HC Deb 12 July 1916 vol 84 cc411-21

For the purposes of assessment of Income Tax in respect of the profits of a controlled establishment, and where such assessment would be diminished by the provisions of this Section, the net profits of such establishment for the accounting period under this Act shall be deemed to be the amount of the net profits of such establishment as ascertained for the purposes of the Munitions of War Act, 1915, of any accounting period or periods under that Act which expire during the currency of the accounting period under this Act.—[Mr. J. Mason.]

Clause brought up, and read the first time.


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

The Clause which I now move has reference to the effect of the Income Tax upon the money which is expended upon building and plant for special war purposes, which are admittedly useless at the end of the War. The system by which the collection of Income Tax is now pursued is bound up somewhat with the matter of allowance for depreciation. As it now stands, this of course means that with increasing taxation there is decreasing capital in many cases. As we now stand, it is quite clear that unless something is done, Income Tax will be paid upon sums which are now allowed by the Government to be spent in capital expenditure on buildings and plant, and which are not subject to two other duties, the Munitions Levy and the Excess Profits Duty. Let me take a concrete instance. I take a case where the Government desires for the purposes of the War that buildings shall be erected to the value of £80,000, and it is admitted that these buildings are useless after the War, and are not necessary for the purpose of the company or firm whose property they are, being erected by the desire of the Government purely for War purposes. Suppose that out of this £80,000, it is agreed that special depreciation of £50,000 is to be allowed, and therefore the Munitions Levy and Excess Profits Tax is collected, not on £80.000 but on £30,000, that is to say, £80,000, less the special depreciation of £50,000. As things stand now, I suggest that Income Tax must necessarily be collected on the £80,000 and not on the £30,000, as in the case of the other two taxes. Consequently, Income Tax will have to be paid to the amount of £20,000 on money, which is being expended by the firm which is admittedly useless after the War, and therefore should not be taxed in this severe way. The reason why I think something is necessary is that under the existing practice of the Income Tax collector, or in accordance with the Income Tax law, it is the custom not to allow any depreciation upon bricks or mortar on buildings. Therefore, unless something is done, I fear that the depreciation which it is admittedly possible may be granted in the case of Munitions Levy and the Excess Profits Tax, cannot be granted, unless some precaution is taken, in the case of the Income Tax. I can hardly think that is what is intended by the Government, and I think it is desirable to raise this question now. Of course the right hon. Gentleman may be prepared to have the matter considered, but I would point out that so far as I know, it was not raised on the other Clauses of the Bill.


I beg to second the new Clause which my hon. Friend has moved in such suitable terms. The House is aware that this question of the excess profits was under discussion before We had a long discussion and I do not propose now to repeat any of the arguments which I used on that occasion, but the outcome of that Debate was this, that a large number of the representatives of the controlled firms met the Prime Minister, the Chancellor of the Exchequer, and the Minister of Munitions in a Committee Room upstairs, and they received us most cordially, and the Prime Minister assured us how very much the Government values the services which the controlled firms are rendering to the country, and they assured us of their desire to cooperate with us in every way they could in an amicable and friendly manner. Following that deputation a meeting took place yesterday afternoon, at the Treasury, between the right hon. Gentleman the Chancellor of the Exchequer and the new Minister of Munitions. Unfortunately, the office having been transferred from the late Minister to the new Minister of that Department in the intervening time, the controlled firms had not the advantage of having a Minister before them who could appreciate their case in the same way that the other Minister could. Well, I understand that the deputation were disappointed generally with the result, and one of my objects in rising to second this new Clause is to ask the right hon. Gentleman whether he will be able in the course of his reply to kindly state to the House what the concessions were. There were some concessions made yesterday. I understand that these concessions are of such a character that legislation is not necessary; they will be Departmental, and will be done by regulation. I would very much like the right hon. Gentleman, if he will, and I think it is convenient, and it will promote the progress of this Clause, and other Clauses, to state what those concessions were, and how he proposes to carry them out.


