CLAUSE 5.—(Supplementary Provisions as to the Limitation of the Profits of a Controlled Establishment.) (Hansard, 1 July 1915)

§ Mr. G. TERRELL
I beg to move, in Sub-section (1), after the word "establishment" ["profits of a controlled establishment"] to insert the words, "after making full allowance for all wearing out and wasting assets, bad debts and contingencies."
The Clause says that "the net profits of a controlled establishment shall be ascertained in accordance with the provisions of this Section." But the Section does not contain any provision that proper allowance shall be made for depreciation. We know on what basis depreciation is allowed by the Commissioners of Inland Revenue for Income Tax, but that is not the full depreciation. It is not the depreciation which a solvent trader ordinarily makes in his business. As this is an entirely novel procedure, by which a very large proportion of the surplus profits are to be taken by the Exchequer, I submit 2044 they should only be taken after the very fullest depreciation has been allowed to the trader. I think this will appeal to the right hon. Gentleman the Minister of Munitions, and I hope he will see his way to accept the Amendment.

§ Mr. LLOYD GEORGE
I hope my hon. Friend will not press this Amendment, and I will tell him why. Very careful and elaborate regulations have to be prepared on this subject. I hope they will be ready next week so that the House may be fully informed of them. These are matters for regulation rather than for the Bill itself. If we begin to lay down elaborate rules here as to what you are to take off or for what you are to make allowances, that is attempting to do something which is quite hopeless, because it is almost impossible for the House, under present conditions, to give the necessary time for the consideration of the matter. I agree that all these things should be taken into account. Depreciation is such an obvious thing that it is hardly necessary to mention it. It is one of the first things you consider when you are coming to a conclusion as to what the net profits are. It is all included in net profits. If you begin to enter into an elaborate and detailed explanation of what you are to take into account before you arrive at net profit, this is by no means an exhaustive description. The moment you put this in, by implication you rule out other things which you ought to take into account. It would be a very dangerous thing to insert these words.

§ Mr. G. TERRELL
Am I to understand that the fullest allowance will be made for all proper depreciation?

§ Mr. LLOYD GEORGE
Of course.

§ Mr. G. TERRELL
Because it is not done by the Inland Revenue for the purposes of Income Tax. If the right hon. Gentleman gives me the assurance that the fullest allowance will be made for that depreciation, which every prudent trader will make—

§ Mr. LLOYD GEORGE
Certainly.

§ Mr. G. TERRELL
Then I am content, and beg leave to withdraw the Amendment.

§ Mr. HOGGE
Do I understand that the right hon. Gentleman will lay on the Table or bring before the House these Regulations in some such other way that the House may discuss them?

§ Mr. LLOYD GEORGE
Yes.

§ Mr. T. RICHARDSON
I beg to move, in Sub-section (1), after the word "ascertained" ["the net profits of a controlled establishment shall be ascertained"] to insert the words "by an auditor appointed by the Treasury."
This is very important both from the taxpayers' point of view and the point of view of the Revenue, and it is also necessary in order to give to the public and the House of Commons confidence that we are getting the maximum and not the minimum, which is just possible, unless you take every precaution to secure what is due to the State and the Revenue under the proposals of this Bill. I was pleased to hear the Minister of Munitions respond to the request of my hon. Friend when he said that the Regulations would be submitted to the House of Commons next week in such a way that they can be discussed, because the terms of the Regulations are very vital to the real objective of this and other Clauses of the Bill. I sincerely hope the right hon. Gentleman will see his way clear to accept this Amendment, because it is due to Parliament that they ought to provide for a public auditor, acting officially on behalf of the Government, to audit these accounts.

§ Mr. LLOYD GEORGE
The Treasury have a great interest in the profits, and therefore I am not at all sure that, if there were an auditor appointed, he should be appointed by the Treasury. The Minister of Munitions will have to look into all this.

§ Mr. T. RICHARDSON
May I suggest to the right hon. Gentleman that as my Amendment says "appointed by the Government," that does not answer it.

§ Mr. LLOYD GEORGE
The Amendment says, "appointed by the Treasury." I have no doubt at all that we shall have to appoint Auditors for this purpose. That will be part of the machinery by which we shall carry it out. We contemplate the appointment of a very strong Board to look into this matter and to advise us as to the best machinery of dealing with it. This might be part of the machinery. I have no doubt it will be. We shall have, at least, two very able accountants who will be on the Board and who practically will represent the Government. They will advise us as to the best 2046 means of checking these accounts. Of course, it is very important that the accounts should be audited. We cannot merely accept the accounts that are presented by the firms; we must take our own means of checking them. But I am not sure that this is the best means of doing so. I would rather hear what this Board we are setting up may advise us to the best means of checking the accounts submitted, and I think my hon. Friend will agree with me.

§ Mr. T. RICHARDSON
I think the importance of the Amendment has been very carefully considered, and I beg leave to withdraw it.

