HC Deb 16 July 1914 vol 64 cc2214-48

For the purpose of enabling deductions from revenue receipts of expired capital outlay on inherently wasting assets to be allowed by the additional Commissioners' claims in respect of those deductions shall be included in the annual statement required to be delivered under the Income Tax Acts of the profits and gains of any trade, manufacture, adventure, or concern, and where such a deduction from the revenue receipts is made, and has been made, from the commencement of the actual employment of the inherently wasting assets in seeking profits, or during a period of not less than three years to the end of the usual financial year of the particular trade, manufacture, adventure, or concern last prior to the year of assessment, and provided such deduction is so made as to prevent the same being available as profits, the additional Commissioners in assessing those profits and gains shall make such allowances in respect of those claims as they think just and reasonable. For the purpose of this Section the term "inherently wasting assets" means assets which necessarily waste in the process of seeking profits, provided always that such wasting assets are not the value of transferred rights to future profits or increase which would have been chargeable with Income Tax if no transfer of such rights had been made.

Clause brought up, and read the first time.

Mr. PETO

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

I wish the Committee to bear in mind the words which were used a few days ago by the Prime Minister in regard to the Income Tax law. He said it was in such a state of confusion that even lawyers found it very difficult to interpret the law. On the top of that, and by way of encouragement, two nights ago, referring to Clause 5 of the present Bill, the Attorney-General said that it was a ghastly thing to talk about. I feel somewhat appalled at bringing forward this new Clause, but as it deals with a subject which affects every business in the country, and a grievance which has been growing ever since the Income Tax was re-enacted in 1842—in proof of which I may mention that it met with some measure of recognition in 1878 by the granting of some sort of allowance—I think that it is not inappropriate that I should bring this Clause to the attention of the Committee. It is a Clause which has been drawn with the greatest care. It has received the attention of the most competent people among the chartered accountants and business men of the country, and it has stood fire on two occasions already in this House, end has met with some measure of faint approval, or at any rate, has been damned with faint praise by the Chancellor of the Exchequer. The Clause appears on the face of it to be perhaps a little intricate. My hon. and learned Friend the Member for Warwick, speaking on this Clause on the 2nd August, 1912, said:— I also claim for this Clause that in principle, and on its face, it is a genuine Income Tax Clause for the reason that no person cannot possibly understand it at first sight. I cannot complain of that, but I think that that makes it necessary to explain to the Committee why this Clause is worded in this form. It is really divisible into five parts. The first few lines show what we claim the power of deducting in calculating the profits of an industry. It is not described as depreciation, or by any vague wording of that kind, but as the "expired capital outlay on inherently wasting assets." That phrase has been carefully thought out. I am sure that it is watertight and expresses exactly that in respect of which it is intended to give relief. In the next part of the Clause there are two conditions which attach, so that these deductions, made for that purpose, shall be regularly made. That is expressed at some length in the following passage— And where such a deduction from the revenue receipts is made, and has been made, from the commencement of the actual employment of the inherently wasting assets in seeking profits, or during a period of not less than three years to the end of the usual financial year of the particular trade, manufacture, adventure, or concern last prior to the year of assessment. All that implies that the practice must not be spasmodic, but that it must be a regular practice of the company or person concerned to make this deduction in respect of inherently wasting assets The further condition comes in the next few lines:— and provided such deduction is so made as to prevent the same being available as profits. That is of enormous importance in making this a Clause which the Treasury can accept. For this reason, everybody knows that in business it is very common to have, a reserve fund, and that that reserve fund is used for all kinds of purposes, very often for the equalising of dividends, and very often it is not clearly defined for what purpose that money is put to reserve. That sort of reserve fund would not under the Clause hold water at all. The deduction must be set aside in such a form as to prevent it being available as profit. The next important part of the Clause immediately follows. When all those conditions are fulfilled the additional Commissioners in assessing those profits and claims shall make such allowances in respect of those claims as they think just and reasonable. Under this Clause we leave the discretion in the hands of additional Commissioners of Income Tax to say whether the claim is a genuine claim and to what extent it ought to be made, and whether it is just and reasonable; and we finish this up in a fifth provision, and say:— Provided always that such wasting assets are not the value of transferred rights to future profits or increase which would be chargeable with Income Tax if no transfer of such rights had been made. That is of the very greatest importance, because it shuts out from this Clause a great many matters and things which we do not consider are proper subjects to be treated as inherently wasting assets. It shuts out at once all questions of the diminishing value of leaseholds, copyrights, patent rights, goodwill, and all such things. We shut out all such subjects as can be bought and sold, and as are frequently bought for a lump capital sum, as in the case of sales or purchases of patent rights, which is in effect a transfer of anticipated future profits, which future profits if they had never changed hands would have been subject to Income Tax. Therefore, by this last proviso we shut out all those cases against which a real case can be made. The granting of a lease does not impair the actual value of the premises demised, and the purchase for a lump sum of the right to future profits arising out of an author's or an inventor's work does not impair those profits. Therefore, we shut those out entirely. I admit that there are some things which are somewhere on the margin. It is almost impossible in a case of this kind not to have some element of doubt, and that is one of the reasons why we have left it to the additional Commissioners, in assessing these questions, complete discretion as to whether the claims are just and reasonable. I do not want to have it said in reply, "What about terminable annuities?" Those are not in the same category as leasehold, copyright or patents, and, on the other hand, they are not the same thing, though they are subject entirely to the same considerations as such definite matters as mineral deposits and machinery employed in manufacture, and things of that sort. Undoubtedly there is a very strong case to be made in respect of these. In the purchase of terminable annuities it seems a very hard thing not to have an allowance made.

I will give an actual case stated in a letter received yesterday. A person who has been employer abroad, earning a small salary, has bought with the savings out of that salary, which has already been subject to tax when earned, an annuity in this case of £100 a year for twenty years, paying to a life insurance company, therefore, the sum of £1,260, and he is being taxed on the whole of that £100 every year during the twenty years, although the capital disappears at the end. It may be said that under the wording of this Clause that will not be covered, and I think that it would not be covered by the last words of the Clause, "which would have been chargeable with Income Tax if not such transfer had taken place." On the other hand, there is this view, that if a particular person instead of purchasing an annuity, held the capital in his own hands, obtaining the ordinary interest of 4 per cent, or 5 per cent., then that would have been charged with Income Tax on 4 per cent, or 5 per cent., in this case, £50 or £60 per year, instead of £100 a year the capital passing at death, would have been subject to the Death Duty. I do not want to go further into that. I am quite aware that there are very grave cases of hardship where people who buy these annuities, generally do it because they have such small means that it is absolutely necessary to them for the purpose of the education of their children or in order to live, or whatever it may be, to secure a larger income than their capital will ordinarily command. It does seem very hard, therefore, that they should be charged Income Tax on the whole of the capital they spend and the whole of the dividends that would in ordinary course have accrued, while other people, better off, pay annually Income Tax upon their actual profits or gains. In the case I have quoted it means, almost exactly doubling the rate of Income Tax; it means that the Income Tax on a very small income is 2s. 6d. in the £ of every £ forming this annuity, instead of 1s. 3d.

I would like to tell the Committee quite plainly what are undoubtedly the things included in this Clause. It includes all mineral deposits—that is to say, the wasting annual value of all mineral deposits; it includes allowance for the wasting value of plant, machinery, building work, shaft sinking and analogous works of that kind, and trade fittings and fixtures. All those things are included; those are the special things to which I want to call the attention of the Committee and of the right lion. Gentleman. Before I go into the details of the case, however, I would like the Committee to consider what is the effect of the present method of raising our Income Tax. The present method of collecting the tax, without allowing any adequate allowance in calculating the profits, or any of those things which I have enumerated, produces several different results, which are all of them contrary to the interests of the trade of the country, and all of them contrary to the interests of the Treasury. They encourage unsound finance, and I do not think that is a good thing from any point of view. They undoubtedly obstruct enterprise and discourage ability; they discourage investments of capital in productive industry, and discourage the expenditure necessary to maintain and expand business; and, finally, this method ignores altogether the business maxim that "the scrap heap is. the best test of progressive management"—in a word, it is altogether contrary to the commercial interests of the country. As to the justification there is for it, it has often been put forward before, that though it is a crude method it is the best method of collecting the tax quickly and effectively, I would say, in regard to a temporary financial expedient, as the Income Tax used to be regarded, that it may be perfectly right that simplicity should be the guiding rule, but with regard to a permanent tax—and this is not only a permanent tax, but it is the main revenue-producing tax—there is no question whatever that it is the bounden duty of the Treasury to see that it is levied in such a way that equity and justice come first and expediency comes after.

