§ Resolution reported,
§ 30. "That there shall be charged on any sum, by which the profits or gains arising from any trade, manufacture, concern in the nature of trade, or business (including agencies) in any period of account which includes any time after the commencement of the present War exceed the pre-war standard of profits or gains, a tax of fifty per cent. of that sum."
§ Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
§ 9.0 P.M.
§ Mr. HOUSTON
I was very pleased indeed to hear the Chancellor of the Exchequer to-day state that he intended devoting next week to the consideration of suggestions in connection with this Budget, and, therefore, if he can give me an assurance that he will either receive a deputation of shipowners or, if that is inconvenient, one or two shipowners, such as myself, for instance, and allow a little time to consider the far-reaching effect of this tax, I shall then curtail my remarks very considerably. He was kind enough to promise me an appointment last Tuesday week which, if he was unable to keep, I entirely acquit him of any discourtesy or want of consideration, for I know he was engaged on possibly very much more important business; but I should like him, in the event of his not being able on this 1117 occasion to carry out his promise, as he unfortunately was on the previous occasion, to consider one or two important points. He has told us that he has exempted agriculture from this tax. I am not going to ask him to exempt shipping from the tax, but shipping is really of more vital importance to the country in time of War than even agriculture, for we are dependent on our mercantile marine for foodstuffs, the Navy is dependent on the mercantile marine for being able to keep the high seas, by reason of colliers, trawl vessels and that sort of thing, and the Army is dependent upon the mercantile marine for the transport of troops, etc. I do not blame the right hon. Gentleman for drafting this tax, nor for the effects it will have, but it is very crude in its wording and very far-reaching in its effects.
Something over fifty years ago America was one of the greatest shipowning nations in the world, and recently became one of the smallest. That was entirely due to legislation, and the effects of this tax upon shipping might be pretty much the same upon the mercantile marine, for the simple reason that it is really a tax on capital quite as much as a tax on profit, and at present, whilst we are engaged in war, our neutral friends have been busily engaged capturing our trade from us and making very large profits indeed. They are subject to no taxation such as this whilst the British shipowner is, with the result that they will have capital at the end of the War to employ in new tonnage, and the British shipowner will not, with very disastrous results to the mercantile marine. The anomaly of the tax is this: It is really paradoxical that, owing to the requisitioning of vessels by the Admiralty, the man who has done most to help the country will suffer the most. I shall be able to explain that by giving figures next week. I ask the right hon. Gentleman, before he drafts his Clause and inserts it in the Bill, to give shipowners the opportunity of pointing out the extreme dangers of the Bill, and the effect it may have upon the shipping trade of the country. I am not objecting to paying my full share of the taxation for this War. I have not said a word about Income Tax nor Super-tax, nor do I object to the taxation of profits, but I want to warn the right hon. Gentleman against the effect this taxation may have upon the shipping industry of this country. It is not a per- 1118 sonal matter with me, but a national question. It might have the effect really of crippling the shipping industry of Great Britain, and if that is the case it would be a very serious thing for this nation and the Empire. I shall take an opportunity of making an appointment with him.
§ Mr. SHERWELL
I, in common with every Member of the House, am in cordial agreement with the principle that underlies this particular tax. So far as I am concerned, I should have been well content if the principle had been carried somewhat further than the right hon. Gentleman has carried it. Without discus sing the matter in detail to-night, I would like to call the attention of the Chancellor of the Exchequer to one, at least, of the broad effects which the application of the principle which he proposes in this Resolution is likely to have. We have welcomed the tax, as a tax broadly on war profits, but the effect of the tax, if it be imposed in the form in which this Resolution is drawn, will be to subject to special taxation certain profits, or sources of income, which are in no sense war profits or war income. For instance, under the proposal in its present form a business whose financial year ends on 30th September is liable to pay a special war tax on ten months pre-war profits. I shall be in a position to give the Chancellor of the Exchequer certain instances where the operation of the proposal would have that effect. Of course, the Chancellor of the Exchequer in his speeches has carefully safeguarded himself against calling this a war profits tax. He very explicitly told the House that it really is, in effect, a tax upon prosperity. If it be a tax upon prosperity, and therefore may legitimately be imposed upon pre-war profits, it seems to me that the case of the Chancellor of the Exchequer disappears against the suggestion that he should apply it as a tax upon prosperity all round—a tax upon individual incomes, and not a tax upon a particular class of business. I certainly hope that in the course of the next week the Chancellor of the Exchequer will realise that the real principle of the tax may be violated, if he proposes it in such a form as to make it bear hardly upon prewar profits that are in no way due to circumstances attendant upon the War.
§ Mr. J. M. HENDERSON
I am told that this is a very popular tax. I have often found that the most popular taxes are those that you have not got to pay, but 1119 which someone else pays. I understand that my right hon. Friend and those who are advising him will seriously consider the drafting of the Bill to carry out this object. In doing so I hope he will take into consideration a very great number of cases of difficulty in arriving at what he really wants. I will mention just a few. There is the case mentioned by my hon. Friend (Mr. Sherwell) of a business whose financial year ends in September, and which represents ten months pre-war and two months war. Some provision must be made to meet that case; there must be some distinction made as regards that. Then there is the case of shipping referred to by the hon. Member (Mr. Houston). I have no doubt that the hon. Member will make a case there. You have got to take care to provide for the different circumstances that arise. For instance, a great many ships have been lost to some companies, and they cannot be replaced at anything like their original capital value. There must be provision for that, and there must be some provision for the loss of ordinary trade, which has been snatched by someone else. Then there are cases where, previous to the War, business was carried on at a loss for years. I will mention one case where, ever since the South African war, they paid no dividends, they wrote off £57,000, and their 20s. shares were reduced to 1s. To-day they are making some profit. Their average prior to the War was nil.
Then there is the question of gradually growing businesses, where, for instance, the profit is £8,000 in 1910, £10,000 in 1911, and so on. This year they will show perhaps a profit of £16,000. The average on that will, of course, be such a sum as would annex for the Exchequer a great deal more than anything that might be attributed to the War. There is another case that I would urge upon the attention of the Chancellor of the Exchequer, and that is the case of the electric lighting companies: the public utility companies. A great many of these are in the large towns, and the local authorities have the right to take them over and buy them out at the then value at the end of a certain period. For instance, the London County Council can take over the London companies in, I think, 1931, so that they have only fifteen years to run. These profits have been growing slowly; by the extension of the mains and in consequence of 1120 the growing population they are gradually increasing. They were meant to increase when the Act was granted because this is the only way, by increased dividends, in which they can recoup that part of the capital which at the end of the period, being a wasted asset, they would be almost certain to lose to a large extent. Then there are cases where a greater profit has been made by putting down expensive machinery, which will have to be dealt with, and which will be redundant for the ordinary business of the firm after the War is over. There is another class of case where difficulty arises. A case of this kind came to my knowledge the other day. As the right hon. Gentleman knows, last year they granted a concession whereby if a man had any particular loss by the War instead of taking the three previous years as an average, he would be entitled to bring in the bad year. This turns out to have been a benefit last year, but it will turn out quite the reverse with some firms that I know. It appears that their ordinary business having gone, they turned themselves out to help the Government, and directed their efforts into manufacturing for the Government, with the result that this year shows a profit perhaps a little more than normal. Mark what happens. Last year the business, owing to debts in Germany, and owing to the stock they made for Germany and Austria having to be wiped off, showed an absolute loss. Therefore, the three years' average would be practically less than the two years' average.
