HC Deb 22 June 1916 vol 83 cc427-90

(1) The Finance (No. 2) Act, 1915 (in this Part of this Act referred to as the principal Act), shall, so far as it relates to Excess Profits Duty, apply, until Parliament otherwise determines, to any accounting period ending on or after the first day of July, nineteen hundred and fifteen, as it applies to accounting periods ended after the fourth day of August, nineteen hundred and fourteen, and before the said first day of July.

(2) Section thirty-eight of the principal Act shall, as respects excess profits arising in any accounting period beginning after the expiration of a year from the commencement of the first accounting period, have effect as if sixty per cent. of the excess were substituted as the rate of duty for fifty per cent. of the excess.

Where part of an accounting period is after and part before the date of the expiration of a year from the commencement of the first accounting period, the total excess profits and any deficiencies or losses arising in the accounting period shall be apportioned between the time up to and including, and the time after, that date in proportion to the length of those times respectively, and the rate attributable to the time after and the time before and including that date shall respectively be sixty and fifty per cent. of the excess.

In the case of trades or businesses commencing after the fourth day of August, nineteen hundred and fourteen, the rate of duty shall be sixty per cent. of the excess in respect of any accounting period ending after the fourth day of August, nineteen hundred and fifteen.

In calculating any repayment or set off under Sub-section (3) of Section thirty-eight of the principal Act any amount to be repaid or set off on account of a deficiency or loss arising in any period in respect of which duty would be payable at the rate of fifty per cent. of the excess, shall be calculated by reference to that rate of duty.

Any additional duty payable by virtue of this Section in respect of a past accounting period may be assessed and recovered notwithstanding that duty has already been assessed in respect of that period.

(3) It shall be the duty of every person chargeable to Excess Profits Duty under Part III. of the principal Act as extended by this Act, if he has not previously given notice of his liability to be charged with Excess Profits Duty in respect of any accounting period, to give notice to the Commissioners of Inland Revenue before the expiration of two months after the termination of any accounting period in respect of which he is chargeable, or if the accounting period terminated before the passing of this Act, within one month after the passing of this Act.

If any person fails to give the notice required by this provision he shall be liable on summary conviction to a fine not exceeding one hundred pounds, and to a further fine not exceeding ten pounds a day for every day during which the offence continues after conviction therefor.

Mr. S. ROBERTS

I beg to move in Subsection (1), after the word "apply" ["so far as it relates to Excess Profits Duty, apply"], to insert the words "except as to controlled establishments under the Munitions of War Act, 1915, during the period they are under such control." The Sub-section will then read:

The Finance (No. 2) Act, 1915 (in this Part of this Act referred to as the principal Act), shall, so far as it relates to Excess Profits Duty, apply, except as to controlled establishments under the Munitions of War Act, 1915, during the period they are under such control, until Parliament otherwise determines, to any accounting period ending on or after the first day of July, nineteen hundred and fifteen, as it applies to accounting periods ended after the fourth day of August, nineteen hundred and fourteen, and before the said first day of July.

I very much regret the necessity of having to move this Amendment because, as the Chancellor of the Exchequer knows. I have been a consistent supporter of himself and the Coalition Government, and I hold the view that it is the duty, during the period of the War, of all loyal Members to support that Government. You get the best out of people, and my remark is general, by encouraging them and helping them. You do not get the best out of people by always criticising and nagging and finding fault. Therefore, it is with much regret, for that reason, that I feel it my duty to move this Amendment, but I hope I shall do so in a spirit which will in no way impinge upon the principles which I have studied in supporting the Coalition Government. In order that the Committee may understand the point, I must shortly describe the history of this question. In the summer of last year it became necessary for the Munitions Department to pass a new law to control establishments which were going to make munitions of war, or were already making munitions of war. The object of that Act was a labour one, and not a financial one. The object was, so far as this House could secure, to see to it that during the period of the War there should be no difficulty with labour in regard to wages or strikes. So essential was it that during the War munitions should be turned out regularly and well that it was felt that the Government must have certain control, especially over the large armament works which were such important factors in regard to that output. That being so, the trade unionists, very naturally and justly I think, said, "Very well, if we are going to give up our normal, rights in regard to wages and strikes and things of that kind, we must have some security that these large works are not going to make immense profits out of our labour, if we do our best for the Government during the War." I think that was a natural request, and the Government acceded to it, and said, "We will send to the armament firms and put the case to them."

The representatives of large armament firms were sent for. It was confined to those firms at that period, because it was not thought then that the Munitions Act would have to be largely extended. That view, however, did not come true, because very shortly after the passing of that Act a large number of establishments which were not controlled before were put under control. I am sorry that there is no representative of the Munitions Department present. They are so much mixed up with this question that I should have liked a representative of that Department in the House while this question is discussed. The Munitions Department, having sent for the representatives of the large armament firms, put the case to them and represented to them how very important it was that the work should continue to go on well during the War. They told them that they would have to agree to a certain deduction from their profits. The exact amount was stated, or arranged, I think, to be a sum of 20 per cent. above the average profits of the two pre-war years. That is to say, that the controlled establishments might retain as profits 20 per cent. above the amount of the average profits of the two years previous to the War. I do not say that that was a bargain, but it was a thing which the large works agreed to at the request of the Government. I want to make that perfectly clear. The right hon. Gentleman the Member for Walthamstow (Sir J. Simon), who was then one of the Law Officers of the Crown —I think he was Attorney-General—was one of the members of the Government in charge of the Bill, and this is what he said on the Second Reading: We are not endeavouring to force this upon unwilling employer. I do not think— This is the part I want the Chancellor of the Exchequer to listen to— I break any confidence when I say that the scheme which is to be found in this Clause— That is the Clause putting the duty on— as regards limitation of. profits is a scheme, the foundation of which, the source of which, will be found in the suggestion of some patriotic employers themselves, and it is immensely to their credit."— [OFFICIAL REPORT, 28th June, l915, col. 1546, Vol. LXXII.] That was the view of the Government at that time. What happened? In the autumn of last year the Chancellor of the Exchequer brought forward a Finance Bill and, quite rightly and justly, he introduced an Excess Profits Tax upon all firms. Not only were the controlled establishments to be taxed under the Munitions Acts, but all firms were to be taxed; but he confined his taxing or accounting period to those firms making up their accounts before the 30th June in the summer of last year. If the provisions of the present Bill had not been introduced that tax would have ceased. This Bill continues the Excess Profits Tax. I quite agree that it should be continued, though T would like to put in the caveat that T think the right hon. Gentleman has made a mistake in putting on the extra 10 per cent., making it 60 per cent. I think he would have got ample money by leaving it at 50 per cent. What I fear is that if he is not very careful he will take away that inducement to work for profit which is so very essential. I think that if he would withdraw that 10 per cent. increase and let the 50 per cent. go on as it was before, he would cure this question, and my Amendment will have gone. That is my view. I think that has been the cause of the whole thing. In bringing forward the Excess Profits Duty last year the right hon. Gentleman made it perfectly clear that that Excess Profits Duty, and the munitions levy as he called it, were not to apply to the same firm for the same period.

Mr. McKENNA

In that period?

