G. S. (Finsbury)
Oliver, G. H. Smith, Rt. Hon. H. B. Lees- (K'ly) Young, Sir R. (Newton)
Paling, W. Stephen, C.
Parker, J. Stewart, W. J. (H'ghtn-le-Sp'ng) TELLERS FOR THE AYES.—
Mr. Mathers and Mr. Adamson.
NOES.
Adams, S. V. T. (Leeds, W.) Gritten, W. G. Howard Rickards, G. W. (Skipton)
Albery, Sir Irving Guinness, T. L. E. B. Rosbotham, Sir T.
Allen, Col. J. Sandeman (B'knhead) Hannon, Sir P. J. H. Ross, Major Sir R. D. (Londonderry)
Aske, Sir R. W. Haslam, Sir J. (Bolton) Rowlands, G.
Assheton, R. Heilgers, Captain F. F. A. Royds, Admiral Sir P. M. R.
Balfour, G. (Hampstead) Hely-Hutchinson, HI. R. Russell, Sir Alexander
Beechman, N. A. Hepburn, P. G. T. Buchan- Russell, S. H. M. (Darwen)
Blair, Sir R. Herbert, Lt.-Col. J. A. (Monmouth) Salmon, Sir I.
Bower, Comdr. R. T. Higgs, W. F. Salt, E. W.
Bracken, B. Horsbrugh, Florence Samuel, M. R. A.
Braithwaite, J. Gurney (Holderness) Hudson, Capt. A. U. M. (Hack., N.) Sandeman, Sir N. S.
Briscoe, Capt. R. G. Hume, Sir G. H. Selley, H. R.
Broadbridge, Sir G. T. Hunloke, H. P. Simmonds, O. E.
Brown, Rt. Hon. E. (Leith) Hurd, Sir P. A. Simon, Rt. Hon. Sir J. A.
Brown, Brig.-Gen. H. C. (Newbury) Hutchinson, G. C. Sinclair, Col. T. (Quean's U. B'lfst)
Browne, A. C. (Belfast, W.) Jones, Sir G. W. H. (S'k N'w'gt'n) Smiles, Lieut.-Colonel Sir W. D.
Bull, B B. Levy, T. Smith, Bracewell (Dulwich)
Burgin, Rt. Hon, E. L. Liddall, W. S. Smithers, Sir W.
Cayzer, Sir C. W. (City of Chester) Little, J. Snadden, W. McN.
Channon, H. Locker-Lampson, Comdr. O. S. Somerville, Sir A. A. (Windsor)
Clarke, Colonel R. S. (E. Grinstead) Loftus, P. C. Southby, Commander Sir A. R.
Conant, Captain R. J. E. Mabane, W. (Huddersfield) Spears, Brigadier-General E. L.
Cooke, J. D. (Hammersmith, S.) MacAndrew, Colonel Sir C. G. Spens, W. P.
Cooper, Rt. Hn. A. Duff (W'st'r S.G'gs) Macdonald, Capt. P. (Isle of Wight) Stanley, Rt. Hon. Oliver (W'm'l'd)
Courtauld, Major J. S. McEwen, Capt. J. H. F. Stewart, J. Henderson (Fife, E.)
Craven-Ellis, W. McKie, J. H. Stourton, Major Hon. J. J.
Crooke, Sir J. Smedley Macmillan, H. (Stockton-on-Tees) Strauss, H. G. (Norwich)
Crookshank, Capt. Rt. Hon. H. F. C. Macquisten, F. A. Strickland, Captain W. F.
Cross, R. H. Manningham-Buller, Sir M. Stuart, Lord C. Crichton- (N'thw'h)
Crowder, J. F. E. Margesson, Capt. Rt. Hon. H. D. R. Stuart, Rt. Hon. J. (Moray and Nairn)
Culverwell, C. T. Markham, S. F. Tasker, Sir R. I.
De Chair, S. S. Maxwell, Hon. S. A. Taylor, C. S. (Eastbourne)
Denman, Hon. R. D. Medlicott, F. Thomson, Sir J. D W.
Drewe, C. Mills, Sir F. (Leyton, E.) Thorneycroft, G. E. P.
Dugdale, Captain T. L. Mills, Major J. D. (New Forest) Touche, G. C.
Eastwood, J. F. Morgan, R. H. (Worcester, Stourbridge) Turton, R. H.
Edmondson, Major Sir J. Morrison, G. A. (Scottish Univ's.) Walker-Smith, Sir J.
Elliot, Rt. Hon. W. E. Morrison, Rt. Hon. W. S. (Cirencester) Ward, Lieut.-Col. Sir A. L. (Hull)
Ellis, Sir G. Nall, Sir J. Warrender, Sir V.
Elliston, Capt. G. S. Neven-Spence, Major B. H. H. Waterhouse, Captain C.
Emery, J. F. O'Connor, Sir Terence J. Watt, Lt.-Col. G S. Harvie
Emrys-Evans, P. V. Orr-Ewing, I. L. Wayland, Sir W. A.
Everard, Sir William Lindsay Peters, Dr. S. J. Wells, Sir Sydney
Fleming, E. L. Petherick, M. Wickham, Lt.-Col. E. T. R.
Fox, Sir G. W. G. Pickthorn, K. W. M. Winterton, Rt. Hon. Earl
Furness, S. N. Pilkington, R. Wolmer, Rt. Hon. Viscount
Fyfe, D. P. M. Ponsonby, Col. C. E. Womersley, Sir W. J.
Gledhill, G. Procter, Major H. A. Wood, Hon. C. 1. C.
Gluckstein, L. H. Radford, E. A. Wragg, H.
Gower, Sir R. V. Raikes, H. V. A. M. Wright, Wins-Commander J. A. C.
Graham, Captain A. C. (Wirral) Ramsbotham, Rt. Hon. H. York, C.
Greene, W. P. C. (Worcester) Rayner, Major R. H.
Gridley, Sir A. B. Read, A. C. (Exeter) TELLERS FOR THE NOES.—
Grigg, Sir E. W. M. Reid, W. Allan (Derby) Lieut.-Colonel Kerr and Mr.
Grimston, R. V. Remer, J. R. Munro.