§ Mr. McKENNA indicated dissent.
§ Mr. HENDERSON
My right hon. Friend shakes his head. However, I mention that matter for what it is worth. In such a case you ought to take a normal year, a normal period, and not a period which has been less than the normal for a series of years past. The three years ought to be three normal years, so that you do not take 50 per cent. of the profit, part of which may have been based upon a loss. There is also the question of patents and advertising. People spend a great deal of money, and the business is gradually growing. That increase has nothing to do with the War, no relation to the War. For the first time, say, the business has become profitable. According to this tax the whole of the business profit will go. A firm spends a great deal of money in advertisement. We know that an advertisement takes a good many years to 1121 mature. Now, those advertisements are maturing, and the results have no relation to the War. All these matters must be considered. One point which I would like to urge on my right hon. Friend is the great differentiation made between the cases in which the tax is 50 per cent and those in which it is 80 per cent. Why people who have made money through their ordinary business without great expense or great extra exertion should only pay 50 per cent., and—
§ Mr. HENDERSON
No. I understood from the example he gave that of £100 extra profit £50 would be taxation, and Income Tax would be paid on the other £50 in the ordinary way. But there is an extraordinary difference between the 50 and the 80. You have a man who is supplying goods in his own line of business in the ordinary way, and he is only charged 50 per cent. But if the Government go to an engineer and say to him, "Stop your ordinary business and devote your machinery to the making of munitions—shells, shrapnel, tubes, and so on—and then we will impose this tax on you," that is absolutely wrong. In the first case, where you charge 50 per cent., the man has not lessened the security of his position. He has rather augmented it. In the other case, where the whole place is devoted to making munitions, he has, when the War is over, to pick up again his business which has been picked up by other people. Yet you say to this man who has patriotically dropped his business, and worked late and early in order to help you, "We are going to give you 20 per cent., while the other gentleman is going to get 50 per cent." If anyone had mentioned such a proposal to me in cold blood, I should have said to him, "Adam Smith has said that a man would fight for his country and lay down his life for his country, but he would equally fight to the death against what he considers unjust taxation." I should have said to him, "Here is the whole business. Take the place. Give me a rifle and I will go and fight." To say to a man, "I am going to take all your business away from you, and leave you to pick it up afterwards, if you are able to do so. You are going to do all this work for me, and you are going to get 20 per cent."—
§ Mr. DEPUTY-SPEAKER(Mr. Whitley)
The hon. Member is either discussing past 1122 legislation, or he is proposing to increase a tax up to 80 per cent. Either of these things is out of order.
§ Mr. HENDERSON
I dare say that I am out of order, but if I am I accept your ruling. I mention these cases to show how necessary it is that the whole of this question should be studied on a just and equitable basis. Failing that, points of the greatest interest and the greatest bearing upon the case may be neglected, and it is with a view of preventing that, and of enabling the tax to work smoothly that I offer these suggestions to my right hon. Friend.
§ Mr. PENNEFATHER
I do not want to criticise this tax, but I want to remind the House of some very wise words which fell from the Chancellor of the Exchequer last Thursday. He said:—Nothing is more easy than to make a mistake in new taxes, and we must have careful consideration of every detail of this tax before we can be satisfied that it is fair, just and effective.I suppose that I cannot go wrong if I follow the Chancellor on that line of argument. Mistakes in this case may very easily occur, as he so frankly acknowledged, because in the case of this particular tax we have no experience whatever to guide us. This is, I believe, an absolutely novel tax. It has certainly never been applied in this country before. I do not believe that it has ever been applied in any country in the world. When we are dealing with other fiscal questions, we have had our own experience or the experience of other countries to guide us. But in dealing with this particular tax, I cordially agree with the Chancellor of the Exchequer that we must be extremely careful that we do not make mistakes, and therefore from that point of view only I am going to venture to suggest to the House some matters which he might take into consideration. Before we can intelligently discuss this tax, I think it is necessary that we should all be agreed as to what this tax really is. There is a very great deal of loose talking going on in the country about it, and even in this House.
There was a question on the Paper today which I think made reference to war profits. This tax is called throughout the country the "War Profits Tax." I believe that the reason of that was that the original idea was that there were certain culprits in this country—I think an hon. Member sitting there a few nights ago referred to them as felons: I prefer the 1123 milder word "culprits"—who were blackmailing the Government and the public, taking undue and unfair advantage of the War, in order to secure for themselves unreasonable, unwarranted, and one might almost say dishonest, profits, and the country was unanimous in saying that those people ought to be taxed. That is what was meant originally by war profits. Then it came somewhat as a surprise to a great many people in the country—and there are many people who do not realise it yet—that this was not to be a tax of that nature upon culprits, that it was not to be a tax upon war profits, strictly speaking, but that it was to be a tax on all excess profits, whether they were made guiltily, innocently, or usefully—whether they were made by the rich man or the poor man. As the Chancellor said the other day, "In dealing with this matter we never think of anything less than £100,000." But this tax is going to affect the man who has made £200 extra profit as much in proportion as, or more than, the man who has made £200,000. The effect of this tax is going to be like the gentle dew which falls alike upon the just and the unjust. I do not at all agree with the view expressed by the hon. Member for Hexham (Mr. Holt) the other night, when he said that this was a highwayman's tax.
I am not here to-night to defend any man in any position in any trade or business, who has taken an undue advantage of the country in its hour of need, and who has made profits which he ought not to have made. So far as those culprits are concerned, I will go as far as the most extreme men in this House, or further; I would say that if they had improperly and unpatriotically taken advantage of the country to blackmail the Government or the public, I would take 100 per cent. from them. Why not? If they have done wrong, penalise them. I will, however, leave that subject, which is rather unsavoury. I would ask the House to remember that I have made my position perfectly clear in regard to those culprits about whom I have not hesitated to speak out, and that anything I am going to say, from now on, does not refer to those people at all, but refers to entirely other people. Therefore, I would beg any hon. Member not to imagine that anything I am now going to say relates to those culprits with whom I have been dealing. I am now going to point out again that there has been no discrimination whatever between 1124 those culprits and the people who, passively or more or less innocently, perhaps accidentally, not with intention, but in the ordinary rough-and-tumble of commercial life, have happened to make some little excess profits. And then I am going to draw attention to the third class, by which I mean the people who have not been culprits, who have not been passive or innocent, or what you may merely call lucky, but those who have actually assisted in helping this country by bringing into it the sinews of war, the silver bullets, without which we cannot carry on the struggle.