§ Mr. G. TERRELL
I beg to move, in Sub-section (1), after the word "thereunder" ["and rules made thereunder"], to insert the words "by the Commissioners of Inland Revenue."
9.0 P.M.
This Amendment provides that the profits should be ascertained by the Commissioners of Inland Revenue, instead of by the special Committee which the Home Secretary stated would be appointed, because the Commissioners of Inland Revenue are experts at this work. No Committee will have the data or material for dealing with the question of accounts which the Commissioners of Inland Revenue already have. As the right hon. Gentleman will know, they have the fullest particulars of every firm's accounts for a considerable series of years, and it will be very easy for them to make the necessary adjustment. They have all the data in the form of the returns for the last two years for the purpose of making the adjustment in respect of the contribution which is to be paid to the Treasury. This adjustment and this contribution can now be settled on the basis which has been settled upon in the Bill without any expense. If you appoint a separate Committee to do it, they will have to make endless inquiries. They will have to inquire what were the profits for the previous two years. I think I am right in saying they will not be able to refer to the files which the Commissioners of Inland Revenue have, because those files are strictly private and cannot be used for any other purpose. Therefore, they will have to find out what were the profits of the firms for the previous two years on top of the usual inquiry in regard to Income Tax, and they will have to hold another 2047 inquiry to ascertain what the profits are for this year and every year while the War lasts. In these circumstances no one Committee can go over the accounts of the hundreds of firms in the country engaged in the production of munitions of war. It will be very much more economical and simpler if this work is left in the hands of the Commissioners of Inland Revenue. We have quite enough committees already. The country is really oppressed with these committees. A different committee of some kind or another is being appointed for every purpose. What we want, as far as practicable, is to simplify our procedure and get matters settled in the cheapest and readiest form. As all the data and the materials are in the hands of the Commissioners of Inland Revenue, they ought to be the persons to ascertain the extra profits which are to be contributed to the Exchequer.

§ Dr. ADDISON
The hon. Member appears to me to be inconsistent. A few moments ago he was suggesting that the Commissioners of Inland Revenue, under the rules under which they work, do not make sufficient allowance for depreciation and other matters.

§ Mr. G. TERRELL
I think the hon. Gentleman misunderstood me. Under the Act under which the Commisioners of Inland Revenue work, they do not make sufficient allowance for depreciation. That is why I ask that special powers should be given under the terms of this Act that they shall make full allowance for all proper depreciation. There is nothing inconsistent.

§ Dr. ADDISON
That is the point I was putting. The hon. Member's point, if I understood him rightly, was that the conditions under which the Commissioners of Inland Revenue worked were not such as to enable them to make proper allowance for depreciation. That was his point a few moments ago. Now he appears to be suggesting that these very officers should nevertheless undertake the examination of profits. He appears to me, therefore, to be inconsistent. Of course the Commissioners of Inland Revenue make their estimate under the Statute on certain well-defined lines, whereas the whole point of our Amendments, and of the Clause itself, is that a considerable measure of elasticity must be allowed, so that allowance may be made for extra capital laid down for plant, and so on, and for the various other matters 2048 which have been referred to in this Debate. I suggest that the hon. Member should not ask us to place this burden upon officers who are already fully occupied in other important duties.

§ Mr. WATT
I think this is a very wise Amendment. There is a body already instituted dealing with such matters, the Commissioners of Inland Revenue, and the hon. Member suggests that they should deal with this measure. Surely it is better that an established body should deal with it rather than that a new body should be set up! The hon. Member opposite is not inconsistent in his statement of the case. These Inland Revenue Commissioners have been cribbed, cabined, and confined by the Statute they administer. It does not follow that when they deal with the settlements under this Statute they will be so limited. They will be freer under this Statute than under the Statute they already administer. It will be better to accept a body already established than to set up a new institution, the members of which no doubt will be highly paid.

§ Mr. HOGGE
The Minister of Munitions said a few minutes ago that it was the intention of the Government to lay on the Table of the House of Commons, in such a way that it could be discussed, the scheme for net profits. There is a large number of Amendments dealing with the question of the determination of these net profits. I feel perfectly certain that if the Home Secretary would assure the House that it would be possible to deal with the question on the occasion when these rules are laid on the Table, a great many of these Amendments might be withdrawn. At least I am assured so by hon. Friends around me.

§ Sir J. SIMON
I am much obliged to my hon. Friend. His suggestion is a useful one. It is our intention to move an Amendment which will secure that any rules which are made under this Act shall be laid on the Table in the way with which the House is familiar. That seems a proper thing to do. We could not do it in such a form as would delay the making and enforcing of such rules as we are proposing, but it will secure that the House of Commons has the opportunity of seeing what the rules are.

§ Sir R. COOPER
The point raised here is an extremely important one. My hon. Friend is entirely wrong in moving the Amendment. The Minister of Munitions 2049 said a few minutes ago, with regard to a previous Amendment, that it would not be right for the Treasury to have an interest in dealing with the ascertainment of profits, and neither can it be right for the Commissioners of Inland Revenue to be allowed, as they would under this Amendment, an exclusive right of determining what are the profits of the business of a firm which we are already penalising very badly. It is an impossible idea, and I shall oppose the Amendment absolutely.