Mr. ROBERTS

For the same period. That is to say, that the Munitions Tax did not commence until the establishment was controlled, and then it did commence. Before it was controlled it was liable to Excess Profits Duty. That is what the right hon. Gentleman said on that point. Speaking in Committee on the Finance Bill in the autumn of last year the Chancellor of the Exchequer said: The Excess Profit Tax as it now stands does not operate during any period a controlled firm is in existence as a controlled firm. The Munitions Act did not pass until: 2nd July. As we limit the charge under our present law to the 30th June, there can be no overlapping period— Of course there could be no overlapping, because controlled firms did not become liable until after they were controlled, which could not be until after the Act was passed— but of course, during any accounting period which ends prior to 1st July, 1915, all firms are liable. Whether after that date they become controlled firms or not is immaterial— [OFFICIAL REPORT, 27th October, 1915, page 283, Vol. LXXV.] 8.0 P.M.

That was the position then, and it is the position at the present time. These firms are not liable. Now the right hon. Gentleman makes this proposal, that the Excess Profits Duty should be extended after the 30th June, 1915, so as to count the periods after that date, until Parliament otherwise determines. These words are large words, which include all firms, and, therefore, include munition firms, controlled firms. My Amendment is to limit the operation of the extension of the Excess Profits Duty to firms other than controlled firms, and to leave the controlled firms entirely as it was intended and arranged and agreed to leave them, under the operations of the Munitions Act. We think that is a just proposal. Whether it involves much money I do not know, but at all events the right hon. Gentleman is going to get a great deal of money from both the Munitions Act and the Excess Profits Duty. We do not know at present, because the machinery is blocked—the accounts have not been settled and arranged, and I am afraid it is going to be a very long time before these moneys make their way into the coffers of the Exchequer. Unless this question is settled, and settled amicably in the way that I suggest, I venture to say that the right hon. Gentleman is going to have very great difficulty. In justifying his action the right hon. Gentleman said, "Yes, I admit what you say, but the munitions contribution was a levy; it was not a tax. I am entitled to come on the top of that levy and tax it, if by taxing it I can get more out of it." Really, that is a quibble which is unworthy of the right hon. Gentleman, and unworthy of the Treasury. What does he mean by a levy? This Excess Profits Duty is entirely the same thing, but there is a different percentage. There is a choice of selection as to which two of the three years will be chosen, but when the choice is made the machinery for arriving at the assessment in the two Acts of Parliament is entirely different. But that does not alter the fact that in both cases these are taxes coming into the Exchequer, and my point is that Munitions Acts controlled establishments are now being taxed and taxed in a way which was agreed to in the Act passed, and now the right hon. Gentleman is coming in, and it is regarded—this is a serious matter—by the controlled firms as a breach of faith.

There are now nearly 4,000 of these firms. It was never intended, to start with, that there should be so many. It was merely to meet the case of the large armament firms. These controlled establishments are so struck by the difficulties before them that it is no secret that they are forming associations for self-defence, associations to get what they 'consider their rights. I regret it and I regret the reasons. This is one of the reasons. I do not know why the right hon. Gentleman should wish to interfere with a body of men who, all through this War, have done their duty to their country, both in money and in labour. It is the very last thing which the right hon. Gentleman ought to do. I have talked with a great many of these people, and there is going to be trouble; but I hope that to-night the right hon. Gentleman will be, as I am glad to say he was yesterday, in a conciliatory spirit. Believe me, I am not moving this in a hostile spirit, but because I think that it is just to these firms whom I have the honour to represent. It is a question also which the Chambers of Commerce have taken up all over the country. I have got resolutions here from the Sheffield Chamber, from the city which I have the honour to represent. They say this Chamber must earnestly protest against the entirely unbusinesslike proposal contained in Finance (No. 2) Bill, 1916, whereby controlled firms, of which there are over 3,500 in the country, are rendered liable to dual assessments on two different principles in respect of the same profits. Recognising the necessity of raising revenue by drastic taxation, and while cheerfully according this, the chamber is of opinion that the proposed duplication will involve unnecessary expense and trouble at a time when useful economy is of paramount importance. The chamber, therefore, respectfully urges that the provisions for the Profits Tax should be dealt with in one Act and by one tax only, and should be administered by one Department instead of two.

Just fancy any business concern having two assessments going with a duplication of officials, and all this trouble and worry during a great war! It is not business. It is one of the most stupid arrangements which can possibly be imagined. These firms are doing their duty to their country and to the Executive, but there is danger of upsetting the good feeling which at present exists between the Munitions Department and the firms and the! trade. It is the very worst policy of the Government to try to offend these people, who are spending their nights and days in the service of the country in this way. A large armament firm which I have the honour to represent—perhaps the Committee will excuse me for introducing this point because it just shows what is due to them—have undertaken to manage one of the large new national factories of the Government for making large shells. The Government are spending their money. We could if we wished have received a commission, a large commission, for ourselves. We declined to receive a farthing. We said, "We will give you our services for nothing; we are patriots.'' Is it proper treatment for a firm like this, who are willing to give their services for nothing to the Government from patriotic motives, that the right hon. Gentleman should come down to this House and perpetrate what we consider a breach of faith in respect of an honourable arrangement?

Sir WILLIAM PEARCE

The case has been put from the opposite bench of a very large firm being taken under Government control. When the system was started it was everybody's belief that only a comparatively small number of firms would be affected. Since then nearly 4,000 firms have been put under control, most of them very much to their financial detriment. Most of them would be only too glad to come back under the Treasury. What is objected to is that they should be under two masters, under both the Ministry of Munitions and the Treasury, and many of these smaller firms that have been controlled are already placed at a great disadvantage with competitors, because—I am referring now particularly to the chemical industry—some people who are making chemicals are controlled, and others, like gas firms, who for financial reasons cannot be put under control, escape, and already there is wide divergence in the same industry. If the Treasury thought fit to resume control, I think that the situation would be very largely met. What I am trying to press on the House is this: For goodness sake do not put any firm under two masters! It is difficult enough now to meet the Ministry of Munitions. If you have besides to meet the Treasury your, trouble is added to, your accounts are complicated, and one begins to wonder whether you have sufficient clerks or sufficient accountants to deal with such circumstances. There are rumours that the Treasury are going to accept abatements or reductions made by the Ministry of Munitions. I trust that in the course of the Debate the Chancellor will be able to clear up points of that kind. But what I am at a loss to understand is why he is anxious to have this dual arrangement. The trouble and injustice must be manifest to everybody. What is he going to get out of it? I am at a loss to see how any large sum can possibly accrue to the Treasury.

If you take people who are making a comparatively small percentage of profits it is very unjust, when they have a bargain that their profits should be limited to 20 per cent. on the pre-war standard, that the Treasury should come in now and take another share; and if the Treasury had in mind people making very much larger profits still, I think that there again they will find that very little will accrue to them. Again, they are liable to do great injustice, because in certain industries where large profits are being made they will go to the Ministry of Munitions unless in special circumstances. And there are industries in this country which the Ministry of Munitions quite recognises— explosive works, chemical works, dye works, and such like—must get a special allowance to the advantage of all concerned, because it is absolutely necessary in things like dyes, and pharmaceutical chemicals, that the production of the country should be increased, and, if arrangements can be made by the Ministry of Munitions encouraging the erection of this plant, and this has all again to come under the review of the Treasury, it can only impede the production of commodities which are absolutely necessary for the safety and future prosperity of the country. I do-beg that the Government will do one thing or another, that they put individual works either under the Ministry of Munitions or under the Treasury—personally speaking for the smaller people I would prefer to be entirely under the Treasury —but complications ensue and a sense of injustice remains if we have to make contribution first to the Ministry of Munitions and it is all reviewed by the Treasury. This leaves a sense of burning injustice, and in the long run is not to the national advantage.