Our complaint is not with the Income Tax Act of 1842 at all. We do not complain of the definition at ail in the title of the Act or the definition in Schedule D. The title of the Act is, "An Act granting to Her Majesty duties arising from property, professions, and trades, et cetera." Schedule D applies to profits or earnings of any person residing in Great Britain and so forth. Where the trouble comes in is in the rules under Schedule D. In the third rule, among the things that are not to be allowed to be deducted in calculating profit. The words are, "nor on account of loss in trade, and any such trade, venture or concern, nor on account of any capital withdrawn therefrom." As this has been interpreted in the Law Courts, we claim—and it is the view held by chartered accountants throughout the country—that the decisions are really based upon a fundamental error when they talk about "the withdrawal of capital." Take the case of the wasting value of mineral deposits. If you place a proper sum aside annually to meet that, it is not a withdrawal of capital at all; you are merely maintaining the capital of your company year by year; but when a certain portion of that capital is transferred from the form of minerals which may be going to be worked to the form of a substantial cash balance, outside investment, or whatever it may be—but a reserve fund in any case—it is to meet the total loss of the mineral deposit at the end of the time when it is worked. Therefore, we say that with regard to the minerals that the whole of this grievance really arises from the idea that has been formed, that, in making this proper provision a withdrawal of capital from the business has taken place, whereas it is really a transfer of the capital from one form into another, and that is an entirely different matter from a withdrawal. In regard to the opposition to this Clause on previous occasions, I would like, first, to say this in general terms: It seems to me that no one, particularly no one connected with the Treasury, certainly no one in the position of the Chancellor of the Exchequer, can really be opposed to the principle underlying this Clause, unless prepared to justify the definition of the Income Tax which the Chancellor of the Exchequer has on several occasions put forward for consumption outside this House. I will just quote to the Committee what he said on the 20th of June at Denmark Hill, and, of course, if that is a proper presentation of the nature of the Income Tax laws, then I can understand the resistance to the principle of this Clause. The Chancellor of the Exchequer, comparing the present Budget with the one of 1909–10, said:— These two Budgets are based on the recognition of the fact that whenever the State needs money, the men whose incomes run into thousands a year, can better spare hundreds than the men whose incomes range from 10s."— and so forth. He goes on:— Why? If you tax the former, you are simply impinging on money that can only be spent on superfluities. If you tax the latter, you are interfering with something which is urgently necessary either for existence or comfortable existence. But this rules out the whole basis of Schedule D, that this is a tax on profits from the trade and industry of the country, and it assumes that in raising the amount of the Income Tax you are only taxing the people who have got more money than they know how to spend. That, is all very well on the public platform, but I ask the Committee to compare that quotation with one made by the Prime Minister from a speech of Mr. Gladstone. Mr. Gladstone said in 1853, speaking of the Income Tax:— It is not adapted to he a permanent portion of your fiscal system unless you can, by reconstruction, remove its anomalies. That is in rather glaring contrast to what I have just quoted from the present Chancellor of the Exchequer, and I will quote this further: The Prime Minister said on that occasion, on introducing his Budget on the 18th April, 1907:— The Income Tax is really a twofold tax—it is a tax on property and a tax upon earnings. As to its being merely a tax which impinges only on superfluities, I would further ask the Committee to contrast that with a statement which I find a few lines further down, a statement in 1907 by the Prime Minister, then Chancellor of the Exchequer, who said:— Of the million of taxpayers, 800,000 to 850,000. or four-fifths of the whole, showing an income of £275,000,000 were under £700 a year. The anomaly the Prime Minister was dealing with at the time was the taxation of all incomes, whether earned or unearned, whatever their amount might be, provided they exceed £700 per year, at the same rate. I put it to the Committee it is a far greater anomaly than that to impose what is in large measure not taxation of income at all, but what amounts to making deductions from the capital employed in the industry. That I think is a greater anomaly even than the taxation of every class of income at the same rate. Under the present system what happens? Companies and private businesses have for the benefit of the Treasury and the rules under which Income Tax is levied positively to mutilate correct accounts in order to make them conform to the Income Tax as interpreted. I think that is an intolerable state of affairs. Let me deal with the actual objections put forward on the last occasion by the Chancellor of the Exchequer to this Clause the last time it was moved in the precise form in which I move it and when I took part in the Debate. That was on 2nd August, 1912. The Chancellor had two main objections on that occasion. He first of all said:— I am only advised by those who are responsible for the collection of Income Tax that the principle laid down here would lead to a very considerable measure of loss in recovering all the Income Tax in the mineral fields in Great Britain, and their estimate is that the total loss on the foreign and British interests would come to something like two millions per year. Everything we ask, it seems would cost two millions per year. In another ease we were told it would cost £1,600,000 per year to give some other necessary adjustments in this tax. Let me consider this question of the two millions per year. I remember on that occasion the Chancellor consulted the Treasury officials, and came back to the House at once and gave us that reply dealing with the whole of this vast subject of mining interests abroad and in this country, including gold, coal, everything, and the calculation, if it was a calculation, was that it was going to cost two millions per year. Let me take the case of the South African gold-mining companies. The first consideration in the case of almost all those companies is that they are registered, controlled and directed outside of the United Kingdom. They are therefore exempt from taxation, from assessment to British Income Tax, except to the extent of dividends received by persons residing in the United Kingdom. If the Committee desires to know I will give a few examples, as this applies generally to the whole of the South African Transvaal mines, such as the Rose Deep, City and Suburban, Knights Deep, West Rand, Glynns, Lydenburg, Randt Mines, Village Deep, Crown Mines, and many others. A calculation and examination of the accounts of those mining companies shows that this class of company never makes any deduction from revenue receipts in respect of unexpired capital outlay on the purchase of mines, and it is their well-established custom to distribute as dividend all surplus receipts after paying working expenses. I have had quite a number of these mining accounts. I receive more of them than I care about, and every Member of the Committee will know who has had the misfortune to deal in any of those South African shares that one of the main things you always ask, and are being told what is the anticipated life of the mine, because when the life of the mine is done the mine is done. There is not a single one of them whose method of accounts, quite apart from the fact that they are registered out of this Kingdom, which would come within the carefully constructed words of this Clause which provides that the deduction shall be so made as to prevent the sum being available as profits, and that it has got to be in a separate account so that it could not possibly be employed as profit. We look to the British field where coal is the principal mining subject, and we find a similar state of affairs. I have had the accounts of three of the principal coal mining companies in this country examined. I take first Ebbw Vale Iron and Steel Company, and in the report for the year ended 31st March, 1914. I find it stated:— The collieries worked full time with an output of close on two million tons. Prices improved, and, after making allowance for increased cost, consequent upon the recent coal mining legislation, have produced a reasonable profit. In the profit and loss account there is not even the vaguest reference to any sum being set aside to meet the wasting assets in the shape of the coal extracted. I find exactly the same thing in the case of the Rhymney Iron Company, and the Tredegar Iron and Coal Company, on which I notice the hon. Member for Mansfield is a director. If he were present it would be interesting to hear whether he approves of that-method of keeping accounts or not. I have had a careful examination made both with regard to coal and with regard to gold, and I cannot find a single mining company which complies with the terms of this Clause at present. How far that is caused by the present method of collection of Income Tax I cannot say. Let me quote what is said by Mr. P. D. Leake on this subject:— Absence of this provision for expired capital outlay is, in my opinion, a most pernicious and objectionable feature in the accounts of such undertakings, which is directly encouraged by the persistent refusal of the Income Tax authorities to allow deduction on the depreciation of inherently wasting assets, necessarily destroyed or consumed in the process of seeking profits. From the Chancellor of the Exchequers point of view I think it is a great mistake to allow that to go on, because instead of discouraging the formation of a capital fund to meet these wasting assets he ought to collect his Income Tax so as to encourage it. It would mean the building up constantly of a sum in every business of a nature to replace the expired capital value and a capital sum which would be available for new enterprises, and which, in its turn, would start new enterprises, which again would become the subject of taxation. Therefore, it is only once more an illustration of killing the goose that lays the golden egg, and that I think is absolutely true of this method, even from the point of view of the Chancellor of the Exchequer.