§ Sir WILLIAM BEALE
Is it possible or practicable for a Clause of an Act of Parliament relating to this subject to impose a new duty upon the Commissioners of Inland Revenue? The Home Secretary may recollect that the Railway Commissioners once absolutely refused to take upon themselves duties which were stuck into another Act of Parliament.

§ Mr. SNOWDEN
I beg to move in Subsection (1) to leave out the words, "exceeding by one-fifth."
This Amendment would have the effect of appropriating all profits which are in excess of the standard profits, that is, based upon the average profits of the previous years. I cannot see any reason in the world why, if we act upon the principle that the State has a right to appropriate profits, we should be satisfied to take only one-fifth and leave the remainder to be appropriated by the individual.

§ Sir J. SIMON
I hope the hon. Member will see that his concluding sentence, especially if it were by any accident repeated outside the House, would give a totally false impression of what our proposal is. He said he did not think it was right that the State should merely take one-fifth, and that the other four-fifths should be left to the private individual. There is nothing of that in the Bill, or anything in the least resembling it, and it surprised me that it should be thought by anyone of the hon. Member's great acuteness to be the provision in the Bill.

§ Mr. SNOWDEN
If I said that I did not mean it.

§ Sir J. SIMON
I thought it must be so. Of course, the provision is merely this, that you take a standard arrived at by experience before the War. Then comes the question—there is no question of guaranteeing profits—"is that going to 2050 be the maximum which anyone is to be allowed to have?" It seemed to us, as I hope it will seem to the Committee as a whole, that one could hardly say that should be the maximum. If they do not earn more profits they will not get more. There is no question of giving them profits they do not earn, and if they get more than the maximum which we allow they will not keep it. The overplus will go to the Exchequer. The whole question is, having ascertained by reference to past experience what they earned before the War, is that figure, neither more nor less, to be the maximum without any guarantee of their getting any profit at all. We thought, as we do not give any guarantee of their getting any profit, and as we are controlling the establishment, and take every means we can to press the production of munitions in such an establishment, and as such an enterprise in many cases will go in for extension of premises or special arrangements which will only have a temporary value for earning profits, we might at any rate say, "You may take as your maximum standard that which is arrived at by adding to the standard of historical profit, a fifth more." It would be a complete mistake to say that you add 20 per cent. That is easily understood to mean that whereas they have earned 5 per cent., they earn now 25 per cent. Nothing of the sort. What is meant is that if they previously made 5 per cent. they now as a maximum may have 6 per cent. That does not seem to me to be an extravagant proposition, and I hope the House will agree that we are acting fairly as between the employers and the State.

§ Mr. R. MACDONALD
The Home Secretary advanced two reasons why my hon. Friend's Amendment should be resisted. The first was that they did not guarantee profits. I do not see what connection that argument has with the Amendment at all. What does it benefit a firm that has made no profit at all to be told that a firm which has made much more profit is getting its standard profits, plus one-fifth. If the right hon. Gentleman was going to suggest that the firms that had made extra profits were to be mulcted so as to benefit the firms that had been injured by his intervention, I could understand it. To simply say that because he does not guarantee profits to the firms, he is going to allow the fortunate firms to get their standard profit plus one-fifth, I think is not a very good argument. 2051 His second reason is that these firms that are to be controlled may have special premises and so on. That is all provided for. The Minister of Munitions under Sub-section (3) of Clause 5 is given power, and I suppose he will put it into operation, to take all these things into consideration, and when these things have been taken into consideration and fully allowed for, then they are going to get one-fifth profit over and above that. If those are the two best reasons he can give to justify his extra one-fifth I think it would be better to adopt the Amendment of my hon. Friend.

§ Mr. WATT
This Amendment takes no account of the rise in the cost of living.

§ Mr. R. D. HOLT
There is one point which has not been made quite clear. Will the controlled firm be liable to pay Income Tax on the four-fifths of excess profits diverted to the Government?

§ Sir J. SIMON
That question was raised earlier in the afternoon by the hon. Member for Chippenham. I said that it was not a thing that I could deal with on this Bill. It is essentially a question for an amendment of the Income Tax Act. It is certainly not a thing we can provide for in this Bill. I think I shall not be exceeding my province, or doing anything which the Chancellor of the Exchequer would object to, if I say that I quite realise, and I think the whole Government will realise, that it would be an odd result if you tax a man on the total profits which he makes, and then proceed to take away from him, for the benefit of the Exchequer, some portion of the profit which had been so taxed. I do not want to anticipate the Budget statement, but that is a consideration of common sense which we shall all agree upon.

§ Mr. LYNCH
May I ask the right hon. Gentleman whether the last two years have been exceptionally good years for the armament firms?

§ Sir J. SIMON
I do not think so.

§ The DEPUTY-CHAIRMAN (Mr. Maclean)
I think the Amendment of the hon. Member for Aberdeenshire (Mr. J. M. Henderson) has been covered by the discussion we have had.

§ Mr. J. M. HENDERSON
No; they want to reduce it. I want to increase it.

§ The DEPUTY-CHAIRMAN
If the hon. Member desires to discuss the point, he may move his Amendment.