Mr. McKENNA

I have nothing to complain of in the tone and temper of the speech either of my hon. Friend opposite or of my hon. Friend who has just spoken. I am the first to recognise that the controlled establishments at the present time do labour under considerable difficulties. I am going to ask the Committee to bear with me while I recall some of the circumstances of the case, and I am going to ask them seriously to consider whether it would be possible, having regard to the practice of this country and the necessary practice of this country, for the Treasury to abandon the position of taxing authority and consent to treat one set of firms from the point of view of taxation in a different way from other firms. We have to go back to the history of the Munitions Act before we can realise fully what the position is. Part two of the Act is the relevant part, so far as this discussion is concerned. Section 4 says:

"If the Ministry of Munitions considers it expedient, for the purposes of the successful prosecution of the War, that an establishment in which munitions work is carried on should be subject to the provision as to limitation of employer's profits and the cnotrol of persons employed and other matters, contained in this Section, he may make an Order declaring that establishment to be a controlled establishment."

From the point of view of the employer it will be observed that this Section is double-barrelled. It is to his disadvantage in limiting his profits and to his advantage so far as the control of the persons employed is concerned, and it was felt at the time that it would be impossible to give special advantages to particular employers in the way of control of labour without, at the same time, limiting their profits. I am merely going through the whole case, and it is necessary for me to do that if the position of the Treasury is to be understood. This is a special Act dealing with a special set of firms who were receiving an advantage on the one hand, so far as the control and management of labour was concerned, and on the other hand they had the disadvantage so far as the payment of the tax was concerned. The whole effect of the Act may be to damnify the employer as to a sum of money, but he certainly will have the advantage as to the management and control of labour.

Sir W. PEARCE

It is not the case with small employers.

Mr. McKENNA

It would be advantageous to the employer to know that his workmen were being daily supplied with work, and for this advantage, I put it no higher, the employer has to suffer the loss inflicted upon him by certain limitations in profits. That is the bargain, as it has been called, between the Munitions Department and the firms incorporated in the Act of Parliament. It has two sides, one, the limitation of profits, and the other, the control of the persons employed. I do not want to contravene the argument of my hon. Friend, who deals with the small firms, but I wish to say-that in the case of some of the controlled firms, at any rate, the power of dealing with the employed persons has been an advantage, but for that advantage, in those cases, they have had to pay in a limitation of profits. Before the Munitions Act was introduced notice was given in this House of the intention to impose an Excess Profits Tax as soon as it was possible to do so. In the month of September that Act was introduced to the House. Immediately, of course, the question was raised as to the relations of the controlled firms, who had to pay the Munitions levy, to the new taxation. The answer which was then given, the answer to which my hon. Friend opposite has referred, was that it would have to be settled at some future time, and that it need not be settled at that moment, because the Excess Profits Duty for the first year would not overlap the period of the controlled establishment.

Now that the Excess Profits Duty is continued, the question does arise, what ought to be the relation of this duty to the controlled establishments, who are already subject to the munitions levy? I am going to submit to the House, so far as the Treasury is concerned, that no other arrangement but the arrangement which we have proposed is possible; for very obviously the Treasury proposes to Parliament a tax which clearly, in the nature of things, must be of general application. It is quite clear that we could not distinguish between Firm A and Firm B, and say that one was to be subject to taxation and that the other was not. It is quite clear that the tax has to be equal, from our point of view, in its incidence on all persons. I think the two propositions are self-evident, that the tax must be universal, and must be equally applicable to all firms of equal means. Supposing the Amendment of the hon. Member were accepted, what would be the effect of the two taxes then? Firms which were not controlled would be subject to a tax of general application, known in principle, and equal in its incidence upon all firms similarly placed, but there would be a body of firms removed from this tax, some of whom were paying less than the Excess Profits Tax.

Sir W. PEARCE

Most of whom pay a great deal more.

Mr. McKENNA

Allow me to complete my sentence. It was obvious that I was in the middle of a sentence—some of whom would pay less than the Excess. Profits Duty, and others of whom would pay more. What is the position of the firm that would pay less? There are a great many, I am told, not in amount, but in number, not in the total amount paid, but as to the number of firms, who would pay less. Those firms, then, who are the parties to this agreement, ratified by Statute, who, in some cases at least, to put it no higher, were receiving from the limitation all the benefit, are not only to receive that statutory benefit, but are to pay less in taxation than other firms of the country. I submit to the Committee it is unthinkable that we should allow any firm, on the one hand, to receive an advantage under the Munitions Act, and, on the other hand, to be relieved from taxation to which all other persons are subjected.

Mr. HENDERSON

Your premises are-wrong.

Mr. McKENNA

When my hon Friend comes to answer me, if he takes the stand that in no case will a controlled firm pay less in the way of munitions levy than it would have to pay in Excess Profits Duty, then I quite agree my premises are erroneous; but I do not think that any hon. Gentleman will get up and say that there are not cases, and many cases, in which controlled establishments would pay less by way of munitions levy than they would have to pay by way of excess profits. First of all, if a firm pays less by way of munitions levy than they would by way of Excess Profits Duty, why should the Committee allow those firms to avoid that taxation to which all other firms are subject. We say, in cases of that kind, that those firms which pay less by way of munitions levy must pay the difference between the amount paid as munitions levy and the amount they would have to pay as Excess Profits Duty. That is all we say. Once a firm is paying the difference between what it is liable to pay as munitions levy and what it is liable to pay in the Way of Excess Profits Duty, it is clear of ns so far as payment goes. I am dealing only now with the question of payment. The firm under those circumstances is clear of us, and I do not think that anybody can dispute the fairness of that proposal. Where the munitions levy is equal to or in excess of the amount payable by way of Excess Profits Duty, there is nothing to pay under the Excess Profits Duty.