I am going to submit that there is a great distinction between the three classes. I confessed that I would willingly see the culprit taxed 100 per cent., but I am now dealing with men whom I have spoken of as more or less innocent, more or less passive, who have done nothing wrong, but who have been simply lucky. I have no hesitation in saying that so far as these people are concerned, I quite think that the Chancellor of the Exchequer is entitled to go to them and simply put it to them on the ground, "Here you have been lucky, and out of your luck we ask you to contribute to the upkeep of the Army and Navy, without whose assistance you could not have carried on your peaceful avocations." I am going to raise no objection to that principle, because I fully realise that any pecuniary sacrifice of that kind which the lucky man makes is nothing in comparison with the sacrifice which is made by the man who goes out and lays down his life for the country. But then comes the question, that if this tax is a fair tax—we are dealing with the question whether the tax is fair and just—it must be fair between man and man; it must not press more heavily upon the unlucky man than upon the lucky man. That would obviously be the reverse of just, and, if we do not take care, it is extremely easy for such to be the result. I would like to point out one other little matter which has not been mentioned. One reason which the Chancellor of the Exchequer gave the other night for confining this tax simply to those engaged in some kind of business, was that in business the element of price came into account. I admit it. If a man has made his excess profits through the article in which he deals having advanced in price, there is some presumption that he has benefited by that advance. But I would respectfully point out to my right hon. Friend that there are many businesses in this country in which the articles 1125 in which they deal have not risen in price. In some cases they have gone down. Therefore, if the right hon. Gentleman bases it on the question of price, and says there is a distinction between the trader and the professional man, because price does not enter into the case of the professional man, then I would also venture to remind him that there are cases of businesses where price does not enter into the matter either.
What I am going to suggest is that the equity of this whole tax—and it is a very important thing—between man and man depends upon the equity of the datum figure which is fixed. If it is an inequitable datum figure it may lead to very grave injustice, and the right hon. Gentleman should take into very careful consideration the appointment of some tribunal, or make some arrangements, whereby exception ally hard cases might be provided for, because such hard cases will undoubtedly arise, and will create grave injustice between man and man in this country. Particularly I would refer now to the question of the pre-war profits. So far from this being a war profit tax, it goes back possibly to ten or eleven months trading before the War. I am not sure whether I am in order in mentioning this, but it was mentioned by the Chancellor of the Exchequer in dealing with this Resolution. He stated, in explaining it—and I believe it is stated in the Resolution—that this Tax applies to all profits earned in any period of accounts ending after the 1st September, 1914. What follows? Purely according to accident a man closes his books on the 31st August, on the 30th September, or on the 31st October. It is a pure matter of accident; it has nothing to do with the War, and it may have nothing to do with his having that excess profit. It may or it may not. As a matter of fact, he may have made a good deal of money in excess profits in the ten months previous to the War, and lost a portion of that excess profit in the months since the War broke out. But according to the scheme now before us, that man would be asked to pay 50 per cent. on excess profits gained before the War, and not one penny of which, or an insignificant portion of which, has been earned since the War.
I will try not to carry that too far, but I would point out that the datum assessment as at present suggested is a very narrow one. It is simply the Income Tax assessment which happened to be put in 1126 last January or last March—that is to say, the assessment for 1914–15, which was based, naturally, upon the profits of the previous three years, that is, on the years 1911, 1912, and 1913. I want to point out, with all respect to the Chancellor, how very severely and unfairly that might act in some instances. In the case of a man who is fortunate, that is, the lucky man who has consistently been making a large income for the last five years, it does not affect him at all, as he has got a high basis, but the man who is going to be affected by it is the unlucky man who made during those three years below his real normal profits. Take the simple concrete case of a man who in one of those three years made an exceptionally heavy loss, perhaps, say, through a fraudulent bad debt. If a man lost in one of those years, through a fraudulent bad debt, or any other commercial misfortune, say a sum of £6,000, that would reduce his assessment for 1914 by £2,000; and comparing that assessment with the normal profits which this man made last year, and which he may make this year and next year, it would mean that he would be penalised £1,000, not because he had made an excess over his annual normal earnings, but because his Income Tax assessment for 1914 had been reduced through that bad debt or commercial misfortune. He would thus pay a penalty of £1,000, not for making war profits, but for having made a bad debt of £6,000, and he would be called upon to repeat that payment of £1,000 for so long as the War lasts and this tax lasts. The man lost that £6,000, not through any fault of his own, but through some fraud, some accident, some defalcation, or, even if you like, through some unlucky speculation. And because of that and the consequent reduction of his assessment, he is now to be asked to contribute £1,000 for last year and £1,000 for this year, and perhaps £1,000 for next year and the year after. Thus, that man's original bad debt of £6,000 is going to cost him £10,000, unless the right hon. Gentleman will take some steps to redress this exceptional case, where it is obviously reasonable for him to do so.
I am merely dealing with the case of a man who has recovered from a period of depression caused by some exceptional misfortune, and who is now earing his true normal income, which is not shown in the assessment figure. We can raise the matter further in Committee, and I have no doubt the right hon. Gentleman will 1127 perhaps consider it in the meantime. I dare say the right hon. Gentleman or somebody else may get up and say that they have provided for that case by allowing for 6 per cent. if a man makes a return of nil or a total loss. I am not talking now of the big trading companies, and up to now everybody seems to have been thinking of those companies with hundreds of thousands of pounds profit. I am talking of the average merchant, and more particularly of the private firm, and I will quote this case: You have a man such as I say who had a bad time and who makes a nil return in 1914–15. According to the present proposal he will be allowed 6 per cent. on the capital engaged in his business as a jumping off point for the datum line. The man may have had his capital swept away by misfortune and he may be working through the credit of friends under guarantees, and his books may show no capital or very, very little. Surely a case like that should be provided for. I do not think I need labour the point. I can give instances and have had concrete cases brought to my notice of men who have been working with no capital and building themselves up after misfortune. Private traders, say a firm of three partners with £10,000, and whose normal income would very likely be from £5,000 to £6,000 per year, would be allowed under the present proposal £600 per year as the starting point. There are many men in the City of London and in Liverpool and in every big city who, by their personal individuality, make very large incomes with very small capital. To such men to offer an allowance of 6 per cent. on their capital would be really a mockery.