Question put, and agreed to.

8.0 p.m.

Mr. Simmonds

I beg to move, as an Amendment to the proposed new Clause, in line 16, to leave out from "thirty-six" to the end of the Sub-section and to insert "or the year nineteen hundred and thirty-seven." The effect of this would be that contractors would have the option of three individual years, 1935, 1936 and 1937, and not 1935 just individually and the mean of one of those two years with 1937. The Chancellor of the Exchequer has explained that rearmament was not well under way in 1936. The Secretary of State for Air, who came in because aircraft production was so low, did not in fact take office until the late spring of 1938, and we are therefore perfectly correct, and so was my right hon. Friend, in saying that during 1937, particularly as far as aircraft production was concerned, the momentum of rearmament was not under way. But I want to address the Committee on an entirely different basis. It seems to me that hon. Members opposite have missed the fundamental point with regard to this duty. Most of the yield will come from contractors who are not what is normally known as armament firms. It will come from those contractors who have recently come in to the supply of all that we understand within the term armaments. It will include many firms which are not at the moment supplying the Forces but whom the Minister of Supply may either persuade or force into accepting armament contracts.

I want to ask the Chancellor— we do not intend to press the matter to a Division— if he would review the position of firms which were not doing armaments at all during these three standard years but who are now going to be subject to this duty because they will have contracts in excess of £ 200,000. I will give one example out of many that I could give of a great Birmingham firm known throughout the country and indeed throughout the Empire, and I am indebted to the directors for permission to give the information. It refers to Stewart and Lloyds, the great tube making firm. They were part of the International tube cartel, which at the beginning of 1935 the Germans smashed up, when they started competing at absurd prices throughout the world. As a result, and I should not like to say without some support by way of suggestion or approval from the Government, Stewart and Lloyds decided quickly to cut all profits, and they raced the Germans round the world playing their own game. Is not that what right hon. Gentleman on the Front Bench have often advised British firms to do, to stand up to the Germans and let them see that we can beat them at their own game? Stewart and Lloyds estimate that, as a result, they lost profits to the extent of £ 600,000 in each of the two years 1935 and 1936. At the end of 1936 the cartel was patched up again and 1937 became a respectable year. In 1935 their profits amounted to only £ 800,000, in 1936 to £ 1,200,000 and in 1937, when the cartel started to operate again and there was rationalisation of the home market, they went up to £ 2,300,000.