I come now to other aspects of the question. I do not believe really that hon. Gentlemen who take an opposite view from me in this case, if that were the whole of the case, would differ from my argument. I quite recognise they have another objection which they put forward. They may say to me, "It is all very well to say that you only ask for the difference to be made up in those cases in which the munitions levy is less than the Excess Profits Duty, but you make us show accounts in order to determine what is the munitions levy, and then you make us show accounts in order to determine what is the Excess Profits Duty, and we have to go through the accounting work twice over." That is a grievance, I admit, and a serious grievance, and a grievance which is inherent under the existence of the munitions agreement. I will tell the Committee why. So far as Excess Profits Duty is concerned, there is certain work which has got to be undertaken by the controlled establishment, like all other establishments. In the first place, the datum line has got to be fixed. That datum line has got to be fixed whether the hon. Member's Amendment be accepted or not, because that datum line was fixed for the year 1914–15, before controlled establishments came into existence as controlled establishments. For the purpose of the Excess Profits Duty, that datum line has got to be fixed for the first year of the Excess Profits Duty, and a controlled establishment has got to give a datum line for Excess Profits Duty. The datum line, once taken from a firm, continues the same datum line throughout the operation of the tax. Therefore there is no new rule imposed on controlled establishments by applying Excess Profits Duty to them in respect of fixing the datum line. When they fix the datum line, what have they got to do? I will give the qualifications in a moment, but in general terms they have got to declare their profits according to Income Tax rules. That they have got to do anyhow. They are not asking to be relieved from the burden of Income Tax. In general the procedure for determining the profits of the firm for Excess Profits Duty is the same as the machinery for determining the profits for Income Tax assessment, and that has got to be done anyhow, and whether this Amendment be accepted or not that work has to be gone through. There are certain variations, and I am sure the House will agree that the most important variation under ordinary Income Tax rules is the allowance which is made for depreciation, and we propose to accept the Munitions Act rules for that purpose. How do we impose by our Act any great new accounting duties on the firm?

Mr. J. M. HENDERSON

What about other allowances under the Munitions Act?

Mr. McKENNA

I am dealing with the point that we impose no new work by the Excess Profits Duty, and whether the acceptance of this Amendment would relieve them of the task of accounting. I have shown, first of all, that they have got to have a datum line according to the Excess Profits Duty rules for the year 1914–15. That they agree to. I have shown that they have got to keep acounts under the ordinary Income Tax rules whether this Amendment be accepted or not for the payment of Income Tax. I have shown that the great variation in the Income Tax method of assessment is in the allowance for depreciation, and in that respect we are willing to accept the Munitions Department findings.

Mr. DENNISS

For new capital?

Mr. McKENNA

That is the main item, new capital put into the business, for depreciation, and we have agreed to accept the findings of the Munitions Department. The whole machinery will be the machinery of the Munitions Department under that head.

Sir W. PEARCE

Will the right hon. Gentleman mind telling the Committee how far he goes in the Munitions Department rules. They range from A to G. Is the right hon. Gentleman accepting their adjustments down to the end of E or only to the end of B?

Mr. McKENNA

I will look into it. Perhaps I may say generally the arrangement we propose and the origin of it. It was represented to us that a great many firms have invested capital in plant at the request of the Ministry of Munitions or for the purposes of the Ministry of Munitions, and in respect of which the ordinary Income Tax allowance for depreciation would be wholly insufficient. We have, therefore, agreed that the allowance recognised by the Ministry of Munitions would be accepted in those cases.

Mr. DENNISS

There is the ordinary depreciation which is very much heavier in controlled establishments because they work night and day.

Mr. McKENNA

We agree to that. We agree with the Munitions Department. [An HON. MEMBER: "How far?"] This is really a Munitions Act question, and I am only dealing with it from a Treasury point of view. I am endeavouring to persuade my hon. Friend that we have done our best to meet the reasonable part of the case. The case divides itself into two heads, that of payment, and that of extra labour. So far as extra labour is concerned, I am endeavouring to show that we are not by our Act imposing any additional labour on the firms. If anyone gets up and says that these controlled firms ought to escape Income Tax—[HON. MEMBERS: "No, no!"] —then, of course, the case would be entirely different. Nobody suggested that for a moment, and therfore the double set of accounts must be kept if they come under the Munitions Act. I hope hon. Gentlemen will now agree that my premises are more reasonable than they thought. If there be a defect owing to the system by which double accounts have got to be kept, that defect arises from the Munitions Act, and came into existence the moment the Munitions Act was passed. When hon. Gentlemen consented to what they regarded as a bargain in Section 4, under which their profits became limited, they thereby tied themselves down to keeping a double set of accounts, one for the purposes of the Munitions of War Act, and the other for the purposes of Income Tax. Under these circumstances I put this to the Committee: First, it is not reasonable that any controlled firm should pay less by way of munitions levy than other firms have to pay by way of Excess Profits Duty. Secondly, when a firm pays by way of munitions levy as much as the Excess Profits Duty or more, we ask nothing more; we have nothing more to do with them. Thirdly, the defect of the additional trouble thrown upon firms in the way of account keeping is inherent in the Munitions of War Act, and would not be remedied by the acceptance of this Amendment.

Sir TUDOR WALTERS

During the ten years that I have been in this House I have seen more than one illustration of the great public disadvantage that accrues from the lack of proper harmony between different Departments of the State, but I think that this is the most grotesque illustration of the lack of anything like proper consultation between different Departments of the State that the mind of man could conceive. As far as I can understand, the Chancellor of the Exchequer bases his case chiefly upon the fact that the Munitions Act is all wrong as far as finance is concerned. If I misinterpret my right hon. Friend, that is the impression left upon my mind. He seems to have discovered that this new Department has been poaching upon his prerogatives, and that the Minister of Munitions has actually been presuming in the Munitions Act to undertake work of taxation properly belonging to the Treasury. That may have been an extremely improper thing for the Minister of Munitions to do, but these two Gentlemen belong to the same Cabinet, and—

Mr. McKENNA

I neither said, nor implied, nor meant anything of the kind.

Sir T. WALTERS

With very great respect, I accept the statement of the Chancellor of the Exchequer, but all I can say is that for a Gentleman with his powers of lucid expression he has singularly failed to convey any other impression to a humble mortal like myself. Probably it may be my fault. I thought I was really discovering some sort of argument in the Chancellor of the Exchequer's speech. If that were not the basis of his argument, I cannot see where he has any premises from which to draw the deduction he does. The position in which we find ourselves is this: The Ministry of Munitions entered into an arrangement for the purpose of producing a large quantity of munitions, an arrangement carrying a restriction of profits and making certain other conditions, and they did it for a definite purpose. They did not do it so much for the purpose of securing revenue; they did it for the purpose of getting an extraordinary production of the material they desired. Now the Chancellor of the Exchequer comes and looks at it from another standpoint—purely from the standpoint of taxation. I want the Committee to contrast those two standpoints, and decide which they think is the more important. I say that, in comparison with the small sums of money which the Chancellor of the Exchequer will raise, the other aspects of the case, namely, the method that gives the most incentive to the production of munitions, dwarfs into absolute insignificance all the schemes and plans the Treasury may have in mind for securing a little additional taxation.