I come to the next question: Would this tax be effective? That, I think, perhaps is the most important question of all, as I think the right hon. Gentleman will admit. What do we mean when we ask, in the present circumstances, would the tax be effective? My interpretation of it would be not merely would it be effective in raising a certain sum of money, but would it be effective in helping us to win the War against Germany? That, I maintain, is the real question at issue to-day in regard to anything as to whether it is effective or not. Is it going to be effective in assisting us in our staying power in case the War is protracted? Looking at the matter from that point of view, I would 1128 ask the attention of the House to a few considerations. I am not going to dog-matise, but simply to suggest a few possibilities. In this case I am going to drop entirely talking about individuals or the interests of individuals, or the interests of any particular trade or of any particular class. I would like to take this from the broad national point of view of what is to the interest of this country. I would like to ask the House to consider whether it really will help us to win the War if we discourage those men who go out into foreign countries and by their activities bring into this country new money—silver bullets, as the right hon. Gentleman's predecessor called them. I am not speaking of our investments or anything of that kind, or our income from old investments. I am talking of the business men of this country. I am not referring to shipping. There are other Gentlemen here much more competent than I am to deal with that question. I am referring to the thousand and one men that we have in our commercial community in this country who do trade in foreign countries with foreign countries and between foreign countries. Those men do earn money and they bring that money, new money, every year to this country, and that new money I respectfully submit adds to our fighting strength and helps us to subscribe to the New War Loan. If we bring it here in some form or other it can, if the last desperate necessity arises, be commandeered. If it is a good thing to bring that money here, is it wise to discourage the bringing of it? Will it not discourage people from these risky activities in foreign countries if you put before them the proposition that if they make a loss it is to be all their loss, while if they make an excess profit over possibly a low datum line they will have to pay to the Government certainly one half of it, or, if the suggestion of some hon. Gentleman is accepted, 60, 80 or 100 per cent.? I am afraid that in the minds of the business community these suggestions will cause much uneasiness and do very much to discourage people from going into the world and making new money with which to help us to fight the enemy.
The Chancellor of the Exchequer is extremely and properly anxious to do everything possible to increase exports. Is it going to encourage exporters if you tell them that if they can get more money out of the Chinaman than they ever got 1129 before they are going to be severely penalised? I do not see how it can. If you discourage your exports, if you discourage the men who are bringing in the new money, what effect will it have upon the rate of exchange? It cannot improve it. It may widen the gap between exports and imports. It may easily reduce the rate of exchange very materially. I speak with all deference as a man who has had over thirty years' practical experience in the very kind of thing about which I am speaking. If it reduces the rate of exchange it will put up the price of food and of all raw materials in this country. These are very serious considerations. I am sorry to detain the House. I do so only because I feel it to be a national duty for every man who has special knowledge on any particular point to throw that knowledge into the common stock. I am not putting any extreme cases. I am not vamping up anything. I ask the House to consider from a broad, national point of view whether the discouragement of the people to whom I am referring is likely to add to the strength of the nation, or whether it is not more likely, not as a matter of economics, but as a matter of common sense, prejudicially to affect the exchange and therefore increase the cost of everything coming into this country.
It may also result in transferring a great deal of our trade to neutral countries. What is going to be the effect on Anglo-American houses? There are plenty of firms in England which have also branches in America. Perhaps to-day the head office is in England earning money and bringing it into England. The American branch may be a mere agency. If the American branch can trade without paying any Excess Profits Tax, while the English branch has to pay 50 per cent., what will they do if they think they are going to have a good time? They will make the American branch the head branch, and the agency will be in England. You can only tax the commission of the agency, and they will take care to keep that down to the smallest point. With the best intentions in the world we may do an infinity of harm if we do not consider this matter from a broad, national point of view in the light of commercial experience. It has been said very often in this House that the co-operation of business men is desired and even invited. Surely this is a question for business men to consider, because there are points involved which 1130 would not readily occur to others. What will be the effect on labour? I am sorry there is nobody on the Labour Benches. Can it be good for labour in England if we do something which checks exports and possibly transfers large sections of our trade to other countries? I thank the House for the patience with which they have listened to me. I have not been pleading with the object of defeating the Excess Profits Tax. I am perfectly willing that it should be levied on the culprit and on the innocent passive man, but I beg the House to think not only once or twice, but thrice, before they put it on the men who are bringing new money into this country, the men who are exporting from this country, and before in that way they weaken our arms in the great conflict that lies before us.
§ Mr. McKENNA
The very interesting speech to which we have just listened has certainly convinced me of the wisdom and propriety of calling this tax an Excess Profits Tax, and not a war tax. I am not sure that I was able to follow the whole of the hon. Gentleman's argument. It was extremely lucid and very fairly stated, but I am not sure that it would lead me to precisely the conclusion to which it led him. He would divide traders into three classes, according to their moral qualities. The culprit he would charge 100 per cent. on his excess profits; the lucky man he would charge 50 per cent.; but the enterprising trader—
§ Mr. McKENNA
At any rate the three were to be differentiated according to their moral qualities. I would point out to the hon. Member that the bad effects which he thinks would ensue from this tax would ensue no matter what were the moral qualities of the man who made the money. If it is going to check exports, or ruin our exchange, or have any of the other evil effects to which the hon. Member alluded, 1131 those effects would follow in the case of the culprit, and the effect would be far stronger if we took 100 per cent. from the culprit.
§ Mr. PENNEFATHER
My suggestion was that the man who benefited the country could not possibly be a culprit. The culprit was a totally different man from the man who benefited the country. I do not see how a man can be both a benefactor of the country and a culprit.
§ Mr. McKENNA
Whether or not he is a culprit depends on the moral nature of the man who made the money. If he made the money out of the necessities of the country, if he sold wheat at the best price he could get, and not as cheaply as before war broke out, I assume from the hon. Member's argument he would be a culprit. I gather from the hon. Gentleman's argument that he would have taken advantage of the necessities of his countrymen, who happened to be short of wheat.
§ Mr. McKENNA
I am not sure I have followed the hon. Member's argument. If he will forgive me for saying so, I have tried with very great labour to follow him, and I was only raising the illustrations I have to suggest the extraordinary difficulty of discussing taxes of this kind in Debate. If the hon. Gentleman will be so good, in the course of the next week, to see me at the Treasury, and give me particulars of the businesses which he feels would be unfairly dealt with, I would be very glad to consider the cases. We have listened to the speech of the hon. Gentlemen. I endeavoured to follow it, and to be perfectly fair to his argument, but it would appear that I have completely misunderstood him.
§ Mr. McKENNA
It shows the difficulty of going into details here. I venture to impress upon the House the desirability of not endeavouring to follow misleading arguments in a Debate of this kind, where speaker and listener are not really thinking about the same subject-matter. Let me have the opportunity any time next week at the Treasury—I shall be there all day and every day—and I am only too anxious to consider the difficulties which these taxes seems to raise. We have 1132 promised an independent tribunal, and a point which we have been considering is what shall be the subjects which might come before that tribunal. These points raised could only be determined, not on general principles, but on an examination of details. Take the case of a man who puts his money in a rubber plantation. He expects to get nothing for five years. It would be very hard to allow him only the datum line of 6 per cent. in the seventh or the eighth year. If he only got that, it would never repay him for the five years in which he got nothing from the plantation. That is the case of a particular business, which it is so much better to deal with across the Table than on the floor of this House. I would, therefore, beg my hon. Friends, if they would be so good, to defer criticism of this tax, unless they object in principle. I have nothing to say to that, but I have not understood that there is any objection in principle to it. If, however, it is a question of details I ask that they will be so good as to give me a private opportunity of going into the details in question, and then if they are not satisfied they can bring their criticisms before the House when we get to the Bill. It will be observed that the Resolution itself is drawn in the very widest terms. I could explain to the hon. Member several particulars which he related to the House in which he has taken quite too gloomy a view. But I am most anxious, and the whole Government are most anxious to be absolutely fair in this tax. We think it good in principle, and personally I am most anxious that it should work properly. It ought to be effective for the sake of the public, and the public are morally entitled to obtain revenue from this source. At the same time, the individual is entitled to be considered; and I think that can only be done by attention to the matter personally in detail. I would beg, therefore, the hon. Member to allow me to have this Resolution, and to bring their cases before me in the course of next week.