That has nothing to do with armaments at all, but now that that firm has come in and assisted the country with the supply of certain products for the Forces it would be wholly unjust that the Government should be forced to take those two years into consideration for standard profits. I hope the Chancellor will feel that here is a very substantial point for these firms which are now coming into armaments and which may, for reasons wholly beyond their control, have had very bad years in 1935 and 1936, though the situation may have mended in 1937. I hope, although he obviously cannot give us any undertaking now, that my right hon. Friend will consider this aspect together with the proposals which have been made by hon. Members opposite. We believe very strongly in the equity of our case and we are speaking for a very large number of important firms who are now going to turn their hands to armaments and who, I am certain, the Government would desire should have a square deal.

8.8 p.m.

Sir J. Simon

We discussed this subject of the choice of standard years, going over a wide range, just now. My hon. Friend has put his point with admirable brevity and clearness, and, of course, I will carefully study the considerations that he has urged and the suggestions that he has made. I think we ought, however, to try to arrive at the right level not by taking hard cases and then deducing a rule from them, but rather by taking a fair range of cases, remembering that there may be cases which need special treatment. Sub-section (6) of the Clause provides that, after the standard has been worked out according to the ordinary rules, If, on the application of the person carrying on the business, the Board of Referees are satisfied that, in the standard period, the rate of profit or the volume of business was less than might then have been reasonably expected, they may direct that the standard profits shall be ascertained as if the profits for that period were such greater amount as they think just. I know that is very general, but you must trust someone, and I cannot imagine a better judge for the purpose than the Board of Referees, who have experience and are completely independent and have shown the greatest good sense in the things that they have had to handle. It is better to take fairly into account all considerations which might operate, than to take a very exceptional case, even a hard case, and make it the thing that determines the rule. That is my feeling about it. I have listened to my hon. Friend with a real understanding of he great importance of the point and I will certainly consider what should be done when we come to Report.

3.12 p.m.

Sir P. Hannon

My hon. Friends and myself thank the Chancellor for the statement that he has made and his promise to keep in mind the difficulties that many industries have had to contend with over a long period of years. I know he will always remember that many firms now turning to armament production have had a very lean and hard time in the years that have passed. Some of them have had to maintain a large amount of machinery, keep intact a staff of skilled workmen and endeavour to keep continuity of production under very difficult circumstances up to 1933 and 1934. I know that no one is more alive to that than the Minister of Supply designate, who has made it his special study to examine, I am sure sympathetically, circumstances in which firms have gone into armament production who have had to carry their burden of commercial and industrial responsibility and have been in difficulties for many years. If this were to go to a division I should not vote, because I am interested directly in armament work, but at the same time I feel it my duty to emphasise the point that there are considerations which should be kept in view in relation to the period for which profits are to be considered for the purposes of Armament Profits Duty.

8.14 p.m.

Mr. Higgs

The year 1937 is already included as a combined year, and what we are asking the Chancellor of the Exchequer to do is to include it as a separate year. The armament expenditure which has already taken place is said to have a considerable effect upon various firms, but it is not realised that that expenditure up to 1937 was made in preparation and was considerably spread over a large number of firms and did not affect those individual firms whom this tax is expected to cover. The "Economist" index of British business activities gives the maximum period of activity as 1937. Then it falls until the end of 1938, and the most rapid portion of the fall is at the beginning of 1938. That is pretty conclusive that all this armament expenditure has not had a considerable effect upon the whole of industry. In 1928 it certainly did have an effect on certain firms, and I cannot see any reason why 1937 cannot be included as a standard year. I would remind the Chancellor that the old Excess Profits Duty included a provision for merging different accounting periods but, as far as I can see, there is no provision of that description in this new Clause, and there fore manufacturers will work under a disadvantage as compared with the old Excess Profits Duty. This tax is supposed to continue for three years, and surely during that period there will be a natural expansion, and if that natural expansion is to have any consideration then it should be a basic tax on profits on turnover. Manufacturers have accepted this tax, there has been little or no opposition to it, and if the Chancellor can see his way to give a concession on this point I am sure that it will be greatly appreciated.