What is the position in which we stand in respect to the great firms producing munitions? We have said to them, "It is vital to the interests of the Empire that we should have the largest possible output. In order to secure this output we give you special conditions in respect of labour. We ask you to accept a very moderate percentage of the profits you make. We ask you to go ahead on these conditions and produce the largest quantity of munitions you possibly can." On the faith of that arrangement these firms, great and small, have incurred all sorts of liabilities. They have embarked large sums of capital. They have altered their plant. They have put down extra plant. They are working largely from patriotic motives, but even when a man works from patriotic motives he wants to see that he will not be bankrupt at the termination of the proceedings. They say, "We have a certain margin upon which to work. Under the munitions arrangement we know exactly the percentage leviable, and to the extent of that percentage we can incur fresh liabilities, undertake fresh obligations, and extend our business in different directions." If you to the tune of one single 6d. for the purpose of getting extra taxation reduce that margin with which the firms have to work for the purpose of extending their business, you will be doing grave harm to the prosecution of the War. I want to lift the matter entirely above peddling Treasury considerations. As to these questions of whether you draw the balance sheet in this way or that, whether A would have £10 to pay to the Treasury or B would have £10 to draw from them—I do not suppose there will be any drawing—I want to get rid of all that nonsense at once. We have these great munition firms with a gigantic task before them. I have had an opportunity of meeting a number of these men. I am not interested in munition firms at all. I have not the fortune to be either a shareholder or a creditor. But I know something about the feeling among these great munition firms. They say, "We cannot be harried and worried in this ridiculous fashion about excess profits. We have entered into a definite arrangement and we are prepared to carry it out." As three of the largest men in this country said to me on these premises yesterday, "This is a severe tax upon our patriotism. We are anxious to do all we possibly can. We have made commitments already that render very-slight any chance of profit at the end of the War when we come to realise and try to get back our old trade." For that is the great question. It is not simply a question of getting an allowance or altering machinery; it is getting back from various countries the trade which you have given up for the purpose of making munitions. They say, "What encouragement is there for us to go on endeavouring to extend our munitions department? We have had to study new Acts of Parliament. First one Department is down upon us and then another. Now, although we have made a definite bargain, we are to come into some ingenious proposition which will be a case of heads I win, tails you lose.'" They say, "We care too much for the interests of the country to say that we will not do our best, even with these burdens." They are large firms, and they take a broad view. But there are other men who, although they take a broad view, have not the resources with which to run these risks. I put it very strongly, but with great respect, to the Chancellor of the Exchequer, for whose financial genius no one in this House has a profounder admiration than I have, that in this matter he has allowed pedantic Treasury considerations to obscure one of the vital interests of the nation. If this particular scheme of his would raise another £10,000,000–1 do not think it will raise anything but a small sum—with the discouragement it would give to munition workers and to the controlled firms, and the feeling of uncertainty and unrest to which it would give rise, that £10,000,000 would be purchased at a very high price.

Even at this eleventh hour I hope the Chancellor of the Exchequer will reverse his decision. Although the Ministry of Munitions may have done quite wrong, although they have made a bargain which in the opinion of the Treasury officials they ought not to have made, although they have obtruded upon functions which belong to another Department—never mind that! In time of peace we might fight out those questions, but in the midst of a great war we have not time to bother ourselves about such trifles as those. I wish to put the matter rather from that standpoint than from any mere statement or discussion of mere details. If the Chancellor of the Exchequer realises what the feeling of the people is, what is the feeling in Sheffield and in other parts of the North of England, if he realises the grave discouragement this means to controlled firms, I am quite persuaded that he will not entertain the proposal another moment. It may not be possible to persuade the Treasury to take that broad view, but I think, even in the mere sword play of the two Departments, in the premises laid down and to be drawn therefrom, that the Treasury is hopelessly wrong.

Take a simple analogy from my own trade. Supposing my partner and myself were concerned in the building of a large colliery village for my hon. Friend the Member for Mansfield—and I may add I wish we were, for he is a good paymaster. Supposing my partner got hold of a contractor, and said to him, "Go ahead and build this village, keep an account of what you spend, I will add 10 per cent. to it, and that shall be your profit." Assume that the two entered into a contract with that object in view. Supposing, again, that I, as a partner, looked at this matter six months afterwards and considered that I could have done much better than my partner. Supposing that I then proceeded to get tenders and offers and found that the lowest tender brought the contract out at a much lower price. Supposing that I then found that the man who tendered lowest was perfectly willing to take 5 per cent. profit, and that I, then went along to the contractor who, presumably on the present supposition, would have been misled by my partner in thinking that he had authority to speak in my name, as is customary in these commercial operations, and said to him, "Oh, no, this bargain won't stand. I find you are to have 10 percent, profit, but I think you only ought to have 5 per cent., therefore I am going to make you refund the 5 per cent." Of course the man would look round to see if he had a remedy at law. If not he would take care to keep out of the way of such sharks for the rest of his life. I say that if the head of a munitions firm, or any other controlled firm, makes a bargain with one partner in the State, with one member of the Cabinet, by which it is assured to him that he shall have a certain percentage of profit if he does certain things, under certain conditions, and that if that gentleman's partner, another member of the Cabinet, comes around with some other Act of Parliament relating to excess profits and extracts half of that percentage from him, then the head of the munitions firm or of the other establishment is entitled to say he has been swindled by the Government Department.

I put it quite plainly at that. I do not see how in fair play and in justice you can alter bargains in this way. You have entered into a definite arrangement. Unless there are some grave questions of public policy involved, unless something new has occurred that renders it necessary to revise the whole position, I do not see how you can possibly make an alteration. The Chancellor of the Exchequer made great play upon this: He said, "Is it to be considered for one moment that cases should be allowed to occur by which men who are working under the Ministry of Munitions, as heads of controlled establishments, should be allowed to get more profit than someone else who is not in charge of a controlled establishment? For the life of me I cannot see any case arising from that. If a man has entered into a definite bargain, and if he is working under a certain set of conditions, if there are certain arrangements and regulations that apply to him, you have no business to compare the percentage he pays of excess profits with the percentage which someone else pays! You have no right to go to a man who is working under an entirely different set of conditions and to ask him to pay on the same terms as someone else who is working under an entirely different set of surroundings. You can only talk about the man's contribution being the same when the conditions under which ho works are the same. If there is anything at all logical in the argument of the Chancellor of the Exchequer, if what he says is a sound proposition, that no man ought to pay less who has a controlled establishment than he would if he were an uncontrolled establishment, then the converse is quite true, that no man ought to pay more if he is a controlled establishment! Does the Chancellor of the Exchequer propose to give a man who is working a controlled establishment the choice to pay either under the Munitions Act or under the ordinary Excess Profits Act. Of course he does not.

What the right hon. Gentleman proposes to do is this: He has got two methods, and he is going to get accounts rendered in both ways, and he is going to take the unfortunate man by the throat and make him disgorge. That is not fair play. I have heard about people having two prices in the same shop for the same article, so that they might charge a different price to different people; but the Government here proposes to have two different methods of keeping accounts, in two different departments, and in the reckoning of the profits to charge the poor wretch with the one that hits him most. That is a worse method than that of the dishonest shopkeeper. I do not like these kind of accounts and this system of accountancy. I do not believe it is good finance. I do not believe it is good policy. I do not think it gets the best out of people. I do not think it appeals to the best motives. One could go on for the hour dealing with these futile considerations, but it is not worth while. The great question is this, Will it pay us better from the standpoint of the production of munitions of war to stand by the Act passed by the Ministry of Munitions, that gives the men who are working under it a sense of security and confidence, to give them every possible inducement to extend their business, to increase their production and output? Is it, I say, much better to do that, and perhaps to lose a little money in the way of the Excess Profits Tax, than to do otherwise, to irritate and annoy them, to give them a sense of injustice, and take an infinity of extra profit, so diminishing output and lessening their interest in the work they have to do? All for what? For the few paltry thousands for the Exchequer, and to prove that the Treasury is the proper Department to do the taxing, and not the Ministry of Munitions! I shall be ashamed of the Government if they do not accept the Amendment of my hon. colleague in the representation of Sheffield.