§ Mr. HENDERSON
I beg to move, in Sub-section (1), to leave out the words "one fifth" ["exceeding by one fifth the standard amount of profits"], and insert instead thereof the words "one third." With respect to what the Home Secretary has said about the profits only commencing to be reckoned from the day of taking over the control, if it only starts there I do not press this Amendment.

§ Sir J. SIMON
indicated assent.

§ Mr. M'CURDY
I beg to move, in Subsection (2) to leave out the words "the average of the amount of the net profits for the two corresponding periods completed next before the outbreak of the War," and to insert instead thereof the words, "amount arrived at by ascertaining the percentage of profit on the turnover for the two corresponding periods completed next before the outbreak of War, and applying that percentage to the turnover of the period under review."
I hope the Committee will see their way to accept this Amendment. I should not occupy the time of the Committee were it not that it has been brought to my notice, by telegrams from chambers of commerce and by interviews which I have had within the last few days, that these proposals of the Government in regard to controlled establishments are at present not understood in business circles and are, I regret to say, undoubtedly causing serious and widespread alarm which, if it were not checked, would tend in a large measure to defeat the very objects of this Bill. I will put before the Committee figures which have been furnished to me only to-day to show precisely what has been happening during the last twelve months in a class of business which may be affected by this Bill. I think that a great many of the things that have been said to-day about purely hypothetical cases and a great many of the arguments we have had on this Bill would hardly have been made if hon. Members had had in their minds, as I have had, a real concrete instance. It is an actual instance which is interesting not only by its bearing upon this Bill, but as an example of the energy and patriotism of which we hear very little but which is actually being manifested by contractors. 2053 This was an old-established firm which for seventy years has carried on an engineering business in which they made no war material of any kind. They volunteered to make munitions of war on the 5th of August, the day after the outbreak of war, and their offer was accepted on the 13th November. If we take the two years preceding the War the capital of the firm was £146,000 and its turnover was £142,000, representing a net profit of £18,550. Since the 13th November that firm has expended in special plant and buildings for the sole purpose of making fuses £121,000. That is not the total extent to which they increased their capital. They provided altogether an additional £320,000 of capital, raising their capital from £146,000 to £468,000, and they raised their turnover from £142,000 to £1,800,000. Their profit on the turnover of £142,000 was £18,550, and as a return for their patriotism they are promised in this Bill to be allowed to add 20 per cent. to that.

§ Sir J. SIMON
I do not think that the hon. Member could have been here some hours ago, when I dealt with the point of which he is giving an illustration. I gave an explanation and promised an Amendment, which I think the Committee generally regarded as meeting the point.

§ Mr. M'CURDY
I was here, and I welcomed the speech of the right hon. Gentleman and the assurance which he gave, but it is because I think that something more than the Amendment foreshadowed by him may be necessary that I venture to put this particular point. During the period for November the number of workpeople was increased from 500 to 2,000. That is a very striking example of the way in which the one-fifth profit, over and above the standard profit would work out, if there was no alteration. Therefore I would suggest that at the earliest possible stage the matter should be made clear by the acceptance of such an Amendment as that which I am now moving; and I would ask also that, by a statement on the part of the Minister for the time being responsible for this Bill, it should be made as clear as possible to the business world that in the case of controlled establishments, before any estimate of profits is made, allowance shall be made for the expenditure on special buildings and plant, running, as in the instance which I have given, to very large figures indeed—an expenditure which in 2054 this particular case will be practically valueless as soon as the War is over, because the result will be that, not merely the money will have been spent, but it will have been spent upon buildings and plant which will serve no economic purpose when this exceptional demand passes away.
Before this Bill leaves the House of Commons we should have some statement, much clearer than anything which we have had yet, as to what is the policy of the Government with regard to controlled establishments. When we commenced the discussion this afternoon we were informed by the ruling of the Chair that the policy of the Government was not a matter of taxation. For my part, I never thought that it was. It was suggested by a right hon. Gentleman, speaking from the Front Opposition Bench, that the policy of the Government was to apply the policy of control, and to take over an establishment when, by reasons of employers and working men being unable to adjust their differences, the machinery of Part I. of the Act not being thought adequate to meet the case, it was necessary to take control of the establishment, in order to prevent the output of munitions being affected. That was the view of the position which I rather shared. The right hon. Gentleman suggested, on the contrary, that the taking over of an establishment, and the making of it a controlled establishment, might be anticipated in quite different circumstances, circumstances of closer co-operation with that establishment, and might be regarded as a compliment.
Taking the example which I have given, which is typical of many private firms who have found, and are finding, large sums of money to extend their works for the provision of munitions, if the policy of the Government would allow an announcement to be made, that in the case of firms who have converted their business for the purpose of making munitions, in order to assist their country in this crisis, there is no intention to turn them into controlled establishments, so long as work is proceeding satisfactorily and contracts entered into with the Government are being performed, from the information in my possession I am quite sure that that is an announcement which would relieve a great deal of apprehension. The matter is one of importance, and I hope that between now and the time when this measure passes into law the right hon. Gentleman 2055 will give his consideration to the question of what further announcement may be made by the Government to remove the uneasiness which at present undoubtedly exists among firms who have spent large sums of money for these purposes, and now see the prospect of their business being suddenly taken out of their hands, and of their remuneration depending upon a tribunal, the composition of which is at present unknown, and of which no one can at present from a business point of view predicate upon what principle profits, depreciation and matters of that kind will be dealt with.