Mr. Simmonds

In view of the Chancellor's statement that he will be good enough to look into this point, and in the belief that he will probably see the virtue of our argument, we beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause be added to the Bill."

The Chairman

The Question is—

Mr. Gallacher

May I not speak?

The Chairman

The Clause has been read a Second time and we are at a different stage now.

Mr. Pethick-Lawence

Do I understand you to rule that no speech can be made upon the Motion that the Clause be added to the Bill? Is that your Ruling, Sir Dennis?

The Chairman

No, I do not think that is so; but it would be difficult to imagine a speech which would be in order. There was a Debate on the Question that the Clause be read a Second time, and it has not been altered since the Committee decided for the Second Reading.

Mr. Pethick-Lawrence

But supposing the Clause had been considerably altered in the course of the proceedings since then. The Clause has never before appeared in the Bill, it is read a Second time and Amendments are discussed, and surely when we come to the Question that the Clause be added to the Bill, we are in the same position as with the Question that the Clause stand part of the Bill in an ordinary Committee discussion. I should have thought it would be possible to have some discussion on the Motion. I do not know of any Motion on which it is not possible to have some Debate. An hon. Member might feel that because the Clause had not been amended it ought not to be put into the Bill in its un-amended form. He might have been quite prepared to allow it to be read a Second time, hoping to see it amended, and if it is not amended he may wish to give grounds why it should not be added to the Bill.

The Chairman

The right hon. Gentleman is, of course, correct. I do not think I can quarrel with anything he said except, incidentally, that there are Motions which certainly cannot be debated, but that is by the way. What I meant to rule was that I did not think the Clause could be discussed in the same way as it was discussed on the Question that it be read a Second time. The right hon. Gentleman is quite right in thinking that there are certain limits within which it could be debated now as a result of its not having been amended. In the same way it might have been possible, if it had been amended, to discuss it in the light of the alterations which had been made. I understood the hon. Member for West Fife (Mr. Gallacher) to say that he wanted to speak generally on the Clause, and it was to that that I was objecting. It would not be in order for him to make such a speech as I anticipate he might have made on the Question that the Clause be read a Second time, and I can only warn him, therefore, that he will have to keep strictly within the limits of order.

Mr. C. S. Taylor

Did I understand that you had put the Question?

The Chairman

I had not collected the voices.

8.20 p.m.

Mr. Gallacher

I did not want to intervene in the Debate on the previous Amendment, but it brought out very clearly a point which I want the Chancellor to consider. I shall not discuss the Clause generally at all, but I should like this particular point considered. The fact that the three hon. Members opposite were prepared to press their Amendment shows the need for the Chancellor to give the closest attention to this point. They are not satisfied with the Sub-section of the Clause which makes everything quite safe for them.

Sir P. Hannon

We are entirely satisfied with the statement made by the Chancellor.

Mr. Gallacher

But not with the statement in the Clause which has been presented by the Chancellor, and it is with that that I am dealing. I want to change the Chancellor's mind if he has any intention of giving concessions to the hon. Members. Sub-section (6), to which the Chancellor referred, makes everything quite safe so far as the hon. Members are concerned. If the industry which they are talking for had a low rate of profit in the particular years referred to all they have to do is to appeal to the referees.

Mr. Higgs

Was the hon. Member present when the hon. Member for Duddeston (Mr. Simmonds) spoke?