Mr. J. MASON

The Chancellor of the Exchequer in the earlier part of his speech said that the most important thing was that taxation should be equal in its incidence. I suppose there has seldom been a more glaring case of a tax which was so unequal and in so many unnecessary directions. To begin with, this tax as it stands now in the Bill differentiates between controlled and uncontrolled establishments, in some cases in a very serious manner against controlled establishments. Secondly, it differentiates in the extraordinary way in which the accounting periods have been taken at the beginning. In some cases they start nearly a year before the commencement of the War and in other cases only a few weeks. This tax has been applied to firms under similar conditions except that their accounting period differs from one month to another, and it has been in some cases applied for months longer to one firm than another. Not only that, but it is proposed under this Bill to change the amount taxed from 50 per cent. to 60 per cent. in equally as unfair a manner. The Chancellor of the Exchequer a little while ago said where the controlled levy was highest he was going to take nothing. I am not at all sure that that is so. I do not say it is his intention, but unless some Amendment is accepted he is certainly going to take a good deal more than he said just now. Let me, before I forget it, deal with another remark of the right hon. Gentleman. He said there was no complaint, and there ought to be no complaint, as to the cost and trouble of keeping different sets of accounts, because the same machinery was available for this tax as was available for the Income Tax. Surely this tax and the Income Tax are based on entirely different standards. Unless I am mistaken, the Income Tax is based on the average of three years, whereas this tax is based on any two of three years at the choice of the individual, so that they are not based on the same standard, and therefore they are not based on the same figures on which the accounts are made up. Therefore the grievance about keeping two sets of accounts is a perfectly good one.

The case as between the controlled establishment and the uncontrolled establishment, I think, is a very important one to bring up, because I do not feel quite sure that the Treasury intend to tax in the way I am going to suggest, and I want to know definitely whether that is so. I take as an illustration two firms, one controlled and the other uncontrolled, and I assume identical figures in the two to show the amount of taxation which will be paid in each case. I assume that the profit for the accounting period is in both cases £160,000, and I assume that the pre-war standard was in each case £100,000. Now the uncontrolled establishment will pay half of £60,000, that is £30,000, under the Excess Profits Tax, but the controlled establishment, starting with a pre-war standard of 100 is allowed to add on to that 20 per cent., that is £20,000, making £120,000, and pays a levy to the Munitions Department of £40,000, as against £30,000 paid by the uncontrolled establishment.

Sir A. MARKHAM

Surely the uncontrolled firm pays more than £30,000. It pays 60 per cent. of the £60,000, that is £36,000.

Mr. MASON

This is based on the old tax of 30 per cent., and for the sake of clearness I think it is a little easier for my illustration. At the present moment it is 50 per cent., and it makes the case a little clearer if I keep to the figures I have here. I think the hon. Member will see that the point is not very material. I say the tax takes £30,000 in the case of the uncontrolled establishment. Now the controlled establishment on the same profits has paid £40,000. I believe that under the Bill the Chancellor of the Exchequer was far from being satisfied that the controlled establishment is paying more under the munitions arrangement than under the arrangement of the Profits Tax. So far as I can make out, under the Bill the Chancellor of the Exchequer will come down for 50 per cent. of the £20,000, making in all £50,000 for the controlled establishment, as against £30,000 for the uncontrolled.

Mr. HENDERSON

Oh, no!

Mr. MASON

I am glad to hear it, because I do not think I am the only Member of the House in doubt about this question. My impression is that the Chancellor of the Exchequer claims 50 per cent., or under the new rate 60 per cent., of the £20,000 which is allowed by the Munitions Department to be retained by the manufacturer. I am only too delighted if I am told that that is not so.

Mr. MONTAGU

Where did the hon. Member get that?

9.0 p.m.

Mr. MASON

I cannot refer to the Section for the moment. I would like to make one other remark, because it refers to a statement made by the Chancellor of the Exchequer on a previous occasion, when he laid down with a great deal more emphasis than he did to-day that the munitions arrangement was in the nature of a levy, and not a tax, although I do not quite appreciate the point in that, and that it was a bargain made between the Minister of Munitions and the manufacturers. To begin with, I do not know that it is quite fair to say it was a bargain, because, of course, a very large percentage of the controlled establishments had nothing whatever to do with that bargain, and were never consulted at all. Probably 90 per cent. of those controlled had never been asked to enter into a bargain at all, and I think a bargain to be a bargain must be made by both sides. But let that pass. When the controlled establishments made that bargain, if bargain there was, they were under the impression that they were making a bargain with the Government and not with a particular Department of the Government, and if under that impression they were justified in assuming that the bargain was final, that the terms implied in the bargain would be maintained, and that they had nothing more to fear. So far from that being the case, the bargain was made with a particular Department, arrangements were entered into between that Department and them by which they were to spend large sums of money—in many cases those large sums of money have been expended—and provision was made for the finding of capital necessary to enable them to enlarge their works. And now that that work has been undertaken, based on the requirements of one Department, another Department comes down and suggests that a considerable levy should be made beyond what was anticipated. I say, as things stand now the fact that these bargains had been looked upon as final by the manufacturers, who have been asked to extend their work and enter into increased engagements on their part for patriotic reasons, it is very unfair that any bargain of that sort should be upset by one Department, when the manufacturers concerned were perfectly justified in regarding it as final. If I am wrong in the assumption which I raised just now about the 20 per cent., I should be very glad to be told so. I know that that point has been raised by a considerable number of people, and there is considerable uncertainty on the point. But to return to the Amendment, it seems to me that the principal reason for which the Amendment can be recommended to the Committee is that as the bargain was entered into, not by one Department, but certainly by the Government as a whole, and, at any rate, it was carried through by one of the Departments, it ought to be supported by the Government as a whole, and cannot reasonably be upset by another Department.

Mr. HENDERSON

I should like to say a word with regard to the reception of this arrangement, and I am very sorry that the Minister of Munitions is not here to uphold the contract which he, not for himself, not for a Department, but as an officer of the State, made for the State, and I say it is not open to any other Minister of the State to come and say, "Oh, you made a bargain with some other Department." You cannot divide the State into watertight compartments and say, because one Minister made a bargain another Minister can come and say, "That was not a bargain, and I am going to alter it." The Chancellor of the Exchequer in his speech took occasion to say that it was unthinkable that anyone under the Munitions Act should pay less than under the Excess Profits Tax. He took very good care to say nothing about the man who would pay more. The controlled establishments are perfectly prepared to accept either standard, but they object to both. What is the position in regard to this? If my right hon. Friend would refer back to his speech he would find that the Chancellor of the Exchequer said: Excess profits, as it now stands, does not operate during any period upon a controlled firm which is in existence as a controlled firm. I agree that he did not bind them to some future arrangement, but what he did say was that this excess profits did not apply to controlled establishments just now. They were to see how it would work, and then in a future Bill he said they might dovetail the two. The Munitions of War Act was passed on the 2nd July, 1915, and the Finance Act was not passed until the end of October, 1915, but the controlled establishment firms were at work then. What we all understood was that the dovetailing was merely the adjusting of the position as to the duties on which the two operations were to work. What was really the position of those controlled establishments? You were in very great stress; you wanted munitions and the great munition firms had failed you. The Government must get munitions, and they established a Ministry of Munitions and negotiated with the unions and the Labour party to remove their restrictions upon output, and at any rate in this way they forced the bargain. I know the Minister of Munitions did not admit it as such, but the unions would not consent to this restriction on the right of stopping output unless there was a restriction on the profits of the firms engaged.