To come back to the £2,000,000. At the time the Chancellor of the Exchequer was speaking, Income Tax was 1s. 2d. in the £. £2,000,000 would represent claims to the extent of £35,000,000. I think it is only necessary to point out that in the fifty-sixth Report of the Commissioners of Inland Revenue for the year ending 31st March, 1913, the gross assessments of profits of coal and other mines in the United Kingdom for the year 1911–12 is given as £19,680,637. Where the Chancellor of the Exchequer derives his calculation of a loss of £2,000,000, which represents a profit of £35,000,000, when the total profits of coal mines in this country are assessed at £19,000,000, I cannot possibly imagine. I can only assume that it was not a calculation at all; "£2,000,000," like "Mesopotamia," is a blessed sort of word, and did just as well as any other sum to reel out to the Committee at that particular moment. Assuming the amount to be correct, it must mean that the Treasury are raising, under the guise of Income Tax, a sum of £2,000,000 a year which is a direct tax on capital and not on profits at all. Whether the amount is right or wrong that is equally unjustifiable. I ask the Committee to contrast this present system of raising Income Tax with the Government policy of exempting from rating improvements connected with the land. Take, for example, Clause 8 of the Rill under consideration. How can the Government possibly justify penalising improved methods of business and making it difficult and costly to put up suitable buildings and keep them in proper repair, to have the latest class of machinery and motive power for industrial purposes, while at the same time they recognise that it is of great importance by the remission of taxation to do everything they can to encourage the expenditure of capital in connection with the land? In regard to farm buildings and other buildings on, agricultural land, owners can now claim: complete remission of Income Tax on the cost of maintenance, and not merely a percentage. We have also to remember Clauses 13 and 14, having for their object the separate valuation of site and improvements, so as to relieve improvements from taxation.

If that is the policy of the Government with regard to improvements connected with land, why they should penalise improvements connected with business I really cannot see. Land is used in connection with business, not to the same extent, but in an exactly analogous way, as it is used in connection with agriculture; and if it is a good thing to get all the buildings and machinery you can on land used for agriculture, it is a good thing to get all the buildings and machinery you can on land used in connection with business. Hon. Members opposite, like the hon. Member for New-castle-under-Lyme (Mr. Wedgwood) and the hon. Member for Hanley (Mr. Outh-waite) go further than that. They would like to exempt from rating altogether all improvements on land, and put the whole of the rates on the value of the land alone. How can hon. Members who take that view, or have any sort of sympathy with it, justify this penal tax upon capital invested in industry? The Chancellor of the Exchequer had only one other objection when this Clause was last debated. He said:— The hon. Gentleman calls it scientific book-keeping. That costs a good deal of revenue, and I think scientific book-keeping is just the risk yon have to guard against in the acceptance of an Amendment of this kind, and unless I am mistaken, if we accepted this, it would be so scientific that there would lie no Income Tax left. Therefore you have to proceed upon a principle which may be a crude one, but which is the only principle which is possible of application in the case of a tax. That is a most unmerited aspersion on an honourable profession. It is not the business of chartered accountants in this country to try to swindle the Treasury or anyone else. They have only to make fair accounts which can be justified by prudent business men, or by boards of directors to their shareholders, or by private individuals to their fellow partners. As a matter of fact, at the present time in many businesses they are forced to produce two complete sets of accounts, one, the "crude" accounts to comply with the Chancellor of the Exchequer's methods of raising taxation, and the other an accurate and proper statement of the financial position of the business, which a prudent board of directors can put before its shareholders. The building trade has a special claim to consideration in a matter of this kind. In that trade machinery is exposed to very rough usage. If building is to be carried on not at a wholly prohibitive cost, it is essential to have every modern appliance that can be procured. Machinery must be introduced, but it tends to become obsolete faster than in any other business with which I am acquainted. The ordinary allowance of 5 per cent, on machinery, not on the original value, but on the depreciating annual value, and consequently never working the item down to nothing, is wholly inadequate to the actual amount of depreciation which has to be taken off year by year. At present this is a specially urgent matter. There is a veritable revolution in the motive power by which our manufacturing industries are being driven, and if we are to keep ahead of our competitors abroad we must put no impediment in the way of the adoption of the most economical form of motive power and its transmission. We must encourage and not discourage people to put down turbines, Diesel engines, or whatever may be the most efficient in every locality, to electrify their works, to do away with all kinds of risk for the people employed, to make the employment in business sweeter and better, and to do everything which cheapens production, which is the essential which we have to consider. This practice of giving an utterly inadequate allowance for depreciation on this class of machinery is a distinct discouragement of the adoption of modern methods.

I hope my hon. and learned Friend (Mr. Pollock) will have something to say about the effect of the present method of collection in driving businesses abroad. He can doubtless quote, as I could, cases where firms which fully intended that their businesses should be registered, controlled, and centred in this country, have decided—because the business consisted of working very rapidly diminishing mineral deposts, such as nitrate deposits—in order to escape Income Tax working out at 4s. 6d. in the £, which they would have to pay if they registered here, to conduct their business abroad. This short-sighted policy, not only "crude" but improvident, on the part of the Treasury, means the loss of fees which they would otherwise get—¼ per cent, on share capital and 1 per cent, on debenture capital. On a single company with £800,000 ordinary capital, and £200,000 debentures, the Treasury throw away £4,000 in fees, without taking into account the stamps on the transfer of shares or the large proportion of Income Tax which they are also throwing away; because, as everyone knows when a company is registered in South America, the tendency is to have a larger number of foreign shareholders and a smaller number of English shareholders who pay Income Tax. The last thing I want to say is this: I want to anticipate what will probably be said from the Treasury Bench. We shall be told that there is a Royal Commission going to be set up to consider all these subjects. I want to meet that question straight away. I am aware that the Prime Minister said that it was time "for a further inquiry into the whole basis on which our Income Tax is levied." Of course, I quite agree with that, but I say that "what is sauce for the goose is sauce for the gander." It will not do for the Government to tell us on Clause 5, as they did two nights ago, that this is a question of throwing out the net—which seems to be one full of holes to catch the wastage of Income Tax, which may be now claimed from people who have invested their capital abroad. This is so urgent that it cannot wait, and it will be a very useful thing, as the Attorney-General said, to have the experience, if only for a short time. The hon. and learned Gentleman said:— In the second place, this Committee which the Prime Minister has spoken of, will surely be a very large and valuable body, and its recommendation will be very much better worth attention, if they are able to speak in the light of even the briefest experience of the imposition of these taxes. I say this Clause will give them, at any rate, a brief experience of something like a reasonable, just, equitable, and prudent method of carrying out what was the original intention of these framers of the Income Tax Act, namely, the collection of this great tax upon the profits of industry and not upon the capital invested in it. Therefore, without going at once to decide precisely every single detail of what allowance shall be made, I say that the present system is so unjust, stupid, inequitable, and improvident that I am perfectly certain it will be most valuable to give this Commission the experience of a year or two, of, at any rate, an attempt to carry out a well-thought-out Clause—which this is— and then let them decide whether it ought to be enlarged or curtailed, what ought to be brought into it, and what ought to be shut outside of it. There is only one other argument that I wish to urge—that is, that those other Clauses—in no case as good a Clause as this—have been considered for a very considerable time in Committee of the Finance Bill. On 8th July, 1910, the right hon. Gentleman who is now Postmaster-General, said:— I consider the matter very urgent. I agree that it is a subject that should be considered during the months which will intervene between now and the resumption of the Session in November. I can assure the hon. Member for Windsor that, so far as I am concerned, I will bring this question seriously to the notice of my right hon. Friend the Chancellor of the Exchequer. On the last occasion, in 1912, the Chancellor of the Exchequer commenced his speech by saying that— In fact I go beyond that, and say that this is a real Case, and that it has got to be dealt with. It had to be dealt with in 1910; still more in 1912; and I say that now we have raised the Income Tax to 1s. 3d. in the £ it is a question that will not brook delay. We must not be satisfied at being told that it is one of the many subjects which will be considered by the Royal Commission.

9.0 P.M.

Sir A. WILLIAMSON

In supporting the new Clause proposed so ably, so exhaustively, with so much ability, and so much plainness by the hon. Member for Devizes (Mr. Peto), I shall not attempt to follow the hon Member in all the aspects of this somewhat difficult subject. It is desirable to take a broad view of this difficult subject, because there are so many concerns, businesses, and investments of all sorts which are the subject of a certain amount of wastage. But the Clause proposed to the Committee is one of a strictly limited character. It only turns on certain aspects of wasting assets. It may be that those who take the view I do on the subject will never arrive at the point where the deductions for wasting assets will be sufficient to cover all wasting assets. That may be, but, at any rate, I would like to give the Committee, as a practical business man, some views of how our particular system does affect particular concrete cases of trade at the present time. It is very much better if we can look at this from the point of view of practical examples. Then, perhaps, we can show to those who have charge of our Treasury affairs the fact that there is a distinct danger in continuing in the present course. The facts within my own knowledge relate in the first instance to a nitrate company which has been in existence since 1899. From that year to 1913 that company paid taxes to the British Exchequer on income amounting to £572,000. The sum that company paid to its shareholders as dividend during the same period was £373,000. Therefore, it paid taxes upon 53 per cent, more than the shareholders received. It may be at once said by the unthinking critic that large sums are put away unnecessarily, and that some day the shareholders will receive these sums. That, however, is not the case. Sums have been put away year by year in that company barely sufficient to replace the exhaustion of their grounds, and to some extent, also, for depreciation of their plant. But the British revenue officials allow no reduction from profits for money which is put aside to replace the exhausted lands, and only allow a very inadequate sum for that which is put aside for depreciation of plant and for replacement of that plant. That is a practical case.