I recognise the strength of the case that was made out by my hon. Friends in moving this new Clause. It is true that it would appear to be somewhat unfair to give with the one hand, as expenses of the business, the special allowance which is permitted to controlled firms for depreciation, and then, with the other hand, to refuse to give the same special allowance for Income Tax purposes. The House will remember that in the case of controlled firms we have agreed to accept the munitions regulation for certain purposes, including the deduction for depreciation, having regard to the special circumstances of the controlled firms. They have in many cases put up new buildings and laid down new plant, at the express request of the Government, not primarily' with the object of making profit, but in most cases entirely for the purpose of increasing the output without regard to profit, and the Munitions Department in most cases quite properly, if I may say so, entered into an arrangement that the firm should be allowed to write down the cost of the new buildings and plant especially erected by them to the postwar value of the plant. Of course they have to pay during the War a high price, and it is possible that after the War there may be a very great difference between the value of that plant for which allowance had to be made. Therefore we were content to make that allowance both for the purpose of Excess Profits and Income Tax. We think that we can accept my hon. Friend's proposal, but, while accepting it, we consider that we can put it into somewhat better language, and I propose, therefore, in moving at a later stage to recommit the Bill, to recommit it in respect to this new Clause and other new Clauses dealt with today. I think that is a more convenient method of dealing with the subject than by dealing with Amendments to the Clause moved by my hon. Friend. We will put forward our proposal as a new Clause, and it will then be discussed in its entirety, without all the difficulty which would arise from dealing with the Amendment of the Clause on the Paper. The following is the new Clause, which I will put on the Paper tomorrow: (1) Where in calculating for the purposes of Part II. of the Munitions of War Act, 1915, the profits of a controlled establishment a deduction has been allowed under that Part of that Act or rules made thereunder in respect of exceptional depreciation or obsolescence of buildings, plant, or machinery, and the sums so deducted have not been deducted or allowed in computing the amount upon which Income Tax has been paid in respect of those profits, there shall be allowed a repayment of Income Tax equal to the amount of the Income Tax at the rate at which that tax has been paid on the amount of the sums so deducted.

Provided that the repayment of Income Tax under this Section—

  1. (a) shall be made in respect of the Income Tax year which includes the end of the period of assessment in respect of which the said deductions have been allowed under the Munitions of War Act, 1915; and
  2. (b) shall be deemed to have effected a reduction of the Income Tax assessment by the amount upon which Income Tax has been so repaid.
(2) Any application for relief under this Section shall be made to the Commissioners by whom the Income Tax assessment has been made, and those Commissioners upon proof of the facts to their satisfaction shall certify to the Commissioners of Inland Revenue the sum repay able, and the Commissioners of Inland Revenue shall cause repayment to be made accordingly.

I think that covers substantially what has been put forward, and I shall be happy to place this new Clause upon the Paper tomorrow.


I desire to ask my right hon. Friend to be very cautious in accepting the principle embodied in the Amendment moved by the hon. Member for Windsor (Mr. J. Mason). I took exception in the Committee stage to what I understood was the bargain made by the Minister of Munitions at Manchester with certain controlled firms. I do not want to enter into details nor should I be in order if I did so, but what I do want to point out to the right hon. Gentleman is this: That these buildings which have been erected, many of them by armament firms, are, I say without any hesitation and speaking as an engineer myself, capable of being used by the owners for engineering purposes afterwards. They are much better buildings, and are better equipped for making machinery than the existing shops the engineers had before the War. It is very important that we who have been in the engineering business should not, after the War, have to compete with armament firms who have built these big factories in which they are making shells, guns, and other munitions, and if they are going to acquire these buildings at a very small price as I take it they are, because the Chancellor of the Exchequer said, "I am only going to take the difference between the prewar balance and the increased cost occasioned by the making of the buildings—




I beg pardon; post-war. Nevertheless, owing to the large amount of depreciation that is allowed, which has been settled by the Ministry of Munitions with the controlled firms, I am not at all clear whether this is going to work equitably to the engineering firms who were engaged in the manufacturing industry prior to the War. I think it would be most regrettable if all the engineering works of the country eventually became centred in the munition people, and I hope the right hon. Gentleman will pay some attention to the fact that these buildings erected during the War are not as the hon. Member said—I can assure him it is not so-of very little value or incapable of being used for any commercial purpose. I differ from the hon. Gentleman, and say that from the point of view of engineering work they are better suited to manufacture in competition with the old engineering firms than the hon. Gentleman or the House seem to. believe.