What was the arrangement then made? You said to these people, "You shall give up your business; you shall undertake to be controlled and we shall control you. We shall limit your ordinary customers." As a matter of fact, in a great many cases they gave up their businesses entirely. I know of any number of cases where these people have not sold anything of their usual output since January, 1915. There were over 3,000 of these firms, and I do not suppose there were twenty-five out of all those who were drawn in who had been previously engaged in making munitions. Anyone who had engines or overhead equipment, or a few lathes, or any engineering capacity at all was roped in, whether he would or not, into this arrangement. The Government said to them, "You will get more machines; you will enlarge your premises; you will go on with this work, about which you know absolutely nothing, but you will pick up a knowledge of it by and by, and all you have to do is to be at our beck and call, to do all we want you to do and allow us to control you so that you shall not do any other work than that which we allow you to do." They asked, "Where do we stand?" You reply, "Oh, you shall be secured 20 per cent. above your standard, and all the rest you hand over to us." There is a popular delusion that all these men have made a great deal of money, but there is nothing further from the truth. A few of the large firms who were accustomed to the work have made money, but a good many of them undertook to make a scientific thing called a shell, or a shell fuse, on which there is any number of gauges, and a thing which requires the greatest care. These men, who had been accustomed to making other things, tackled the making of shell fuses and shells, and so forth, with the result that thousands of those articles were rejected when they went to Woolwich.

I can assure the Committee that out of 3,500 of these firms there is at least 1,000 who would thank goodness that they had never seen the control. With regard to the rest, the control has been thrust upon them. Why should you not keep your bargain with them? The right hon. Gentleman said it was unthinkable that anybody should pay less. I ask: Is it not equally unthinkable that anybody should pay more. I am sure those who represent controlled establishments are prepared to stand on the level of uncontrolled establishments. They say, "Treat us exactly as they have been treated, and put us under the same tax; we ask nothing more, but we do say that it is wrong that when there is a large profit you should take 80 or 90 or 100 per cent. whereas, in the case of some other firms, you only take 20 per cent." Thousands of people have given up their works and goodwill, and do you suppose that 20 per cent. will repay them or enable them to replace that goodwill after the War is over. With regard to that control, which is supposed to be so advantageous, I will mention one or two cases. There is a case where a firm had a very large order from the French Government, and that Government asked them to repeat the order. Meantime they became a controlled establishment, and they had a large contract for munitions for Woolwich. They asked leave to undertake this French contract, which they could perfectly well have done, but the Minister of Munitions said, "No, you won't; you must not touch it; you must go on with our work and leave that alone." That connection is now lost to this firm. That is only one instance. Almost any allowance you can make these men will be insufficient to replace them in the position they were in before the control; but in the case of those who have made large sums of money, of course you will get a large sum from them. Why do you not put the controlled and the uncontrolled on the same footing? Stand by your bargain in its entirety. Do not break it in one part which is disadvantageous to you and adhere to it in the other part which is disadvantageous to the controlled establishment. If you want all to pay the same tax, then let all stand on the same footing, and I am sure that they will not disagree. But let me warn you that the whole of these controlled firms are up in arms against this proposal. They feel the gross injustice of it. There is the Engineers' Association in London, the Boilers' Association in the Midlands, the Shipbuilding Association, and any number of them, and, if you do force it through, I can assure you that this will not be the end of it. You talk of having no big discussions during war time; but why do you break contracts, and why do you say, "Because I am Chancellor of the Exchequer I will not agree with the arrangements of the Ministry of Munitions"? The Ministry of Munitions are against you. They wish to stand by the contract, and I say that the Minister of Munitions ought to be here to support this bargain. He made the contract with them for the State, and it is his bounden duty to support it.

Mr. S. ROBERTS

May I interrupt the hon. Member to tell him and the Committee that the Minister of Munitions is with us on this point?

Mr. HENDERSON

I know that the Minister of Munitions is with us, but why is he not here to support us?

Sir A. MARKHAM

It is a swindle.

Mr. HENDERSON

There are no Departments in the case of taxation; it is the State. It was a bargain. You do not deny that. Both the Speaker and Chairman of Committees have ruled it to be a bargain. If it were not a bargain, it would be illegal, because it was not originated in Committee of Ways and Means. Then why do you not adhere to it, or, at all events, why do you not say, "We will have one bargain and one tax. Let us put them all on the same level"? What is your objection to doing that? I put that question to the Chancellor of the Exchequer, and what was his answer? "I do not ask more than 60 per cent., but if you have made more than 60 per cent. you will have to pay not by my tax, but by the Munitions Tax." Could anything be more preposterous? If so, I should be glad to learn what it is. I appeal to the Chancellor of the Exchequer not to be so obstinate over this important matter as he appears to be. The Ministry of Munitions are with us. They stand by their bargain. They think it was a proper bargain to make, and they made it for good or bad. If you will not adhere to that bargain, then come to the fair position of all firms, controlled or uncontrolled, paying the same equality of taxation without fear or favour in any direction. I appeal to you not to discourage these controlled firms. A great many of them have worked night and day and have not spared themselves. I have seen the way in which the day shifts and the night shifts work. They have worn out the machinery, and they have worn out themselves, all in the belief that they could at all events count on the 20 per cent. margin. They do not grudge you anything else. Let me give a simple case. Ten thousand pounds is the standard of profit of a controlled firm. It makes £20,000. That is £10,000. They only keep £2,000. That is 20 per cent. You take £8,000, whereas if they were uncontrolled you would only get £6,000. The Committee ought to know that in the last six months the Ministry of Munitions, very properly, have been cutting down prices 40 per cent., 50 per cent., and 60 per cent. The result is that a great many of these smaller men and even the bigger men will find themselves with not more than 5 per cent. or 10 per cent., and possibly not even that. But whatever it is, they ought to be left with it as the least compensation you can give them for all that they have lost, their goodwill and their connection. If you want more, then in Heaven's name put them all on an equality!