I will turn to another article of commerce which is important, and of increasing importance, to this country. It is new to this country—certainly new since the Income Tax was established—an entirely new trade, and a new article of industry. I refer to oil-fields. This country has, rightly or wrongly—I think rightly—taken a hand in the development of the oil-fields of the world. We look upon it as a very important thing that people with means should take part in that enterprise. It is not only perhaps, lucrative to those who take part in it, but also essential for the competition that we have to face with the rest of the world, and also for our Navy. There is a company which I know which has this year a taxable income of £128,000. All that is available for the shareholders is £60,000. The rest of the money—the difference between £128,000 and £60,000—has been put aside by the directors for depreciation, in part, of plant, but chiefly for the exhaustion of grounds. The directors would be very unwise and very unfair to their shareholders if they did not manage the business in that reasonable and proper way. It seems to me to be entirely unfair and unreasonable that the Revenue Department should take what is the gross income as the amount on which to levy these taxes, and it becomes more important now when the tax has been raised to so high a level.

In this particular company to which I have referred, instead of the shareholders paying an Income Tax of 1s. 4d., they are paying an Income Tax double 1s. 4d. upon the amount they receive. What is the effect? It is of increased importance to study this at the present time, because these are new industries—I only refer to two because I have practical knowledge of them, and they are certainly comparatively new industries that sprung up at a date long after the institution of the Income Tax, and long after legislation was passed which covers our Income Tax, and it does not appear that industries such as these could have been contemplated by those framing our Income Tax law. It is important that these new industries should be domiciled in this country and that British subjects should take an interest in these new branches of industry. It rests with those interested in the promotion of these companies whether they should be promoted in foreign countries instead of this country. At the present moment there is a very large and important company being formed with a capital of between £2,000,000 and £3,000,000 sterling. It is connected with oil, and, as a matter of fact, it has been considered whether this company shall be situated in London or not. If the company were domiciled in London and registered in London, let me point out two or three things that would happen. First, there would be the Stamp Duty and the registration duties, and so forth, which the Government would get. There would be the employment of a secretary and clerks, and there would be fees for directors, and there would be employment for a good many people in this country through the ordering of goods which the company required. These orders amount to very large figures, and there would be freight for British ships carrying materials to the oil-field. But what is going to happen? Those interested in the promotion of this company are partly in this country and partly abroad, and they say, "we would not object to its being domiciled in London from many points of view. We would have a larger market for shares and more generous support by the public coming forward to subscribe, so that for many reasons we would prefer to have it domiciled in London. We would not object to pay the British Government a legitimate amount of Income Tax, but we object to paying Income Tax on what is not income at all." The consequence is we are going to lose this company. It is not going to be domiciled in London, and the whole of the work of that company will be outside Great Britain. The board of directors will be in some other country, and they will naturally say, and you cannot blame them for saying it, that "we will place the orders for our goods with those who are near us, whom we can see every day," and we in this country will lose that very large contract.

I should like to point out to the Committee that this is a matter which not only affects Great Britain. Other countries have his problem also. Only recently we have had a law passed in the United States of America to impose an Income Tax on citizens located there and others. This question of wasting assets has been in the minds of those who framed the latest Income Tax laws in the world at the present time. How do they deal with this matter? They have dealt with it in this way. In arriving at net income for taxation purposes they have provided that certain deductions shall be made from the gross receipts. For example, expenses are charged and all serious, losses from bad debts and so forth, and All losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any; and in the case of mines a reasonable allowance for depletion of ores and all other natural deposits, not to exceed 5 per cent, of the gross value at the mine of the output for the year for which the computation is made. That 5 per cent, may be adequate or inadequate. Probably in some cases it is adequate and in others inadequate. But the point is, the principle is recognised in the latest Income Tax law, that it is unjust and unreasonable to tax capital, and that is what we are doing by taxing the money placed aside to replace wasting assets. A reform, of the law is, as I pointed out, not only required to remedy an injustice to the shareholders in existing concerns, but it is still more required to prevent the domiciling of new companies dealing with these enterprises in foreign countries. The matter is of increasing importance, and not diminishing importance, owing to our increased interest in those concerns that have depreciating or wasting assets. Of course, the difficulty we are met with is undoubtedly the money involved. That is the most sure rock of defence by the Government. But surely if it is once admitted that we are doing an injustice and an injury to British trade by the present system, then the House of Commons is not going to wait long to get that injustice removed and that impolicy changed into a satisfactory and reasonable policy. I suppose we shall be told that this is one of the matters that will go to this new Committee. Probably that is all the comfort we will get to-night, but I say it is not a subject that should be any longer shelved. I add my voice, with whatever weight it may have, to that of the hon. Member opposite who has spoken, and I call the attention of the House and the country to this as a subject of very grave and far-reaching importance.

Sir J. SIMON

No one will complain because this important subject has been raised by the hon. Member who moved this new Clause. But the very fact that the subject is so important and the questions involved in it are so wide and far-reaching, makes it more necessary that we should realise that this is a topic which, if it is to be dealt with at all, can only be dealt with in connection with something like a general reconstruction of the Income Tax law. I do not wish to pre-judge in any way what would be the right view to take if such general reconstruction were attempted, for though I quite agree with my hon. Friend who has just spoken and with the hon. Member opposite that there is a great deal of force in some of the considerations they urge, and that there are cases which may be used as illustrations, and which suggest, as the law at present stands, a surprising contrast between the deductions which are allowed on the one hand, and the deductions not allowed on the other, the fact that you can show that such things happen does not justify the hasty adoption of an overwhelming change. Let me give the Committee one illustration. The hon. Member who moved, more particularly pointed to this state of things.

A mining company which has purchased mining mineral deposits in order that in the course of years it may work those out is not entitled to deduct, when it makes its return of balance of profit and loss, any sum which may be regarded as going to some sinking fund to replace the capital expended in purchasing those deposits. The hon. Member says quite truly they may work out in fifty years, and year by year the company is required to pay Income Tax on a balance of profit and loss which does not include any instalment year by year set aside in order to create a Sinking Fund to recreate the capital which has been sunk in buying those mineral, deposits. That is quite true, but let us vary the facts and see how deeply you will cut into the principle of the Income Tax if you accept proposals of this kind. Suppose, instead of the mining company purchasing out and out the mineral deposits which it is going in the course of half a century to exhaust by working, they take a lease from an owner in the ordinary way involving a royalty and a dead rent. No doubt the annual remuneration which the owner will accept will be all the larger because the thing they are working on will not last for ever, and will have disappeared in the course of fifty years. That only means that he will exact year by year a larger rent than he might be disposed to do if he could afford to keep working away at his mineral property in the cheerful expectation that it would never get any less.

It is indisputable under the Income Tax law, that, as a mining company pays the rent to the royalty owner, the mining company ought to deduct under Schedule A the portion of the Income Tax which is really and truly borne by the landlord. It is certain they will, when they make their return under Schedule D, be entitled to treat the rent as one of the expenses of carrying on the business. If you take Schedule A you will get a contribution out of the landlord, and Schedule D out of the colliery company's profit, and you have to put those two things together whether they be from the landowner or from the colliery company. Therefore, the State, under our present system, does get the same sum year by year in Income Tax as though this thing was going on for ever. If the hon. Member was really going to make a practical proposal here, he would have to take into account not only the sort of adjustment he has in mind, namely, an adjustment for the colliery company which has purchased the minerals and wants an allowance for a depreciating asset, but he would have to make an adjustment for the case of the landlord. Those complications have only to be pointed out to show what a very large and complicated subject we have to deal with. I do not say that the fact of it being complicated is any reason why it should not be thoroughly inquired into and examined. As a matter of fact there has been an examination of this very matter. There was a Departmental Committee presided over by the late Lord Ritchie which went into this Whole question of the allowance in respect of wasting assets, and not, I am sure, because the Members of that Committee were blind to the very important considerations which lion. Members have urged, but no doubt for reasons of a practical character, that Departmental Committee did not recommend in the result any substantial change in the existing system.