§ 10.0 P.M.
§ Mr. MACMASTER
I desire to limit my remarks in view of what the Chancellor of the Exchequer has said to the matter of principle, and not to go at all into the matter of details. This tax, understood to be a tax on war profits, having really assumed a wider scope, affects all profits which are made in business. Ostensibly, I suppose the Resolution requires 50 per cent. of the excess profits of business made during the War. In reality, if we take the 1133 explanation of the Chancellor of the Exchequer in his first and second speeches, we see that it means something very different from that. Therefore it is a matter of principle. It is not for me to say whether 50 per cent. of the profits is a proper amount or an improper amount. That is a matter for the House and the country and for general appreciation. But whatever it is, whatever is the portion taken from the profits, it is not really a tax; it is an appropriation of a portion of the profits that are made by money investments of the business man, and by the application of his intelligence and his energy. Therefore, clearly stated, it is a case in which the proposal is to take, from the rewards of investment, money gained by enterprise and intelligence. It is not really a tax. It is an appropriation of the large earnings of the man who has money, enterprise, and intelligence.
§ Mr. MACMASTER
In the ordinary sense a tax is a percentage taken upon one's total earnings. But here, again, observe that the Chancellor says: "I shall take a half of your excess earnings, but I will not share your losses." Let it be so. That is perfectly fair. Whether it be 20 per cent., or 40 per cent., or 50 per cent., or 80 per cent.—as one of the representatives of the Labour party suggested it might be—whatever it is, take that absolutely and keep it; but it is most unfair, and unreasonable, as well as illogical, that, in addition to taking that portion of the earnings of enterprise, you should impose a tax upon that in addition. Impose your tax, if you will, on what is left; but the very moment that you commence to impose a tax, as the right hon. Gentleman proposes in this instance, upon the portion you take from the business man, you have not only taken a portion of his profits and earnings, but you tax him upon the swag you have taken from him. As a matter of principle, that is an unfair and an unjust tax.
I do not doubt for a moment that we have a right to say that we shall take 50 per cent. or 60 per cent.; but, if you are going to take 50 per cent. or 60 per cent., let it be that, and do not by a circuitous route arrive at a calculation by imposing a tax upon the swag that in reality makes it 62½ per cent. or 67 per cent. The Chancellor of the Exchequer gave us illustrations in his first and second speeches, and it is just as clear as the sun at mid-day 1134 what he means to do is to take, not what is stated in this Resolution, but 50 per cent., and a tax upon the portion that he takes, which makes the tax about 67½ per cent. Having heard the admirable suggestions of my hon. Friend beside me, that the effect of excessive taxation might be to drive capital out of the country, and induce people to go abroad and make investments, and draw profits, I say that the danger is greatly enhanced by the character of the imposition in this instance. In the first place, whatever we take, let us take it absolutely clearly, and deal with the balance upon the ordinary rules of taxation, and not impose a tax upon that portion of the profits that we exact from the business man.
§ Sir ALEXANDER HENDERSON
I do not desire to prolong this Debate, and I have nothing whatever to say against the Excess Profits Tax, but the Chancellor of the Exchequer has spoken this evening, and previously, about the tribunal that he proposes to set up which is to have in its charge the special administration of this tax. All I want is an assurance that that tribunal will have very wide powers, so that special circumstances calling for special treatment may be considered by it. I have had brought to my notice a number of cases where, under ordinary circumstances only, this tax might work very unfairly. I am going to give two of them, and I think when they are considered the necessity for wide powers being given to this tribunal will be apparent. Case No. 1 is this: A largish concern in the steel industry has put on one side all its ordinary orders with a view of rolling shell steel. The ordinary orders were at the prices current at the time the War broke out. Prices advanced very considerably and a very considerable profit has been made. In the meantime wages, material, and everything that is consumed by this undertaking have advanced in price. The result is that while profit during the past year has been earned to a considerable amount, old orders have had to be set on one side at the figures current prior to the War. Now the Income Tax Commissioners, when they come to deal with the profits of the undertaking during the past year, will not allow a reserve to be made to meet these contracts at old prices, but they will assess the profits upon the contracts that have been completed, and at comparatively high prices. The result will be that you may 1135 have an undertaking making a considerable profit during the past year, considerably in excess of that at which they were assessed for Income Tax in the year 1913–14, and half that profit will be demanded under this Excess Profits Tax. Nothing will be put on one side to meet the old obligations contracted before the War, which must inevitably result in a very large loss when they come to be executed.
§ Sir A. HENDERSON
The Income Tax Commissioners will not have the point before them, and that is where I come to the question of this tribunal.
§ Mr. McKENNA
This is another illustration of the difficulty of going into particular cases across the floor of the House. I can explain to the hon. Gentleman that the matter to which he has referred is already provided for. It is proposed that all the orders shall be brought into hotchpotch so that if there is a gain in one year and a loss in the next the subject will be entitled to repayment in respect of the loss.
§ Sir A. HENDERSON
I am very much obliged to the right hon. Gentleman for his explanation, but I would say this: That this tax is to be continued during the period of the War. These losses will be realised when the War is over, and therefore, unless we can get the losses back after the War period, it really does not meet the situation as far as we are concerned. That is Case No. 1. May I give Case No. 2, which is a stronger one? A company has contracted with the Government, and considerable profits in connection with the Government contracts have been realised. Less than one-fifth of the business in the particular commodity subject to the contract has been supplied by this company. The other four-fifths have been supplied by agencies of foreign companies. The foreign companies pay no Income Tax or Super-tax, and no Excess Profits Tax. The English Company will have to part with one half of the profit it has made. The profit that is made during this War period will probably enable it to fight or to hold its own against its foreign opponents. It will be a kind of fighting fund which it will be able to build up to fight the foreigner. If you take away half of its profits you leave it only sufficient just to pay a 1136 moderate dividend, and the fighting fund, as far as they are concerned, will cease to exist. What is the result when the War is over? That concern will be undoubtedly wiped out, because its foreign opponents will have a large fund with which to fight, while the English concern will have nothing left. My only object in rising and giving these two instances—I could give many more—is to ask that the constitution of this special tribunal which the Chancellor of the Exchequer proposes to set up shall be well considered. If it is to be composed of the ordinary Income Tax Commissioners, or persons of that type, it will not be any assistance to the merchants, but if you will put upon it some thoroughly experienced business men, then we have no doubt that the considerations I have ventured to advance will be taken fully into view, and the result no doubt will be justice to the undertakings I have mentioned and to those similarly placed. As I say, I do not wish to elaborate the instances I could give, but I think I have advanced reasons why the constitution of the tribunal should have the most serious consideration of the Chancellor of the Exchequer.