I should like first to assure the Chancellor of the Exchequer that the suggestions he made in the new Clause are very acceptable to those who are interested in the business of controlled establishments. Until we have seen the Clause and studied it, of course, we cannot quite tell how far it will meet all the various points, but it appears so far as possible to have met the position which has arisen. There is no doubt whatever that there is an enormous difference between the ordinary Income Tax allowance and the allowance which has been arranged with certain firms because they have erected at the desire of the Munitions Department works at the present time which have cost very much larger sums by 50, 60, and more per cent. than they would have cost if the War had not been in existence. The suggestion now made, therefore, that these questions will be met in a fair spirit should meet the want of the community. I should like to say in reference to what has been said by the hon. Member for Mansfield (Sir A. Markham) that I think he was rather inclined to strain his point, because I do happen to know that in very many cases the works have been valued for after the War, and the only allowance is between the difference in their cost and the valuation that is made by a very competent valuer. The suggestion, therefore, that these controlled firms are going to get property for nothing at the expense of the State is a very extreme one. It may be so in some instances in which the Department has been caught, but as a rule the firms have to bear the cost both of the plant and of the machinery without knowing whether at the end of the time it will be of any use to them at all. Some firms are doing entirely different work from that on which they are usually engaged. They have no goodwill and no trade to apply to those works, and therefore they cannot be of the same value as works of the same nature as those which have been carried on. It may be engineering work, and the engineering works may have a trade for double the plant and buildings it had in the first instance, and therefore I do not think the complaint the hon. Gentleman made applies to any great extent. I admit it may happen in a few cases, but they are so few that they are not of importance. At any rate, I think we all have to express our thanks to the Chancellor of the Exchequer for having considered this matter. I must confess that after what we heard at the meeting yesterday we had very poor spirits during the day until we heard the right hon. Gentleman's announcement. We do, however, feel, I assure him, that we are being dealt with in a proper spirit, and I would only add—and I would like to add it—that whilst we were not content with the way in which we were treated as controlled establishments, I can assure the right hon. Gentleman from all I know, and I know many of them very much interested in the matter, that whatever he might do to tax us nearly out of exist ence, we should continue to give the Munitions Department, in the same patriotic spirit in which we have given it, the timely aid that we have given up to the present.


I hope the House will not think that this only affects the big engineering works. Nearly the whole of the chemical industry has been controlled, and they certainly do not ask for anything such as was described by the hon. Member for Mansfield (Sir A. Markham). At the same time chemical plant and buildings have been put up for the special purposes of this War, and it is really meeting a real grievance when the Chancellor, as I understand he now does, proposes to make readjustments for repairs, renewals, and obsolescence of plant, made by the Ministry of Munitions under Rule 9 as expenses of business in the same way as materials and wages are, and, therefore, do not count for Income Tax. That really requires to be done at the present time. Unless these are treated as expenses of the business a very great injustice will be done, and I can only say personally, speaking for other industries besides the engineering industry, hat the announcment of the Chancellor of the Exchequer will give the greatest satisfaction.


The very fact that the hon. Gentlemen interested in these industries are so profuse in their thanks makes one inclined to be a little bit suspicious of the Clause. I do not intend, however, to pursue that line. I only want to ask the Chancellor of the Exchequer one question of which I think the House should see the importance. For my part, I want to ask him whether in any arrangements which are made with regard to the postwar value of the plant and the buildings, the Treasury will be consulted as well as the Ministry of Munitions. I think it is exceedingly necessary that that should be done, and I should like to know whether that is part of the arrangement to which the Chancellor has come. I should be much more satisfied myself, at any rate, in regard to the bargain that is to be made in the matter of the postwar value if I were sure that the watchdogs of the Treasury were looking after the interests of the nation.


I am not going to be profuse in my thanks to the Chancellor of the Exchequer. I recognise he has seen a little justice, and that if he had done anything else than what he has done he would have done a very grave injustice [Laughter] Hon. Gentlemen laugh, but they do not know very much about it. The hon. Member for Mansfield (Sir A. Markham) spoke of these big engineering firms being given something for nothing, or what is equivalent to nothing. I am perfectly certain that the Ministry of Munitions will do nothing of the kind. If the buildings are of value to them for the purposes of their business they will be so valued. To put the other case a little stronger, the munition firms are only about five or six. My right hon. Friend has commandeered 4,000. He has gone about the country in order to swell up the amount, and to make the thing bigger. Wherever he found a boiler and an engine and a little overhead shafting he has made them a controlled firm. He has said, "You make munitions; put in lathes." There is the soap maker, case makers, thousands of people who never saw a shell made in their lives, and could not have made one for the life of them; and the consequence has been that they have had thousands and thousands of these things rejected because they undertook to do something under the aegis of the Ministry of Munitions, and of a patriotic desire to make munitions, which they were perfectly incapable of doing. When the War is over, here will be a place full of machinery absolutely useless to them. Of what use is a hydraulic machine for forging shells to a soap maker? There are plenty of people having any number of machines which will be perfectly useless to them.