§ Sir J. SIMON
My hon. Friend's Amendment raises the question whether the maximum amount of profit which would be left should, as under this scheme, be measured with reference to turnover, or should be measured in the way suggested in the Bill. I pointed out to the Committee this afternoon, and I think that hon. Members generally agreed, that if we adopt the method of the Bill, which I suggested we should do, we must remember that we shall have to adjust that rule to the particular circumstances of the particular case, and I read out to the Committee the Amendment which is to be moved on Clause 5, which provides expressly and explicitly for taking into account the comparative figures as to output. That is the very point which the hon Gentleman has put. I hope that he will feel, even though he does not think that it was done in the way he would suggest, that the object is the object which he has at heart, and that, so far as it goes, the suggested Amendment will be an improvement. For the rest, I do not think that under Clause 5 we can possibly change the whole principle of the Bill, which is involved in Clause 4, as already passed and which proceeds on the basis of profits as distinguished from turnover. And indeed, while I agree that turnover is a very important factor, it is not the only factor. It is not true, as a matter of business, that the proportionate relations between profit and turnover will remain the same whatever the size of the turnover. I hope that the hon. Member will agree that it is right to proceed on the basis of profit, making, however, the adjustment as to which I will move an Amendment in a few minutes.

§ Mr. HOLT
I would point out to the Mover of the Amendment that the figures 2056 which he himself has given rather knock the bottom out of his contention. If a man's capital is increased three-fold, and the turnover thirteen-fold, that is no reason why he should get the thirteen-fold profit. Anybody who has been engaged in business is familiar with the fact that there is no necessary relation whatever between turnover and profit. In one transaction a man may pay another person to do something in order to carry it through, but in another transaction he does not pay some other person. Anybody who carries on business realises that there is no connection whatever between turnover and profit. But I do think the Committee should make it quite clear that, wherever a man can be shown to have spent large sums for the purpose of erecting plant to produce munitions of war, the whole expenditure on that plant ought to be recovered out of war profits before they are divided. All questions of expenditure on plant ought to be regarded as disbursements, because it is almost certain that the whole of the capital will be of no value whatever.

§ Sir R. COOPER
I am quite sure that there is a very great deal of anxiety amongst these firms on the point that has been raised by my hon. Friend, although I would put it in a different form from that in which the hon. Gentleman has submitted it. Under Sub-section (3), the Minister of Munitions has extraordinary powers, and can almost do anything he likes. I would ask the right hon. Gentleman whether the public affected by this Bill can feel secure that they are going to get reasonable and fair consideration in the spirit of the Bill, and not necessarily according to its exact wording, because I believe that never has a more loosely worded Bill been passed through this House than that which we have to finish to-night. I believe that it will be an extraordinarily loosely drafted measure, and I do wish to press upon the Attorney-General that an assurance should be given to business firms that the spirit of this Act will be followed out by the Ministers in dealing with matters under the measure. It is important that if a man increases his capital by increasing his plant to meet Government requirements, to the amount of £50,000 or a £100,000, he should know whether he is going to be allowed a fair return in respect of that outlay. I think there should be some assurance to the community that it will be dealt with in a fair and generous spirit.

§ Sir J. SIMON
As to such an assurance, I do not feel any difficulty, but it can be better given on a later Amendment, and not upon this Amendment, which is about turnover.

§ Mr. HENDERSON
The case put by my hon. Friend shows how difficult it is to work this matter out. No doubt this firm increased their turnover from £146,000 to £1,800,000, and if this 20 per cent. is to be paid all they would get out of the enormous increase of business would be £3,700, which would be monstrous.

§ Mr. S. WALSH
Surely there must be some relation of profits to the increased capital amount.

§ Mr. HENDERSON
I am speaking of the Bill as it stands and as we have to construe it. Another anomaly I wish the House to notice: Suppose the firm gets the percentage asked for in the Amendment, its profit would be £216,000, as against £18,500 before, but then it has put up new plant involving an expenditure of £300,000, and the whole of the £216,000, plus another £100,000 sunk in plant, would represent his profit, and he would not get any cash at all. That shows how impossible it is to fix any limit like 20 per cent. Until you allow the firm the difference between the plant for its ordinary business and the plant which it has put up for the special business, and which afterwards can be of little use to it, you will see at once that the whole of the expenditure and the £100,000 which has been sunk will represent its profit, and it would not get a penny piece given to it.

§ Sir R. COOPER
I have just seen the Government Amendment, and it meets the hon. Gentleman's point, I am satisfied.