When we first heard of this tax it received almost universal approval, because it struck the imagination of the people that there were a number of trades and firms which had been decidedly benefited by the War, and were making exceptional profits, and almost everybody thought it would be a good thing if they were made to part with one half of those excess profits to the Government in its financial emergency. But in proposing a tax like this in general terms it is found almost at once that it is capable of doing an immense quantity of harm in certain directions. Now it must not be forgotten that London is the home of a vast number of cosmopolitan companies and undertakings which carry on their business in all parts of the world, and which might be registered in any of the States of the United States or in any neutral or foreign country or colony, and if we impose a tax of this kind I am afraid the very first result will be that England will lose—for as long at all events as this tax is to be in operation—being the habitat, the centre and the distributing medium. I can give a case very shortly—just as shortly here as I could across the table, and I am sure the Chancellor of the Ex- 1137 chequer will have a very busy week next week if he is going to see all of us—a case that will lead to an immediate dissolution of a company here. Take the case of a goldmining company in Alaska, with its office in London. It has been hard at work for five or six years developing that property and bringing it to fruition. Last year it earned a little money. This year it has earned £200,000 in the period that has just finished—the 30th June. What is going to happen to that company? Some of the people would say, "Show the £200,000 profit; you are allowed £60,000, and there is £140,000 difference. Give the Chancellor of the Exchequer £70,000." Some others would say, "When we have been at it five years, 6 per cent. is no compensation to us—in fact, it is ridiculous, because now is the time we were expecting to get some money." Instead of having the annual meeting here within the next few weeks and becoming liable for that amount, the company would be dissolved here and registered in Alaska. They would pay their Income Tax and excess money here. That would not be cheating the revenue, but simply preventing the harvest which these people have been working for over four or five years from incurring this tax which would ruin the company. Practically with regard to the whole class of concerns which have been labouring for years to a point of success, which has just now been reached, and made profits not in consequence of the War, but in spite of it, in places which have nothing to do with England at all, but which is merely housed here, because a large portion of the capital is subscribed in England, that class of concern is going to be driven out of the country. I have listened to several speeches by the Chancellor of the Exchequer, but I have not heard of the slightest provision which would prevent this difficulty arising. I am sure the Chancellor of the Exchequer cannot complain of us spending a few minutes upon each of these complicated taxes. Some of them are exceedingly complicated, very difficult and intricate. I have been impressed with this class of cases, and I feel that unless very careful consideration is given to them and some provision made, we shall be creating a difficulty which will be out of all proportion to the sum of money that might be raised.
§ Mr. SAMUEL SAMUEL
I do not wish to repeat the numerous cases we have heard of showing hardship. The Chancellor of the Exchequer has kindly and 1138 generously consented to listen to those hon. Members who may trouble him. There is, however, one point that I think has been overlooked in regard to the coming into force of this Resolution, and that is the date. Apparently the Chancellor of the Exchequer is not aware that the majority of commercial companies make up their accounts to the 31st of December. The dividends are paid probably from March to June. What is to be the position of companies, no matter how wealthy they are, who have distributed the whole of the dividends for 1914 and who have actually paid interim dividends for 1915? Is the company to get back from the individual shareholders any excess profits that they have received in those dividends, or is the company to be compelled to find out of their 1915 profits the money to pay for any excess profit made in 1914. The position is very complicated and may cause enormous hardships to hundreds of thousands of small shareholders. If the shareholders have to pay, well some shareholders may have sold out, and it will be impossible for the company to get hold of those who have sold their shares. You cannot ask the new shareholders, as in the case of the Income Tax last year, to pay. They had to pay Income Tax last year because they had been criminal enough to buy shares during the period for which we were not aware that the Income Tax was going to be increased.
Consequently, if you go to the company to pay these excess profits, it will mean that those shareholders who received their interim dividends in July will receive probably a very small final dividend, or no dividend at all, at the end of the year. It will impoverish the company if they have to pay it out of their reserve fund; it will take away the reserves which are necessary for the further development and increase of the business. There are many cases of great hardship which will arise, but making this retrospective is one of the greatest hardships that will fall upon small people who have in many instances devoted their surplus income to such institutions as the Red Cross Society. They have spent the money. It does not exist to-day, and I do not see how you are going to get it back except by inflicting great hardships on those people. Some of them are exceedingly poor. I would ask the Chancellor of the Exchequer whether he cannot see his way to 1139 defer the operation of the tax. If it is known that any company during the three months of last year that the War was in force has done anything wrong in the way of excess profits I should be the first to say, "Get it back from them if you can possibly do it," but I think it is a very great hardship to treat hundreds of thousands of shareholders as criminals, and to take them before the magistrate and fine them for something which they have mot done, because that is what it really amounts to when you make these measures retrospective.
§ Mr. PETO
I only want to bring before the notice of the Chancellor of the Exchequer two or three broad considerations. My hon. Friend the Member for the Kirkdale Division of Liverpool (Colonel Pennefather) spoke more especially of the volatile businesses in this country which are not firmly rooted or anchored here. He was speaking generally with regard to the merchant businesses of the country. I want to ask the Chancellor of the Exchequer if he will not consider that really there is a broad distinction to be drawn as between merchant businesses and manufacturing businesses in this country, for two reasons. Firstly, the manufacturing business is a great employer of labour, and we know that the genesis of this tax was a very strong feeling on the part of labour throughout the country that by their special exertions during the War they were merely enriching their employers. That applies to one class of business only—the manufacturing business. The second is the point the hon. Baronet the Member for St. George's, Hanover Square, brought specially forward as to particular cases which had been the subject of several questions to the Chancellor of the Exchequer and particularly one from the hon. Member for Warrington, who asked whether, in regard to businesses that were trading entirely between neutral countries, there would be any remission of this Excess Profits Tax. The Chancellor of the Exchequer replied in the negative. That brings me to this consideration, and I want the Chancellor of the Exchequer to seriously consider it before we have the Bill in its final form: What special provision is he going to make to prevent those companies which have no particular reason for having their habitat in this country, whose business is practically international, who employ no labour in this country and 1140 therefore do not excite feeling on the part of labour as to the profit made by it—what provision is he going to make to prevent his losing, not only the Excess Profits Tax, but a very large proportion of the Income Tax and other indirect benefit to the country, besides any question of our trade, our invisible exports, and the profit from foreign trade? All these are benefits which he is out to increase. How is he going to make quite sure he is not, by imposing this tax on a uniform grade, both on manufacturing and other businesses, going to lose the goose that lays the golden egg? That is one particular consideration he will have to bear in mind.