The real truth is that while everybody would like, as far as they may, to pursue the dictates of abstract justice, we have to remember also that we live in a more or less practical world. The enormous difficulties involved in dealing with this thing on purely scientific lines can hardly be exaggerated. You must remember what the machinery is with which you have to work. You are not here solving in the abstract some economic problem where everybody is conspiring together to arrive at the exact truth. You are engaged in a controversy between the revenue authorities on the one hand, who, I quite admit, may sometimes be disposed to emphasise the side unfavourable to the taxpayer, and on the other hand you have to deal with the taxpayer himself who, in the same way, will be a little bit disposed, if the opportunity offers, not to assist unduly in his own taxation. As long as you demonstrate what the rent is you pay in the present year, you deduct it. If you demonstrate what are the ordinary working expenses, you can deduct them. So long as we are dealing with these questions they are matters of immediate record which can fairly easily be proved, established, or supported. But if you once begin to say, "I want to do something really scientific, I want the Revenue to accept my view of how many years these mineral deposits will last; and secondly, I want you to accept my view that they will last for so many years, and they will or they will not cease to be commercial assets before they have all been worked out; thirdly, I want you to accept a highly elaborate table of depreciation which has been worked out for me by this particular scientific accountant; and fourthly, I want you to agree to all this, although I am in possession of the facts, and you cannot possibly know them." If that is the way you are going to enter your deductions you may be very scientific but you are not in a very scientific atmosphere, because it is a controversy between the tax gatherer and the taxpayer, the former trying to emphasise the sum of money which you ought to pay, and the latter doing everything in his power to insist that the sum should be less than other people might suppose.

It is that fact which has induced every Government in turn to say, with every desire to give a fair hearing to those who urge this change in the name of what is scientific and accurate, we must have some regard to the many considerations which apply when you are endeavouring to assist people in regard to the Income Tax. I would never stand up and say that the particular provisions in the third rule of the first case of Schedule D of the Income Tax Act of 1842 are so obviously and patently based upon abstract scientific principles that they lead to an exact and true conclusion in all variations, and that there are no anomalies. That is impossible. What has happened is in devising a scheme of Income Tax it has been found possible to allow certain deductions which are clearly and easily provable, which can be tested, and which can be demonstrated in your books as expenditure which you have incurred in a particular time, whereas it really is not practicable to go on and say, "And now I want you to give me a hypothetical deduction which is based upon this, that I think, or somebody else thinks, that the particular mining property I own will come to an end in so many years, and that consequently I ought to set aside such-and-such a sum of money at such a rate of interest to accumulate in order that I may be able to replace my capital at the end of so many years."

Although I quite agree that a man who is paying Income Tax in connection with a business which is gradually wearing out-some of its assets by the very nature of the business carried on feels that he is being pinched as compared with the man who is not under that particular disability, on the other hand everybody who has examined this scheme minutely has found that there are enormous practical difficulties in adopting any other principle. Therefore, though a Debate of this sort is very proper, and though the arguments used are, no doubt, of great force and interest, we must not blind ourselves to the practical considerations which arise. The hon. Member who moved said that no doubt he would be referred to the Committee or Commission which it is the Intention of the Prime Minister to appoint to go into the whole question of Income tax anomalies. In spite of his anticipating that observation and a little deprecating it, I still make it. I should have thought that it would have been a very proper topic to be considered in this connection, and though it is quite impossible for the Government to accept the Clause, I am not myself entirely satisfied, if the matter is investigated, that it will be found these practical considerations do not override more abstract scientific reasoning. Therefore we really have no alternative but to do what has been done by many who have spoken on this subject before, in this and other Governments, and to say that it is not possible for us to contemplate the change of this law without there being a thorough and complete overhauling of the whole scheme and system of Income Tax which is embodied in our Statutes in order that one may see whether this thing is practicable, and what effect it would have upon other portions of our law examined in all its bearings. For these reasons, while we have listened with a great deal of interest and sympathy to what has been urged by my hon. Friend and other hon. Members, I feel obliged to resist the proposal that we should read this Clause a second time.

Mr. POLLOCK

The right hon. Gentleman has taken some new ground in the response he has made to the Motion to read this Clause a second time. This is the fourth occasion on which I have taken part in a Debate on this matter. The Clause used to be moved by the hon. Member for King's Lynn, and in those days the objection taken to it was that the Clause was so bad in form and covered a great deal more than wasting assets that though the Government sympathised and thought that wasting assets ought to be excluded they could not do it. Thus said the present Postmaster-General (Mr. Hobhouse). He made a very sympathetic speech in July, 1910, and told us he was going to think it over carefully with his colleagues and let us know about it in November; but in consequence of the Clause being imperfect he could not do more than that. He gave us a sort of standard or test of a wasting asset, and expressed, I will not say his whole-hearted sympathy, but his warm-hearted sympathy with the proposal to give relief to wasting assets. When the question again arose of drawing up a Clause, some of us not un-familar with the jargon of Income Tax Acts were able to go to the sources from which these sorts of things are found, and we were able to draw up the Clause which is now before the Committee, and which came on in 1911. The Chancellor of the Exchequer then said, "This is a very dangerous Clause. It is perfect in form. We cannot take exception to it in form. It does distinguish what a real wasting asset is. You do not attempt to include leasehold and other forced wasting assets, and for that very reason"—as his words were to me on one occasion—"because it is in the particular form that it is, and does really deal with true wasting assets, it is all the more dangerous. We get at least £2,000,000 from it, and, although I cannot justify it, and although you have made out a case under which you ought to have relief, when it is a question of £2,000,000 or no £2,000,000, I am in favour of the £2,000,000, and the injustice rather than the justice of the case." He kept the £2,000,000. That was in August, and in November, after he had had an opportunity and I had had an opportunity of thinking about it, I asked him where he got the figure of £2,000,000. He consulted some of the people at the Inland Revenue Office, and he was then able to tell me:— The figure of £2,000,000 was quoted in a discussion on an Amendment moved by the hon. and learned Member. There is not sufficient material on which to found a precise estimate, but I was informed that it would be unwise to assume that the principle embodied in the Amendment would entail any less loss than £2,000,000.' Until to-night we have never had any right hon. Gentleman who in recent years has had the pluck to stand up and say either that we had not got a good case in the nature of inherently wasting assets, or that we had not established that there was justice in the claim we made. The right hon. Gentleman, however, has now put forward that claim. I want to deal with this subject from several aspects. The hon. Member for Elgin and Nairn (Sir A. Williamson), from a business point of view, made a very strong speech indeed, proving that the Chancellor of the Exchequer is at present losing revenue. He was able to give very startling figures about a company the capital of which was £2,000,000, which will be lost to this country, with the consequent results which the hon. Member detailed. Last year the Chancellor of the Exchequer was good enough to see a deputation on this matter, and I was then able to give him, first hand, by one of the members of the deputation figures of companies not registered in this country. One was a company of £800,000, and the other a company of £1,500,000, all of which had gone outside the country because of their being afraid of this Income Tax. The revenue is therefore losing on the swings, and it declines to make a profit on the roundabouts. That is really what it is. It is simply because the Treasury will not take the trouble to try and find out what they are losing, or what is the danger of this Clause. The hon. Member for Devizes (Mr. Peto), in the admirable speech which he delivered on this subject, really gave a proof. The Chancellor of the Exchequer last year said that if you let out all the coal-mine companies and all these other companies, you would lose this huge figure, but when it is looked into what is the amount in respect of which a loss of £2,000,000 would accrue. It is something like £30,000,000 a year. What is the actual sum collected by way of Income Tax from all these companies? It is £19,000,000 a year. The Chancellor of the Exchequer might really ask somebody to go into this matter a little more closely and try to get within £11,000,000 of the sum per annum which he says is taxable, and would be let out or would receive relief under this Clause.

The Solicitor-General says, "What is our present scheme? We live in a practical world." Do we? Let us see where we do live. On this question of wasting assets we live in the year 1842. This subject was established on its present basis before railways were even begun. The railway which is so ably directed by the hon. Baronet near me (Sir F. Banbury) was not opened till eight years later. The Great Western Railway had not started running in those days of the practical world in which we live. Turnpike trusts were the sort of things which had to pay Income Tax. Highwaymen lived in that practical world in which we live, because the sense of justice is not what is looked for now from the Treasury; but we have got back to the practical world of 1842 when right was right, and if something produced income revenue the cry was, "Stick to it," although every sense of justice demanded inquiry into it. Joint Stock enterprise was not started till a quarter of a century later. The standard system of accounts demanded by the Courts had not developed, and the companies are still being defrauded of this enormous amount in respect of Income Tax, which naturally makes them fly to other countries rather than continue to suffer it. Let me give an illustration of what the burden is. I will take a small company—a nitrate company. For the three years—1909, 1910, and 1911— its average profits were £3,013. In 1912 it paid as Income Tax £874. which is equivalent to 5s. 10d. in the £. I have not worked out what the amount would be to-day, but I think it would come to almost 7s. That is the Income Tax you are putting upon this country's industries at the present time and is it surprising financial matters are trending into foreign hands rather than, as they used to do in the practical days of 1842 and 1870, and so on, into English hands. One only wants to state the thing to reinforce the able arguments of the hon. Member for Devizes (Mr. Peto) and the hon. Member for Elgin and Nairn. That is the problem. It is a real problem which every business man feels, but which is not appreciated by the Department which probably has no real knowledge of these things.