§ Mr. HENDERSON
I have myself an Amendment on the Paper as regards plant, and I hope the Government will meet the point. I wish the Government thoroughly to understand a further point. Supposing that this month you took over John Brown's business in Sheffield, and take control, the first thing you would have to do would be to take John Brown's stock, and it must be the same in every place you take over. If you are going to have any profits you must start with the stock at the time you take the business over, and finish according to the stock at the time you leave off. It seems to me that this Committee will upset the one-fifth altogether, and you must make adjustment 2058 under certain rules, in taking stock over and arriving at a reasonable view.

§ Mr. G. TERRELL
What is the date when the profits are to be assessed—is it from the passing of the Bill or from the commencement of the War?

§ Sir J. SIMON
From the time the establishment becomes controlled.

§ Mr. P. SNOWDEN
I beg to move, in Sub-section (2), to leave out the word "two" ["two corresponding periods"], and insert instead thereof the word "four."
I move this Amendment, and specially commend it to hon. Members who have shown a desire to do justice to certain commercial firms. If my proposal be accepted it will remove any injustice either to the State or to the firm concerned. The right hon. Gentleman the Member for Islington (Mr. Lough) mentioned this evening that there are certain firms which, for the last two years, have made no profit at all, while, on the other hand, during that period some of the big armament firms have had the time of their lives. Brown's, and Vickers, Sons and Maxim's, for instance, have made higher profits during that time than in any preceding years. In those cases to take only an average of the two years would be disadvantageous to the State. There are other firms, like Kynochs, which were not making a profit before the War, and the proposed method would inflict a very great hardship on them, and my proposal I submit would be fairer all round.

§ Dr. ADDISON
I am sure the hon. Member will admit that those firms which are producing munitions are certainly entitled to treatment which, if it errs at all, should err on the side of generosity, because they are producing those things on which the life of the nation depends. Whatever we may do with respect to other classes of profits that have been spoken of in the Debate, it is quite evident we should not set out to treat worse than other people those firms which are producing the very things we most need. If, as the hon. Member has indicated, profits during the last two years have been larger, and that if we took the average for the four years the amount would be less, I think on the whole, seeing the special circumstances of the time, that justice would demand that to take the two years would be the fair way rather 2059 than go out of our way to reduce the average of the profits by bringing in the leaner years and thus bringing down the average. I do not think that would be quite a fair way to provide a basis for estimating the profits. With respect to those firms which have not made a profit before the duration of the War, the hon. Member has mentioned one, and we know of others similar circumstanced. We have deliberately designed an Amendment to come at the end of this Clause to meet the cases of that kind, which evidently would be treated hardly if they were simply to be treated upon the basis of the profits of the previous two years, which in those cases would be, of course, a minus quantity. That situation is deliberately met, and I hope the hon. Member will not press his Amendment.

§ Mr. J. M. HENDERSON
I beg to move, in Sub-section (2), to leave out the words "outbreak of the War," and insert instead thereof the words "passing of this Act."
This Amendment falls in with the suggestion or promise made by my right hon. Friend that profits are to be reckoned from the time of the taking over of the business as a controlled business.

§ The CHAIRMAN
I think I may perhaps save the hon. Member some trouble by pointing out to him that this Amendment seems to do the opposite of what I understand to be in his mind.

§ Dr. ADDISON
The effect of the Amendment of the hon. Member would be quite the reverse of what he intends to accomplish. Under it the whole of the period between the outbreak of the War and the passing of the Act would come into the determination of the fixing of the profits. The object of the Clause is to allow the controlled firm to add 20 per cent. to the profits of the pre-War period which is mentioned. The Amendment would in many cases handicap the firm by bringing in the amounts made between the outbreak of the War and the passing of the Act.

§ Mr. HENDERSON
I think my hon. Friend does not quite grasp my point. 2060 Suppose the balance was taken out on the 31st March, by putting in the profits you would have a bigger year in calculating the average.

§ Sir E. CORNWALL
We ought to be clear as to the real meaning of the words and to know which is the correct interpretation before we are asked to vote. As I understand the words proposed, if inserted they would bring into the calculation any income or profit which the owner or manufacturer has made up to the passing of the Act. A man engaged in making munitions of war up to the passing of the Act may have made more profit than he made two years previous to the War, and therefore if those profits were included the 20 per cent. which he is allowed would be larger. My view with regard to the limitation of profits is this: As far as I have met manufacturers and other people who have made profits they are only too glad to make any contribution they are called upon to make to the State, but they are of opinion that whatever taxes there are should fall fairly and equitably between all concerned. It is not a question of the principle as to whether profit makers should make a contribution. That is admitted by everybody—including those who make profits. But it seems to me that if the hon. Member for Hoxton is wrong in his interpretation of the words, as I believe he is, we ought not to vote on the Amendment until the point is cleared up.

§ Mr. HENDERSON
I know several firms who put aside their own work as far back as December, January or February last. These people have made special contracts with the War Office for shrapnel and explosive shell at a certain price. They have been cut down to a particular price. Therefore the nation, as represented by the War Office, has had very opportunity to cut down these prices and make a fair, binding contract. If they had been told that the Government intended to annex whatever profit they made over a certain proportion, some of these firms would have refused to enter into the contracts. Therefore I submit that the provision should be limited to the passing of the Act, so as not to go back upon old contracts.