The second consideration is this: I notice in all the speeches that have been made on this subject that hon. Members, and particularly the Chancellor of the Exchequer, have got in mind a certain picture of a solitary individual raking in an enormous number of sovereigns. The other day the Chancellor of the Exchequer said he did not notice that anyone viewed this excess profit as a smaller figure than £100,000, and the happy recipient of that would contribute £50,000 to the tax. That is the picture which the Chancellor of the Exchequer drew. It seems, on the face of it, a crude and simple proposition, and so obviously just that everyone will say it is quite fair. But that is not how it will work out, and I ask the Chancellor of the Exchequer to bear in mind those other cases where a business capable of showing anything approaching an excess profit of £100,000, is a limited liability company, with an infinity of shareholders, many of them very small people. In some cases the recipients have quite a number of small investments, and they will find that on an income of £300 or £400 at least 25 per cent. or 30 per cent. will have run off because of investments made in companies paying no dividend at all. They may have one solitary investment in one of these companies making an excess profit to which they look to absolutely provide the daily bread and butter. Therefore it is not the case of a millionaire who has earned £100,000 additional profit, but it is the case of the small investor who is mulcted of a very large part of his small income. I only put that forward with the plea that the Chancellor of the Exchequer will not have in mind simply the point of view of the millionaire who has been making a somewhat illegitimate profit. From that point of view there is nothing to be said against this tax.
1141 There is one other broad consideration. The tribunal for which the hon. Baronet the Member for St. George's, Hanover Square, was pleading is going to have nearly as busy a time as the Chancellor of the Exchequer will have next week. I am anxious that, if possible, it shall not be in almost every case an exceptional case that is to be brought before the tribunal. I have already asked the right hon. Gentleman to consider the question of making a particular differentiation between the two great branches of business carried on in this country. I also asked him a question with regard to a question which will be constantly occurring, which will crop up in almost every instance—the question of additional capital having been put into the business. He said something about that in his speech, and said that in the ordinary case 6 per cent. would be allowed on additional capital, and that special cases could be brought to the tribunal. I venture to say they will all be special cases. I do not think that 6 per cent. is a reasonable allowance for additional capital brought in for special purposes during the War or for carrying on a special line of business which is probably, or which we all hope is, only going to last a year or two.
May I not suggest that the basis of the tax is not really excess profits at all? It is excess profit either on turnover or on the capital employed. There are two ways of assessing the profits of a business. Either one or the other may be the better. I do not wish to argue which. But I do wish to say, broadly and simply, that because a business has earned so many pounds more in one year than in the average of the three years which are assessable for Income Tax that that is not an excess profit. That is not the right way of stating the case. The proper way of stating the case is to say, if a business has earned a larger percentage on its turn over or its capital, that it is doing a more profitable business and ought to pay the Excess Profits Tax. If you adopt such a system as that you will take away all those special cases which will have to come before this tribunal which will be so terribly overworked, and take away a great deal of the work that would otherwise be put before them.
There is another branch of the same question—the question of depreciation of special machinery put down. There, again, the Chancellor of the Exchequer indicated that 6 per cent. would be taken as the normal depreciation, but that 1142 special cases could be stated to the tribunal. Would it not very much simplify the very heavy work that these gentlemen will have to do if the Chancellor of the Exchequer would say that the anticipated useful life of the machines, taking into consideration all the circumstances, is the measure of the depreciation that ought to be allowed and not any arbitrary figure of 6 or any other per cent., and then everything else should be a special case. I will only say one word on the question raised by my hon. Friend (Mr. S. Samuel) of this tax being retrospective. I ask the Chancellor of the Exchequer to consider very seriously, as he is not making it a War Tax at all—the genesis of the tax and the raison d'être of the tax was a tax on war profits—whether it is not perfectly obviously a tax that may be charged for eleven months of peace and one month of war, or it may be one month of peace and eleven months of war. It all depends when you make up your books as to whether it is one or the other. That being the case, I ask him seriously to consider whether in many cases, not extreme cases, but ordinary cases stated by my hon. Friend, which is a very common thing, of businesses which end their financial year on 31st December, is he sure that it is possible to collect this tax at all? Two things may have happened to the profits. No doubt there are other cases, but, broadly speaking, two things may have happened. One is that they may have been divided practically up to the hilt in the form of dividends to the shareholders. If so, I maintain they have gone beyond recall, and I do not see how the Chancellor of the Exchequer is going to get them back, unless he is going to throw the whole burden of the two years' excess profit, or 100 per cent. of the profits, on the next year's business, which is almost an impossible proposition to distribute over the whole of the businesses of the country. The other contingency is that a part, perhaps a moderate part, may have been distributed in the form of a final dividend some months ago, and the major part may have been reinvested in the business, in additional capital, fixed capital in the form of machinery or buildings, or further extension in order to carry on perhaps the special Government work with which the business is entrusted. It has ceased to be fluid capital and has become fixed capital. I ask the Chancellor of the Exchequer seriously to consider whether he can now go back to a period 1143 which dates as far back as 1st September, 1913, with regard to the period he is now taxing when the profits which were made in time of peace, months before we ever dreamt of being at war, have already been handed over to the shareholders or very possibly been invested in the fixed capital of the business.
§ Mr. FELL
My remarks will be more in the form of a question to the Chancellor of the Exchequer, whether this Resolution is broad enough to meet all cases which are likely to arise? We have discussed this almost entirely as a question of great companies or firms which have made larger profits since the War began than previously. What about the private individual who in many cases has made large profits, who was making no profits before the War? There have been some very big commissions made since the War by various individuals. They have no business, and I doubt if they made any profit before, and therefore they would not under this be called upon to declare this as in any form profits, or increased profits, which they have made since the War. That they have made very large profits in many cases, I believe, there is no doubt. Some of these cases have already come before the public in questions which have arisen in the Courts with regard to big commissions which have been earned. Some very big commissions have been made with regard to the sale of motor cars by people who would not be called agents in the ordinary form in any way—perfectly private individuals who by some means have influenced contracts and have got very large commissions. I believe there have been cases in connection with horse buying where very large profits have been made, and I believe there have been and will be very large further profits earned. I do not know whether these will come under the words here, "trade or business, including agencies." They might come under the word "agencies," but I am not sure. I do not think these people would say they were commission agents. They have no offices, no businesses and no clerks, yet they have earned very large profits. If there is any one case in which we should desire that profits should to a large extent go to the Exchequer it is this. They have had no expenses, they have run no risk whatever as a commercial man does, and have simply earned money in the form of commission, and I sincerely trust the 1144 Chancellor of the Exchequer in drafting the Finance Bill will make it broad enough to include these cases.