Then I come to the Attorney-General. He says, "Oh, yes, it is a very difficult subject, but I wonder if hon. Members are aware that a Departmental Committee sat and dealt with this thing." I wonder how far he knows what was that Departmental Committee's Report. I have read it often backwards and forwards, I keep it in my book in order to have it ready to hand, and I am not at all sure that the Attorney-General is quite familiar with what the Committee reported upon. It was appointed to report on the prevention of fraudulent evasion, on the treatment of incomes derived from copyrights, patent rights, and terminable annuities, and on allowances made in respect of depreciation of assets charged to the capital account. It was not appointed to report on wasting assets per se, but only on allowances made in respect of the depreciation of assets charged to capital account. I have often read the paragraphs which deal with that to see if they deal with the subject of wasting assets. They do not do so. The Attorney-General refers the Members of this Committee to the Report of a Committee which was presided over by Lord Ritchie, and which was a sort of locus classicus, or gospel of authority, but on examination we find in it nothing whatever referring to wasting assets. It begins by dealing with the Act of 1842, the allowances for trade expenses, and the actual cost of repairs of business premises. It then goes on to show, what we all know, regarding the gradual larger and larger allowances which were made in respect of these wasting assets, or, rather, the assets charged to capital account. It shows the larger sum granted in respect of repairs. It showed that a ship was given a life of twenty-five years, and it shows the allowance made in respect of that. It further showed that one-sixth deduction from rack rents of buildings, but the only way in which that Committee really dealt with any wasting assets was to point out how a leasehold was not a wasting asset. I think the Attorney-General, before referring this Committee to that Report, ought to have read these paragraphs. When he came to deal with the question of the difficulty of making allowances in respect of wasting assets, to which the Member for Devizes referred to, he gave us as an illustration a case which I regard as absolutely not a wasting asset at all. I should, with great respect to him, say he had been dealing with something analogous to a leasehold, which had nothing to do either with the Clause or with inherently wasting assets. If I were asked as to the problem the right hon. Gentleman put, I should answer that I thought the reply of any person really well versed in what is an inherently wasting asset would be that the suggestion of the Attorney-General was entirely beside the point that it was not within the Clause, and that it did not deal with an inherently wasting asset at all.

Sir J. SIMON

I am anxious to be instructed about this, and I should like to know whether the hon. and learned Gentleman says minerals are not wasting assets.

Mr. POLLOCK

I will deal with that matter a little more at length. The Attorney-General's case is this: Suppose an estate is purchased outright. You have a lease of minerals granted as between two British subjects. He suggests that in that case there ought to be no allowance, and with that I agree—for the purpose of an inherently wasting asset. If you take a case where there is a transference, either for a capital sum or by an out-and-out payment, of some estate which, for a period of years, is liable to Income Tax, that is not a wasting asset within the Clause, because all you have done is that you have handed over to one person for a payment, which may be a lump sum, or may perhaps be a sum distributed over a period of years, although that sum may be enhanced by reason of the property itself being exhausted at a rather higher rate of speed—in either case, one person transfers to the other a property which would have been liable year by year to Income Tax, and in respect of which no British subject could prevent himself from being liable to pay Income Tax, by reason of the fact of the transfer to another British subject, who also has to pay Income Tax. The Attorney-General is good enough to smile, and perhaps thinks that I have not made my point clear. Perhaps I have not. I do not pretend to have either his lucidity or his ability, but I do try to understand my opponent's argument and to make the best attempt to understand the problem on which we may differ. His point was this: You are taking this wasting asset between two British subjects, and in return for a payment made by the one to the other, you are trying to get rid of something which ought to be taxable over a period of years. If that is the case he puts, I say unhesitatingly that he has simply given the old case of leaseholds, which are not inherently wasting assets, and which are never rightly claimed to be inherently wasting assets.

Let me tell the Committee the distinction I am endeavouring to draw. When you have coal or nitrates or gravel, or any other mineral which will be, and is, exhausted by working over a period of years, it is quite clear that some person—it is not the Government, and it ought to be the directors of the company, or other persons in control—as a careful business man will calculate the period of time during which these assets will last. In some cases it is very easy to make the calculation. In the case of nitrate fields and in the case of coal companies it is more difficult. The persons who make the calculation are not, as the Attorney-General seemed to think, the Government, but the persons who work and understand the business, and who have to make proper provision for the exhaustion of their assets. They are the persons who will have to determine what provision ought to be made, and if they do make a provision and put the money aside so that it can never be brought forward again for the purpose of dividends, then, and only then, will they be entitled to the exemption under this Clause. I should like to read the words of a very able and wise judge who has considered this point in a particular case. He put the antithesis between the practice of the Treasury and the practice of any prudent director, and said:— Any prudent person who carries on a business or gets an income from something in which the capital is necessarily wasting by reason of the using of the material with which he is concerned as part of his capital, will provide for such a case by a sinking fund; but although it is a prudent course to adopt, any deduction in respect of it is not permitted by the Income Tax Acts. Let me amplify that. Although every shareholder and every auditor would require a provision to be made for necessarily wasting assets, and although no person ought to devote any sum to dividends until that provision is made, yet you find that the Treasury make no distinction at all, and take the part of the imprudent persons and not the prudent persons. If provision is made, what is the effect? It is not that you have withdrawn something and that you have in some way defeated the revenue. What you have done is this: It may be that for a period of years you find your assets will last longer, and therefore you have made too great a provision. That will enable you to have your capital back in your pocket at an earlier period, and when you get that capital back in your pocket it will again be, as it ought to be, subject to all the taxes the citizen has to pay, and you will have again capital which can fructify and implement and start new businesses in fresh fields where further enterprise and capital are required. I come to the last point with which I wish to deal. The Attorney-General said that we should leave it for the Royal Commission to inquire into, and that we must survey the whole field. With that I agree, I hope it will be surveyed. But supposing this Clause passes, would it make any difference, and would there be any real danger? The Clause only allows a deduction in respect of relief where provision is made for a period of years. It says:— And where such a deduction from the revenue receipts is made, and has been made, from the commencement of the actual employment of the inherently wasting assets in seeking profits, or during a period of not less than three years to the end of the usual financial year of the particular trade, Then, and then only, is the exemption to be allowed. What is the meaning of that? We do not seek under this Clause to give exemption where you have merely a pretence of providing against inherently wasting assets, but only where, as a part of the settled policy for a period of years from the inception of the company—if it be a company under the Articles of Association—or for a period of three years to show that it is the settled policy, the provision has actually been made. There can be no subtle juggling with the accounts in order to get the exemption in a particular year with the object, after the exemption has been obtained, of dividing that provision by way of dividends. The Clause is carefully drawn in order to deal with cases of settled policy, and not cases of juggling. So far as the present is concerned, all the relief that would be given is to those companies who at the present time have been for a period of three years taking prudent steps to conduct their business properly. That would not let out any of the coal companies or other companies whose systems do not provide for the depreciation of their assets. If the Clause were accepted now, there would be an opportunity for the Commission, in the course of their sittings and before making their Report, to learn what the effect is where true provision is made, while, on the other hand, there would be no danger at all of a rapid and wholesale exemption being granted with the loss of a great amount of revenue to the contry, because the Commission will have an opportunity of sitting and of reporting before further such exemptions could be granted, after a period of three years has elapsed, and where it has already become by reason of prudent policy a part of the objects that the directors would carry out.