Last week in Manchester I went into one of these controlled establishments, and I saw half-a-dozen lathes almost new ordered by the Ministry of Munitions. There they were. They had performed their functions twice. I said, "What are these?" and the reply was, "These were made for So-and-so, but in the meantime the War Office have altered their gauges, and they are no use." At the end of the War, when it comes to excess profits, the Ministry of Munitions and his staff must admit these things. They are of no use to these people, and the solution to my mind is this: The firm can say, "Here are these machines; they are absolutely no use to us." "Very well, we will take them away." "Do so, and allow us for them." When you suggest that there is a great warehouse full of these machines costing thousand of pounds, the Minister of Munitions should see the justice of that £20,000, or a portion of it at all events, being charged as expenditure, because it is absolutely useless to them, or he should take away the machinery. He allows 20 per cent., and the Income Tax Commissioner comes along and says, "He has allowed 20 per cent. For the purpose of your Income Tax I am only going to allow 5 per cent."—and the man will have to pay 15s. in the £ on stock that is absolutely useless to him. Although my hon. Friend thanks the Chancellor, he could not have done anything else. I do not assume for a moment that they will make extravagant allowances. I do not believe they will. I know them too well; and if the Treasury have anything to do with it they will not do so. The fault will be on the other side; and let me tell the right hon. Gentleman and the House—and it is the absolute truth-that out of 4,000 men and upwards who have been controlled, at least one-third of them will lose money. Take note of that. When you come to settle up you will find that a great many of them, so far from having excess profits, will have serious losses to face. It must be so. Men undertake to do things they are not qualified to do, and which they have never done before. It is the experience of all life that, as an American humorist says, when a man undertakes to do too much he generally succeeds.


Would it not be better to defer this discussion until the Government Clause is before hon. Members? I understand they are going to bring one in.


I only desire to answer one or two of my hon. Friend's observations, and will say no more.


I should like to say a few words—


Would it not be better for the right hon. Gentleman to wait until to-morrow, when he will see the New Clause? understand that this Clause is not going to be proceeded with.


With all due respect, I should like to say a word, because it seems to me that the more that is said by those who have been interested in pressing this change upon the Chancellor of the Exchequer the more it becomes clear that we shall have to watch it very care fully. I wish to say a few words in support of my hon. Friend the Member, for Mansfield (Sir A. Markham). I also happen to have had experience of engineering workshops, and of some of them which have been put up during the course of the War. It is perfectly true, as my hon. Friend the Member for West Aberdeenshire (Mr. J. M. Henderson) said, that although 4,000 firms have been commandeered for war purposes for the Government orders, only about five of them count. That is an argument not in his favour but in ours, because if you are going to have five great corporations throughout this country who are to make bargains with the Ministry of Munitions, the Ministry of Munitions is going to have the worst of it every time. These buildings which have been put up during the War are some of the best buildings which could be used for the purposes of ordinary engineering business after the War. There is a danger arising here. We are told that they are going to have the difference as between the cost price and the postwar value, which, I take it, means the value immediately after the War. That will be a time of great slackness. But very soon after the War winds up that slackness will be over, provided, as I hope will be the case, State credit is used to make good the ravages of war. Those firms will then be full up with work, and they will be using these workshops and splendid tools which are right up to date, and which have been imported from America and all over the world, for the purpose of making large profits. I join with my hon. Friend the Member for Stockport (Mr. Wardle) in impressing upon the Chancellor of the Exchequer the necessity of the Treasury being consulted when these bargains are made. I am not particularly anxious about soap boilers and small firms, because probably they will get the worst of it, but I am anxious that these big firms, when making bargains with the Ministry of Munitions, shall have the Treasury upon their track as well.


I beg to thank the right hon. Gentleman for his statement, and ask leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.