§ Sir A. WILLIAMSON
I wish to ask the Chancellor of the Exchequer if it is intended to alter the law in any respect with regard to the definition of "agency." I understand representations have been made to him with regard to foreign grain dealers who have made large profits out of the Government, selling here through an agent, and the desire is expressed that the profits of the foreigner who made the sale and made the real profits should be reached. If it is intended in any way to touch the definition or the legal position of the agent, I would ask the Chancellor of the Exchequer to remember that there are agents for the sale of foreign goods, but there are also agents for the purchase of our manufactures here. You may have a big Australian shopkeeper who has an agent here and buys goods, and it would be very undesirable to attempt to reach the profit of the shopkeeper in Australia, and thereby drive him to appoint his agent in New York instead of London, where he would escape the tax. I only ask this question because I think the case of the grain dealer is so very desirable to reach, for it is possible that the Government, thinking only of that case, if they touch the matter at all, may forget the case of the agent here who buys our manufactures and is really more important to us than the agent who perhaps sells for foreign governments.
§ Sir A. MARKHAM
(indistinctly heard): I think this discussion must have shown the Chancellor of the Exchequer how unwise the Government have been in not dealing with this matter at an earlier stage of the War. Innumerable cases of hardship are going to arise owing to the failure of the Treasury to take action when they were pressed in this House, and outside, to obviate the circumstances which the House now has to deal with. We hear a great deal about illegitimate profits. What are illegitimate profits? Profits which arose in the main owing to the supply not being equal to the demand. Consequently, the prices of commodities rose, and the people, having no lead from the Government, took from day to day the prices caused by the shortness of supply, with the result that enormous profits, which the Chancellor of the Exchequer has estimated at many million pounds, have 1145 been taken out of the pockets of the taxpayers. Now the Chancellor of the Exchequer comes to the House and says they must pay that excess profit back, and very properly so. Owing to the failure of the Government to say at an earlier stage that such excess profits would be taxed, and very heavily taxed, the Chancellor of the Exchequer seems to me to have very many difficult problems to face.
I will put the case of preference shareholders who have not had dividends for many years, but who, owing to large profits having been made, have received from this excess not only their dividend for this year, but dividends for many years before the War. How is the Chancellor of the Exchequer going to get at that? The companies will not be able to pay; in some cases I know they cannot. Will the Bill provide that a claim be made against these preference shareholders for the repayment of this money? This is a question of principle. I want to raise a point to which one or two speakers have incidentally referred: it is a matter of very great importance, and I rather change the view which I expressed when the first Resolution was moved. It does seem to me unreasonable, having regard to the whole circumstances, to levy these taxes haphazard from the 1st September as the business date. It should be perfectly easy to arrive at what the profits have been since the outbreak of the War. There should be no difficulty in arriving at that, whether the accounts are made up in June, March, or any other period, because the two half-year accounts have now been struck. One of the companies with which I am associated made their accounts up to June, but recently they changed to December. In point of fact, it does not affect me, because the business with which I am associated shows very little war profit for 1914. But you may have many companies paying tax for part of the year 1913, months before the War broke out, while other companies, owing to the accident of having their accounts made up to June, pay no tax at all for any period of 1913, and for only a very few weeks prior to the War. It is perfectly right what the Chancellor of the Exchequer says, that during the months of August and September, 1914, very large profits were made by some people, and he is right in trying to get hold of the excess profits made in August and September after the War broke out. I have no doubt it is for that reason that he has adopted 1146 the principle of taking the business year in September. But if the business year goes back in effect ten months before the War, that is not fair, because it all depends on the circumstances. It is just by chance that a company happens to have made up its accounts in that way. My right hon. Friend cannot say that when the War is over a company which has been taxed as it has been taxed will average itself.
§ Mr. McKENNA
This only shows the disadvantage of dealing with questions of this kind as if we were in Committee. My hon. Friend raises half a dozen points, none of them arising on this Resolution as it stands. We are only on the Report stage of a Resolution, which is absolutely general in its terms. I could answer my hon. Friend on every single point in Committee, but I cannot do so at this stage.
§ Sir A. MARKHAM
I think that this is a question of main principle. It is a question of taking a period. The country as a whole thinks that war profits should be taxed. The country does not understand for a moment that if by fortune or accident accounts are made up to September or any other period one man should pay for a longer period than another man. Still I will not pursue that question, as the right hon. Gentleman says that it can be dealt with in Committee. The hon. Baronet the Member for Hanover Square gave the case of a company on which there was no assessment last year because the business had failed. I do not understand whether the company is to go back in that case and take an average of some years?
§ Mr. McKENNA
It was assumed that the company makes a profit in the first year of assessment, the first year of business during the War, from the 1st October to the 30th of September. During the second year it makes a profit, again from the 1st of October to the 30th of September. Assuming that the War goes on for the next year, in the third year it comes into assessment. Suppose that in that year it loses, the company is entitled then to take the whole three years together and to recover from the Exchequer the amount due in respect of the loss, on the average. The hon. Member opposite took the particular case of a company which may lose after the War, and he contended that that company should get relief. All these are points which clearly cannot be 1147 dealt with until hon. Members see the terms of the Bill. Therefore, I beg the House to wait until the Bill is printed.
§ Sir A. MARKHAM
A good many of us are going away, and we shall not have the opportunity of coming up to see the right hon. Gentleman.
§ Sir A. MARKHAM
The right hon. Gentleman has invited hon. Members who are staying in town to come and see him, and if they do so I think that he will have a very busy time. But perhaps I may ask a question which I would have asked if I had availed myself of the right hon. Gentleman's invitation. Take the case in which we are told that a company, owing to special circumstances, can pay 6 per cent. I could give the right hon. Gentleman numerous cases in my own business in which companies have been working new undertakings, very deep mines, where they have not begun to make a profit for the first eight years. Therefore we have got to look at our capital not at its face value, because if we allow ordinary compound interest 6 per cent. will only give 4 per cent. on the capital, and the owner of the colliery will keep the capital account as small as possible. I can give the case of a company of my own, with a capital of £100, paying many thousands of pounds in wages annually. No dividend has been paid. All my profits have gone. No capital is employed in the business at all. All the capital which I have in the business is £100. Like others, I trade with other people's money, and in this case it is all paid off, so that I have only £100 in the business, and of that £100 the right hon. Gentleman will have to hand me over £6.
§ Mr. McKENNA
If my hon. Friend will only wait until he sees the Bill, he will find that all these cases raise no point at all.
§ Sir A. MARKHAM
I am fully in favour of the tax, and I have pressed my right hon. Friend time after time to introduce it—indeed, I think there has been negligence in not introducing the tax at an earlier date. I am in no way hostile to it, but friendly to it. When the House gets into Committee on the Bill there will be some difficult cases to deal with, and the Chancellor of the Exchequer in making exemptions will have to be very careful 1148 about what he is doing. There will be numerous cases of hardship, try how the right hon. Gentleman may to avoid them, and the only way to deal with them would be to set up a tribunal that you can trust to act fairly and equitably between the State and the community at large, and where there are cases of hardship the tribunal, under proper direction, should be able to deal with them in an equitable manner.