There is really no answer to this claim. The Chancellor of the Exchequer has told me that there is no answer in justice. There is only the tyrant's plea of necessity, and I suppose he adheres to the tyrant's plea. It is a very proper place to make the plea from the Treasury Bench. He knows that I hold strong opinions as to the class of persons who do sit on the Treasury Bench, but I think it is exactly the place where we do get the plea of the tyrant from. This Clause, if anyone has the patience to understand the Income Tax Acts, is not, perhaps, a more difficult Clause than any other, but it is designed to advance the interests of the business community in the practical world of to-day, in 1914, and it is designed to sweep away the old cobwebs of an age which has long since gone by and which lived in 1842. Let me ask the Chancellor of the Exchequer what he would say supposing this was some system of copyhold or land laws created in the year 1842. Would he not tell us that here was an old system of tyranny, an out-worn system long before people began to travel by railway and before we had any system of finance, and here we were stopping the clock of the world in order to have an outworn system. He would brush it away at once and would be one of the first to have more gibes than anybody else against those who cared to preserve an outworn and old-world system. But he is not so unwise as to put his claim on that ground. He does not put his claim on the same ground as the Attorney-General. He puts it on the simpler but forcible ground that it may be an injustice, but he wants revenue and he will have revenue whether he causes injustice or not.

10.0 P.M.

Mr. KING

I do not rise because I am a great authority on the Income Tax. I always pay my Income Tax at once. I do not rise because I am a great lawyer. I do not profess that I have studied all the intricacies of the Income Tax, but I rise because I believe I am about the only Member of the House who has listened throughout this whole discussion. I began by listening to the hon. Member (Mr. Peto), when I think there were only five other Members in the House and not one Member of his own party, and I plumed myself on thinking I was about the only man in the House who had not gone to Olympia for the evening. I will point out one argument which I am perfectly certain is absolutely fallacious, and has been used by every speaker who has addressed the Committee in favour of this Clause. It is that owing to our terrible way of imposing the Income Tax on wasting assets, trade and capital are leaving this country. Every conceivable reason has been given before why trade and capital are going abroad. At one time it is entirely because of our Free Trade system. At another time it is because we indulge in pseudo philanthropic legislation like the Insurance Act, Employer's Liability, and so forth, and then we have heard again and again that trade and capital are leaving this country simply because the present Chancellor of the Exchequer is Chancellor of the Exchequer, and is likely to be so for many years longer. But a new discovery has been now made, that because of an old provision of the Income Tax, which apparently Lord Ritchie thoroughly approved, and which no one ever attempted when the Conservatives were in power to sweep away, taxing wasting assets, trade is leaving the country, capital is going abroad, companies are being registered in foreign countries instead of here, our industries are vanishing, if not vanished already, and altogether because of this provision in the Income Tax our outlook is black indeed. I refuse to believe it, and I believe that, valuable as this discussion has been as a purely academic treatment of, no doubt, a very important economic subject, it has not been of real value in showing how to raise the money for the necessities of the country. I hope those who have not listened to the discussion will take my advice, for I have listened to it, and vote against this Clause.

Sir F. BANBURY

I congratulate my hon. and learned Friend on the extremely able and excellent speech which he has made. My inherent modesty is so great that I really did not rise after his speech because I felt it was impossible to put the case nearly as well as he had put it, and I should not have risen if it had not been for the extraordinary statement of the hon. Member (Mr. King). It is quite true that I have not heard the whole of the Debate, but I have heard a very large portion of it. I heard the very excellent speech of the hon. Baronet (Sir A. Williamson), and I do not remember seeing the hon. Member (Mr. King) during that speech.

Mr. KING

I was here through the whole of it.

Sir F. BANBURY

I withdraw, but I am surprised that the hon. Member has not learned more wisdom if he listened to that speech. The hon. Baronet was the only person I have heard who said anything about the withdrawal of trade owing to this particular form of tax.

Mr. KING

You did not listen to the Mover.

Sir F. BANBURY

The hon. Baronet did not say that trade was leaving the country altogether, or that the general trade of the country was bad. What he said, absolutely correctly, was that there were certain industries, and one particular new industry, which was springing up, namely, the oil industry, and in that particular industry he did not say that trade was leaving the country, but that new developments, instead of coming here, were going to other places. I quite admit that this is no new question, and it is one on which, as far as I remember, the attitude of all Chancellors of the Exchequer, whichever side may happen to be in power, has always been the same. They have always said, "This tax may not be quite right, but it has brought in a considerable amount of money, and I cannot afford to give it up." That was not the attitude taken up by the Attorney-General, who apparently said that he could not give any countenance to this Clause because of the difficulty of administering it. I do not think there is anything in the administration of this Clause, because there is actually in the Clause itself provision to show how it can be administered. But when we have, as I have always understood, especially from the hon. Member (Mr. King) a collection of all the talents sitting on that bench, it is hardly right to say that because there are difficulties in administering a certain Clause, they cannot admit that Clause. Surely all the talents arrayed on that bench are capable of doing what the United States has done in making by-laws—they are very fond of making by-laws—giving power to the different Ministers in charge of Departments. Surely the combined talent of the Chancellor of the Exchequer and the Attorney-General is sufficiently great to make these by-laws! It is quite true that all Chancellors of the Exchequer have taken up the same attitude as is taken up by the right hon. Gentleman opposite, but since our party was in power there has been a great increase in the oil industry. That is a new industry, and it is one which is particularly concerned with this Clause. Oil is undoubtedly a wasting asset, and it is quite true, as the hon. Member opposite

(Sir A. Williamson) said, that unless we are careful we shall drive away, not the trade we have already got, but trade we might have. It is impossible for anybody who is not in the Government to know what the actual loss to the Treasury would be if this Clause was accepted, but I think it must be remembered that, not only have you to think of the actual loss which would accrue if you were to make this alteration in the law, but also whether by not making the alteration you are not preventing from coming a certain amount of money which would make up for the loss. I think any man who is concerned in business will admit that that is the problem which ought to be considered. That is not the problem which the Attorney-General dealt with in any way. Personally, I am prepared to admit that just at this moment it would be rather difficult for the Chancellor of the Exchequer to accept the new Clause. Had the Attorney-General mat us in a conciliatory spirit I think it would have been a little difficult for us to divide on this Clause. He took up the negative attitude that it would be quite impossible to make arrangements by which the alteration could be administered, and, that being his attitude, I shall certainly, if my hon. Friend goes to a Division, vote with him.

Question put, "That the Clause be read a second time."

The Committee divided: Ayes, 113; Noes, 208.