§ Sir J. SIMON
My hon. Friend is really mistaken if he thinks that the effect of the Bill is to go back upon old contracts at all. It is not that in the least. The question of what profits are divisible under this Bill is 2061 a question which only begins to be answered from the date when the given establishment is controlled. Take the case of any establishment you like. Supposing it makes out its annual accounts to end at midsummer. Since the War began on 4th August, it follows that the two financial periods before the War began will be the annual period ending midsummer, 1914, and the annual period ending midsummer, 1913. Those two accounts will give you the standard of profit. Having got that standard, and added one-fifth to it, you know what is the maximum which the firm will retain under the head of divisible profit to which this Bill applies. The Bill only applies to limit the profits of the firm as from the date when the firm is controlled, and that cannot be until after the Bill is passed. Therefore, to take my hon. Friend's example, which I have no doubt is perfectly well founded in fact, if that firm made contracts last December, January, and February, the profits do not come into the calculation of divisible profits, because they were before the firm was a controlled firm, and they do not come into the standard of profit, because they come after the annual period. Therefore they have those profits, and keep them. I hope, therefore, my hon. Friend will agree that we may get on to the next Amendment.

§ Mr. HENDERSON
You have made it very clear, if we could only read into the Bill the clear enunciation you have just made.

§ Sir J. SIMON
The Bill is much clearer than I am.

§ Mr. HENDERSON
A great many of these firms who have entered into contracts will be controlled. Therefore I want to be perfectly certain that these contracts will be out of the ambit of the calculation of the profits which the firms have to hand over.

§ Sir J. SIMON
I do not want any misunderstanding. What I said was that any profits which they made between the time when the standard is worked out and the time when the firm is controlled do not come into the calculation. I am not saying that, if the contracts run over a period which runs into the period of control, there may not be some element of profit which comes in. But I think my statement was quite clear.

§ Mr. G. TERRELL
As and when a business is taken over, will it be required to go over its accounts and take out a fresh balance-sheet, so as to have something to start from?

§ Sir J. SIMON
No.

§ Mr. HENDERSON
I beg to move, at the end of Sub-section (2), to add the words, "In arriving at the net profits the value of any new buildings erected or plant laid down for the purposes of this Act shall be taken on the following basis: If the new buildings and plant are required for the ordinary business of the controlled establishment, then on a valuation as a going concern. But in the case where the controlled establishment does not require such buildings and plant, then on the estimated value at a sale by auction."
A great deal of the plant will be of no earthly use to the controlled establishment once the shell and fuse business is stopped. All sorts of people, such as electrical engineers and others, who did not make these things at all before, have gone into this business, and put down plant. Some of that plant has been supplied by the Government, and where debentures have been issued by the company the Government have stipulated that this plant should not be subject to the debentures. After the War is over this plant will be of no earthly use to any person, and the consequence is that in the case of a great many there will be a great glut of this plant on the market. I can quite understand that unless some provision is made for dealing with the plant that has become super-abundant, and of no value to the firm or establishment, that this provision to meet the case is really necessary.

§ Mr. LLOYD GEORGE
I do not know whether the Committee have been informed that we propose to add certain words to the end of the Clause, which cover the point aimed at by my hon. Friend. If he thinks when he hears them that they are inadequate it will be quite open to him to move in the matter a little later.

§ Mr. J. M. HENDERSON
I have not been able to see the words.

§ Mr. LLOYD GEORGE
I will read them: "And these rules shall provide for due consideration being given in carrying out the provisions of this Section in respect to any establishment and any special circumstances such an increase of output, provision of new machinery or plant, or alteration of capital, or other matters which require special consideration in relation to that particular establishment." That covers all these points. If my hon. Friend thinks it does not, he can, as I say, move in the matter later.

§ Mr. HENDERSON
Very well.

§ Sir F. BANBURY
I beg to move, in Sub-section (3), after the word "profits" ["the net profits of all or any other"], to insert the words "or losses." I apologise to the Committee for not having put my Amendment on the Paper. I gave notice of it to the right hon. Gentleman the Financial Secretary to the Admiralty about five o'clock this evening. The effect of it would be that if the Minister of Munitions thought it right to admit the net profits of any other establishment into the calculation, he also should have the opportunity of admitting the net losses. It is well known to every one that munitions of war are not always made as a whole particular article. A particular article is not always made in one establishment. Parts of it are made in one establishment and parts of it are made in another. It is quite possible that there may be a loss on one part of a machine and a profit on the other. If you are going to bring in the net profits I think you ought to bring in the net losses. The whole Clause is permissive. It is entirely in the hands of the right hon. Gentleman whether he brings this in or not, and it is, therefore, only giving him the option, if he thinks it just, to bring in the losses as well as the profits.