Mr. Gallacher

Certainly I was present. I heard the three hon. Members present the case for the Amendment, and I heard the Chancellor point out that Sub-section (b) allowed an appeal to the referees so that if the profits are low as a result of this, that or the other circumstance the referees can decide, on the basis of equity, to raise the standard. Surely hon. Members cannot ask for more than that, and the fact that they do ask for something more means that they are conscious that what I have suggested will probably be the case, that years will be chosen in which some of these firms are already making what could be called excess profits, that as a consequence it will be an excess profit that will be classed as a standard profit, and so the tax will be not a tax upon an excess profit but a tax on an excess over an excess profit. That is the point which I am anxious should be considered, and I am of opinion that the very fact that the three hon. Members, representing powerful industries, are not satisfied—

Sir P. Harmon

Representing what?

Mr. Gallacher

Widespread industries, powerful and widespread industries.

Mr. Simmonds

I do not think the hon. Member can claim that we represent industries; we are representing our constituencies, like hon. Members opposite.

Mr. Gallacher

I will put it that the three hon. Members are speaking for powerful and widespread industries.

Mr. Simmonds

We are speaking for the industry of Birmingham. We have that honour.

Mr. Gallacher

I am not saying anything against that. I am saying that the three hon. Members, speaking for very widespread industries, are not satisfied with Sub-section (6), and if they are not satisfied with what is considered a fair standard of profit it is obvious they want to have excess profits as a standard. The hon. Member shakes his head, but if he reads Sub-section (6) he will realise the position.

Sir P. Hannon

I have already said that my hon. Friends and I accept the statement of the Chancellor as entirely satisfactory.

Mr. Gallacher

I am asking whether they accept the Clause of the Chancellor as entirely satisfactory, because the hon. Member said he withdrew the Amendment in the very great hope that the Chancellor would make a concession.

Mr. Simmonds

The Chancellor promised to make an investigation in the same way as he did in the case of the hon. Member for Derby (Mr. Noel-Baker), and I fail to see why he should not investigate our Amendment as well as that of the hon. Member for Derby.

Mr. Gallacher

I have no objection to hon. Members taking up that attitude, but it makes it clear that they are not satisfied with the Clause as it stands. If they are not satisfied with the Clause as it stands they are not satisfied with being allowed a moderate and fair rate of profit as the standard for the standard year. They want an excess profit for the standard year and it is about that that I want to warn the Chancellor of the Exchequer and the Financial Secretary. Some profits may be raised. If the hon. Members have a profit of 3 per cent. in the years that are chosen and it is considered that the normal profit should be 6 per cent., they can get 6 per cent. from the referee, but if their profit is 20 per cent. there is no arrangement of any kind to alter that as the standard that will apply to that firm. There is no provision in the Clause for bringing a profit down from an excess character to a normal character, although there is provision for bringing a profit up from what is considered low to what is considered a normal standard. I am very concerned that the Chancellor of the Exchequer should take this point into account. The three hon. Members are not prepared to accept a fair and equitable profit. They want to get an excess profit as a standard profit.

Sir P. Hannon

The hon. Gentleman has no right to say that. He is misrepresenting our point of view completely. We are quite prepared to accept the statement made by the Chancellor of the Exchequer and it is a violation of his position in this House for the hon. Gentleman to make charges of that kind.

Mr. Gallacher

Let me ask the hon. Member whether he is satisfied with Subsection (6), which reads: If, on the application of the person carrying on the business, the Board of Referees are satisfied that, in the standard period, the rate of profit or the volume of business was less than might then have been reasonably expected, they may direct that the standard profits shall be ascertained as if the profits for that period were such greater amount as they think just. Is the hon. Member satisfied with that?

Mr. Simmonds

From what the hon. Member is saying it is obvious that he has not followed the matter very closely. We think it would be much preferable that these points should be fixed in the Bill without this continual reference to arbitration. I am certainly not liking to see Sub- section (6), and I do not think it should be utilised in almost every case. We should try to fix something and not leave the whole thing to arbitration.

Mr. Gallacher

Will the hon. Member agree to support the proposition that I make to the Chancellor, that if profits are excessive in the particular year chosen there should be a provision to bring those profits down?