Division No. 178.] AYES. [10.8 P.m.
Archer-Shee, Major M. Denison-Pender, J. C. Lewisham, Viscount
Ashley, Wilfrid W. Dickson, Rt. Hon. C. Scott Lloyd, George Butler (Shrewsbury)
Astor, Waldorf Duke, Henry Edward Locker-Lampson, O. (Ramsey)
Baird, John Lawrence Du Pre, W. Baring Lockwood, Rt. Hon. Lt.-Colonel A. R.
Baldwin, Stanley Eyres-Monsell, Bolton M. Lowe, Sir F. W. (Birm., Edgbaston)
Banbury, Sir Frederick George Faber, Captain W. V. (Hants, W.) Mackinder, Halford J.
Barlow, Montague (Salford, South) Falle, Bertram Godfray Macmaster, Donald
Barnstoh, Harry Flannery, Sir J. Fortescue Mildmay, Francis Bingham
Bathurst, Hon. A. B. (Glouc, E.) Fletcher, John Samuel Mount, William Arthur
Bathurst, Charles (Wilts, Wilton) Ganzoni, Francis John C Newton, Harry Kottingham
Benn, Ion Hamilton (Greenwich) Gardner, Ernest Nield, Herbert
Bird, A. Gastrell, Major W. Houghton Orde-Powlett, Hon. W. G. A.
Boyton, James Gilmour, Captain John Pease, Herbert Pike (Darlington)
Bridgeman, William Clive Goldsmith, Frank Perkins, Walter Frank
Bryce, J. Annan Guinness, Hon. Rupert (Essex, S.E.) Pretyman, Ernest George
Burn, Colonel C. R. Gwynne, R. S. (Sussex, Eastbourne) Pryce-Jones, Colonel E.
Butcher, John George Hamilton, C. G. C (Ches., Altrincham) Randles, Sir John S.
Campion, W. R. Harris, Henry Percy Ratcliff, R. F.
Carlile, Sir Edward Hildred Henderson, Major H. (Berkshire) Rawlinson, John Frederick Peel
Cassel, Felix Henderson, Sir A. (St. Geo., Han. Sq.) Rees, Sir J. D.
Cator, John Hewins, William Albert Samuel Ronaldshay, Earl of
Cecil, Evelyn (Aston Manor) Hoare, S. J. G. Royds, Edmund
Cecil, Lord Hugh (Oxford University) Hope, James Fitzalan (Sheffield) Rutherford, Watson (L'pool, W. Derby)
Cecil, Lord R. (Herts, Hitchin) Hope, Major J. A. (Midlothian) Salter, Arthur Clavell
Clyde, J. Avon Horne, E. (Surrey, Guildford) Sanders, Robert Arthur
Coates, Major Sir Edward Feetham Horner, Andrew Long Sanderson, Lancelot
Courthope, George Loyd Hunter, Sir Charles Rodk. Sandys, G. J.
Craig, Norman (Kent, Thanet) Joynson-Hicks, William Sharman-crawford, Colonel R. G.
Craik, Sir Henry Kinloch-Cooke, Sir Clement Spear, Sir John Ward
Currle, George W. Lane-Fox, G. R. Stanier, Beville
Staveley-Hill, Henry Walker, Colonel William Hall Wood, Hon. E. F. L. (Yorks, Ripon)
Stewart, Gershom Ward, A. S. (Herts, Watford) Wood, John (Stalybridge)
Strauss, Arthur (Paddington, North) Watson, Hon. W. Worthington-Evans, L.
Swift, Rigby Weigall, Captain A. G. Yate, Colonel C. E.
Talbot, Lord Edmund Weston, Colonel J. W. Younger, Sir George
Thomas-Stanford, Charles Wheler, Granville C. H.
Thomson, W. Mitchell- (Down, N.) Williamson, Sir Archibald TELLERS FOR THE AYES.—
Thynne, Lord Alexander Wilson, Captain Leslie O. (Reading) Mr. Peto and Mr. pollock.
Touche, George Alexander Wolmer, Viscount
NOES.
Abraham, William (Dublin, Harbour) Hayden, John Patrick Palmer, Godfrey Mark
Adamson, William Hayward, Evan Parker, James (Halifax)
Addison, Dr. Christopher Henderson, Arthur (Durham) Parry, Thomas H.
Allen, Arthur A. (Dumbartonshire) Henderson, J. M. (Aberdeen, W.) Pearce, Robert (Staffs, Leek)
Arnold, Sydney Henry, Sir Charles Phillips, John (Longford, S.)
Barnes, George N. Herbert, General Sir Ivor (Mon., S.) Pirie, Duncan V,
Benn, W. W. (T. Hamlets, St. George) Higham, John Sharp Pratt, J. W.
Boland, John Plus Hodge, John Price, C. E. (Edinburgh, Central)
Booth, Frederick Handel Hogge, James Myles Pringle, William M. R.
Bowerman, Charles W. Hudson, Walter Raffan, Peter Wilson
Boyle, Daniel (Mayo, North) Hughes, Spencer Leigh Rea, Rt. Hon. Russell (South Shields)
Brady, Patrick Joseph Jardine, Sir J. (Roxburgh) Reddy, Michael
Brocklehurst, W. B. John, Edward Thomas Redmond, John E. (Waterford)
Buckmaster, Sir Stanley O. Johnson, W. Redmond, William (Clare, E.)
Burns, Rt. Hon. John Jones, Rt. Hon. Sir D. Brynmor (Swansea) Rendall, Athelstan
Burt, Rt. Hon. Thomas Jones, Edgar (Merthyr Tydvil) Richardson, Albion (Peckham)
Byles, Sir William Pollard Jones, H. Haydn (Merioneth) Richardson, Thomas (Whitehaven)
Carr-Gomm, H. W. Jones, J. Towyn (Carmarthen, East) Roberts, Charles H. (Lincoln)
Cawley, Sir Frederick (Prestwich) Jones, Leif (Notts, Rushcliffe) Roberts, G. H. (Norwich)
Cawley, Harold T. (Lanes., Heywood) Jones, William (Carnarvonshire) Roberts, Sir J. H. (Denbighs)
Chancellor, Henry George Jones, W. S. Glyn- (Stepney) Robertson, Sir G. Scott (Bradford)
Chapple, Dr. William Allen Joyce, Michael Robertson, J. M. (Tyneside)
Clancy, John Joseph Kellaway, Frederick George Robinson, Sidney
Clough, William Kelly, Edward Roch, Walter F. (Pembroke)
Clynes, John R. Kennedy, Vincent Paul Roche, Augustine (Louth)
Collins, Sir Stephen (Lambeth) Kilbride, Denis Rowlands, James
Compton-Rickett, Rt. Hon. Sir J. King, J. Runciman, Rt. Hon. Walter
Cornwall, Sir Edwin A. Lambert, Rt. Hon. G. (Devon, S. Molton) Russell, Rt. Hon. Thomas W.
Cowan, W. H. Lambert, Richard (Wilts, Cricklade) Samuel, J. (Stockton)
Craig, Herbert J. (Tynemouth) Law, Hugh A. (Donegal, West) Scanlan, Thomas
Crooks, William Lawson, Sir W. (Cumb'rld, Cockerm'th) Scott, A. MacCallum (Glas., Bridgeton)
Crumley, Patrick Leach, Charles Sheehy, David
Cullinan, John Lewis, Rt. Hon. John Herbert Sherwell, Arthur James
Davies, Timothy (Lines., Louth) Low, Sir Frederick (Norwich) Simon, Rt. Hon. Sir J. Allsebrook
Dawes, James Arthur Lundon, Thomas Smith, Albert (Lanes., Clitheroe)
Delany, William Lynch, A. A. Smith, H. B. Lees (Northampton)
Denman, Hon. Richard Douglas Macdonald, J. Ramsay (Leicester) Strauss, Edward A. (Southwark, West)
Dickinson, Rt. Hon. Willoughby H. Macdonald, J. M. (Falkirk Burghs) Sutherland, John E.
Dillon, John MacGhee, Richard Sutton, John E.
Donelan, Captain A. MacNeill, J. G. Swift (Donegal, South) Taylor, Theodore C. (Radcliffe)
Doris, William MacVeagh, Jeremiah Taylor, Thomas (Bolton)
Duffy, William M'Curdy, C. A. Thomas, J. H.
Duncan, c. (Barrow-in-Furness) McKenna, Rt. Hon. Reginald Thorne, G. R. (Wolverhampton)
Edwards, Clement (Glamorgan, E.) Manfield, Harry Thorne, William (West Ham)
Esmonde, Dr. John (Tipperary, N.) Marks, Sir George Croydon Toulmin, Sir George
Esmonde, Sir Thomas (Wexford, N.) Marshall, Arthur Harold Trevelyan, Charles Philips
Esslemont. George Birnie Meagher, Michael Verney, Sir Harry
Farrell, James Patrick Meehan, Francis E. (Leitrim, N.) Walsh, Stephen (Lanes., Ince)
Fenwick, Rt. Hon. Charles Meehan, Patrick J. (Queen's Co., Leix) Ward, John (Stoke-upon-Trent)
Ffrench, Peter Millar, James Duncan Wason, Rt. Hon. E. (Clackmannan)
Field, William Molloy Michael Wason, John Cathcart (Orkney)
Fitzgibbon, John Molteno, Percy Alport White, J. Dundas (Glasgow, Tradeston)
Flavin, Michael Joseph Montagu, Hon. E. S. White, Patrick (Meath, North)
Gelder, Sir W. A. Morgan, George Hay Whitehouse, John Howard
George, Rt. Hon. D. Lloyd Morison, Hector Whyte, Alexander F. (Perth)
Ginnell, Laurence Muldoon, John Wiles, Thomas
Gladstone, W. G. C. Munro, Rt. Hon. Robert Wilkie, Alexander
Glanville, H. J. Murray, Captain Hon. Arthur C. Williams, Aneurin (Durham, N.W.)
Goddard, Sir Daniel Ford Neilson, Francis Williams, Penry (Middlesbrough)
Goldstone, Frank Nolan, Joseph Wilson, Rt. Hon. J. W. (Worcs., N.)
Gwynn, Stephen Lucius (Galway) Nugent, Sir Walter Richard Wilson, W. T. (Westhoughton)
Hackett, John O'Brien, Patrick (Kilkenny) Winfrey, Sir Richard
Hall, Frederick (Normanton) O'Connor, T. P. (Liverpool) Wing, Thomas Edward
Hancock, J. G. O'Doherty, Phillip Yeo, Alfred William
Harcourt. Rt. Hon. Lewis (Rossendale) O'Dowd, John Young, William (Perthshire, East)
Harcourt, Robert V. (Montrose) O'Kelly, Edward P. (Wicklow, W.) Yoxail, Sir James Henry
Hardie, J. Keir O'Malley, William
Harmsworth, Cecil (Luton, Beds) O'Neill, Dr. Charles (Armagh, S.)
Harvey, A. G. C. (Rochdale) O'Shaughnessy, P. J. TELLERS FOR THE NOES.—
Harvey, T. E. (Leeds, West) O'Sullivan, Timothy Mr. Gulland and Mr. Webb.
Haslam, Lewis (Monmouth) Outhwaite, R. L.