§ Sir J. SIMON
In principle what the hon. Baronet suggests appears to me to be reasonable enough, but as the Clause is drafted it would be open to this objection, which I am sure the hon. Baronet would not wish, that you can bring in another establishment into the calculation only if it is represented to the Minister of Munitions that this should be done. Supposing the Clause ran: "if in any case it appears to the Minister of Munitions that it is right to do this …" I should agree with the hon. Baronet. It would then 2064 be for the proper authority to decide whether it was fair. So long as the Bill runs, "If in any case it is represented to the Minister of Munitions that another establishment should come in," then, of course, the hon. Baronet will see that advantage can be taken of that in every case where it suited the proprietors, and the Minister could not do it in cases where it suited him. I suggest that we do not make the change now. Let us vary the Clause on Report. It would then run, "If in any case it appears to the Minister of Munitions that the net profit, or losses, of all or any other establishment belonging to the same owner shall be brought into the account …" it can be done.

§ Sir F. BANBURY
I understand that that will be done on Report.

§ Sir J. SIMON
Yes:

§ Mr. LLOYD GEORGE
I beg to move, in Sub-section (4), at end, to insert the words, "and these rules shall provide for due consideration being given in carrying out the provisions of this Section in respect to any establishment, of any special circumstances such as the increase of output, the provision of new machinery or plant, or the limitation of capital, or and other matters which require special consideration in relation to the particular establishment."

§ Mr. HENDERSON
These words go a very long way to meet my case, but they do not apply to dealing with plant after the War is over, and the firm or business reverts to its original business. Some provision ought to be made as to what is to be done with that plant.

§ Mr. LOUGH
I feel bound to thank my right hon. Friend for this very far-reaching Amendment. In spite of what my hon. Friend has just said as to what may happen at the end of the War in relation to the plant, there are words at the end of the Amendment which cover cases of that sort—"or any special circumstances." I really felt inclined to examine the Clause closely at first, but those words, "any special circumstances," satisfy me.

§ Mr. HENDERSON
That may be all right in relation to ascertaining profits, but not in regard to the superabundant plant.

§ Mr. LOUGH
It is clear that that point can be raised before the auditor and taken into consideration. That is the intention of the Minister of Munitions.

Mr. DENNISS
So far as I have been able to take this Amendment in, it is restrictive. The hon. Member for Aberdeenshire has been giving us illustrations of new buildings being taken into consideration, although some may be quite useless at the end of the War. He moved an Amendment, which he withdrew on the faith that this Amendment of the Government would cover that. I do not think it does. Will the Minister of Munitions kindly consider that? There is another point. Of course the success of the working of this Bill will largely depend upon the number of new factories which will rise up all over the country for the manufacture of munitions of war, which they have never made before. These will be firms which have been carrying on a totally different business from the making of munitions, and it will follow in most cases that in turning their business into munition factories they will be sacrificing their private business, and it will take them a long time after the War to get back their private business, and, therefore, they will suffer a large prospective loss of private business. If the right hon. Gentleman will see if he can put some words into this Amendment to meet that, it will give more confidence to those who are thinking of setting up factories. I would ask him to remember that, if there is any uncertainty as to what the position of these numerous manufacturers all over the country will be at the end of the War, you will not get them to set up new business of making munitions and sacrificing their private business. Therefore, you will be defeating you own end. It is in the interests of the Bill that I beg the right hon. Gentleman to consider these two points.

§ Mr. S. ROBERTS
I should like to support the hon. Member. Most of these large firms would put up expensive buildings which would not be included in these words. I think that is a point worthy of consideration.

§ Mr. G. TERRELL
I want to protest at this stage against the course the Government are taking in putting this Bill 2066 before the Committee on manuscript Amendments, because, after all, we are dealing with very large—

§ The CHAIRMAN
The hon. Member must deal with the Amendment.

§ Mr. G. TERRELL
This Amendment is extremely complicated and far-reaching. One does not wish to hamper the Government in any way, but there can be no urgency about it. It is not in the nature of an emergency Clause. It is not going to be acted upon at once, and I think it would be of great benefit if these two Clauses could be taken out of the Bill at this stage for consideration at a later date.

§ Mr. DUKE
May I ask the right hon. Gentleman's attention to a suggestion? It is said by business men in the House that there are a good many new firms who are likely to be affected whose businesses are not precisely aimed at by the provisions of the Clause. The right hon. Gentleman will observe the mode of the application of the standard of profits. The powers of the Minister of Munitions arise in case the average under this Section affords or may afford an unfair standard of comparison. That is language which would not apply to a new business. There would not be any standard of comparison. I know the right hon. Gentleman desires to make the powers so comprehensive that there shall be no question of a hardship, and may I ask him whether he will consider between now and Report whether for standard of comparison he will use some such words as "basis of decision" or "basis of adjustment"? I think the right hon. Gentleman will see that my point might deal with a case which seems to have been omitted.

§ Mr. LLOYD GEORGE
I will consider that point, but the case referred to by the right hon. Gentleman, I think, is covered by these words.

Mr. DENNISS
Will the right hon. Gentleman consider the points I put to him on Report?

§ Mr. LLOYD GEORGE
I really think that the best answer to the hon. Member's point is the other part of his speech, because he gave two or three cases which 2067 clearly show the danger of including a list of that kind. You are bound to take the buildings into account.