Sir J. HARMOOD-BANNER

This is a very important question, and I think the Government would enlighten us if they would tell us what they mean by taking up this position with regard to the Excess Profits Duty. The chief thing we wish to remedy by this Amendment is the view which has got in the minds of all the controlled firms that the Government intend to break the bargain which has been made with them by the Ministry of Munitions. I was very much indebted the other day to the Chancellor of the Exchequer when he got rid of one fallacy by agreeing to allow depreciation. It may be depreciation in a rather more limited degree than I desired. I came away rather satisfied that depreciation was being allowed, but I was met outside by the remark, "That is all very well, but are you aware that you made a contract through the Ministry of Munitions to take the pre-war standard of profits upon a very poor basis as compared with the Excess Profits Tax, plus 20 per cent.? Now the Chancellor of the Exchequer comes in and says that he is going to treat that 20 per cent. as excess profits and take 60 per cent. of it, so that there is only left 40 per cent. of an amount which was agreed with the Ministry of Munitions we should have in consideration for handing over to him the whole of our work, and placing ourselves entirely under his control." I was not quite certain whether the Financial Secretary, in a little interjection, intended to say that we were wrong in believing that he intended to take this 60 per cent. I should like him to answer it. If he says, "I am not going to take the 60 per cent. off the 20 per cent," it will shorten the discussion, and will bring us into a very much better frame of mind. I think the right hon. Gentleman took rather a wrong view in regard to the foundation of the Munitions Act. That Act was not sought by the controlled establishments or by the Government. It was brought about after certain conferences with the President of the Board of Trade in consequence of unrest among the working classes. The Chancellor of the Exchequer put it in a rather different light. But what occurred was this: The working classes complained that the munition firms were making huge profits and that they were receiving no corresponding advantage. Without going into details on this point, I may say that the Munitions Act was brought in as a result, and firms were called upon to give up all rights of control, in return for which they were to get a certain percentage of profits.

But what occurred was this: Some firms were making telephones. They were compelled to make fuses. Others were making wire ropes and were compelled to make mattresses. Others were called upon to manufacture explosives in lieu of their ordinary work. They were placed under disabilities of every kind. They gave up the goodwill of their businesses, which probably they will not be able to revert to, and they did all this in consideration of the 20 per cent. which they were to receive above the pre-war standard. But that 20 per cent. was varied by the Minister of Munitions when he said, "You are producing 2,000 tons of steel, we want you to produce 4,000," or "you are producing so much explosives, we want more." The manufacturers were in consequence compelled to fit up plant for all these purposes, and all that had to be done in consideration of the 20 per cent. they expected to receive. They got a fearful shock when the Budget came in, as, apparently, the, Chancellor of the Exchequer was going to override the arrangement made by the Minister of Munitions. Depreciation, of course, was an important item. The point was raised with the Chancellor of the Exchequer directly the Budget was introduced, and I wrote to the Minister of Munitions asking him at once to go into this matter. I have never been able to obtain a reply from him, and I believe many other persons connected with controlled establishments have also expressed a desire to know from the Minister of Munitions whether he intends to keep the bargain he has made with them.

Efforts have been made during the last month to get the Chancellor of the Exchequer and the Minister of Munitions together to discuss this matter. But so far they have been unsuccessful. I have been several times at the Ministry of Munitions and have asked there whether the bargain which they have invited me to enter into is going to be performed, because, as I have pointed out, according to the Budget it looks very much as if we are not going to have the covenant fulfilled. The officials I have met there have agreed that the bargain ought to be carried out, and have stated that they would be disposed to throw up their offices if it were not, as they would consider themselves honourably bound by the engagement into which they have entered. Why does not the Minister of Munitions display the same feeling? We have tried to get him to meet the Chancellor of the Exchequer to discuss this matter. Two such attempts were made, and on the second the Parliamentary Secretary to the Ministry of Munitions attended, but the Chancellor of the Exchequer declined to go on with the discussion because he said he and the Parliamentary Secretary were not in a position to settle anything, and it was Mr. Lloyd George with whom he had to deal. It does seem strange when an arrangement has been made with 4,000 controlled establishlishments and when large sums of money have been spent upon them, when the control has been given up on terms agreed with the Minister of Munitions, that the right hon. Gentleman should not have the courage to meet the Chancellor of the Exchequer and insist on the bargain he has made being carried out. I do not like attacking a man in his absence, but I am obliged to do so when I find that the Chancellor of the Exchequer is ignoring the Minister of Munitions and is saying, "I do not know anything about the bargain or about the arrangement." It must be remembered that both right hon. Gentlemen are members of the same Government; one is the head and the other the arm—I will not suggest which. But at any rate they are part of the same body, and it is strange to have one member appending his signature to one document and the other putting his signature to another.

I say distinctly the Minister of Munitions, having entered into certain covenants, the Chancellor of the Exchequer is bound to perform them. Having got all the money out of it it does not lie with the Treasury, under those circumstances, to say, "We have got sacred rules regarding Income Tax; we have got sacred principles and sacred words about levies and receipts, depreciation and wear and tear, and these things are so sacred that we must override the bargain made by the Minister of Munitions, and must insist on having our way, and our way only, carried out." I must confess the way in which the work is now being done at the Ministry of Munitions is rather curious. They have there the new position of Minister of War. They are dealing with Irish matters. If we are to go away from this House with the idea that every arrangement we make with one Minister can be torn up and discarded by another Minister, it will be very regrettable, and a very strange departure in the matter of government. I appeal to the Chancellor of the Exchequer to say that what the Minister of Munitions has agreed to do he himself will carry out. It is quite true that in some cases the controlled establishment will get the benefit But I think it takes something like 35 per cent. extra profit before the parties become equal. Again, it must be remembered the control of the works has been given up, and the businesses formerly carried on have been surrendered, and I suggest it is not right the Government should take all the benefits and discard all the disadvantages. I again ask for a clear and definite assurance that this 60 per cent. is not to apply to the bargain which we made for 20 per cent. If we get such an assurance it will shorten the discussion. If we do not, then we must take it that it is intended to whittle our 20 per cent. down to something like 8 per cent. That is what it comes to. We want it laid down that when a member of the Government enters into an undertaking it will be abided by, and I do not think it will be in any way to the loss of the nation that that should be done.

Mr. PARKES

The opinion of the manufacturers in the country is very much on edge as regards this matter. There is no doubt that manufacturers a short time ago were distinctly of opinion that they were to get 20 per cent. of their excess profits, and it is the feeling which has been engendered that that promise is going to be broken that is causing unrest among the commercial community at the present time. It does not pay the Government at all to make irate a great number of the manufacturers of this country. On the whole the manufacturers have been very loyal to the Government. They have made great sacrifices, they have done whatever the Government have wanted them to do in the most generous way, and to deprive them of what was promised to them some time ago by the Minister of Munitions is in itself a great blow, and is looked upon by them as a breaking of the contract made between them and the Ministry of Munitions. It looks very suspicious that two great Departments who are concerned practically with the same object are not prepared to come together and square their differences in this matter. I do not know whether they are capable of so coming together, but in a case like this, before this Bill was introduced, their differences ought to have been made plain and clear between them. It is a reflection upon the Government; it is something which the country will never forget. Whether a man is to get the 20 per cent. depends upon what is his basis. If he has a good basis his 20 per cent. will be a secondary consideration, but if he has only a poor basis from which to start 20 per cent. to him is a mere bagatelle. At the present time there are a great many men in this country who have what is called a very low basis, and instead of getting the 20 per cent. which was promised they are only going to get 8 per cent. I have a ease here—there are many of a similar character—in which a man says that instead of getting 20 per cent. he will only get 8 per cent. This is a great trial to these people, and I sincerely hope the Government will remedy it. I do not believe it will cost them a great amount of money to do it, but un- less they do it they will lose in good will and their reputation as a Government very much in the estimation of this country.

There is another question. I take it that a controlled body will never get more than 20 per cent., but that an uncontrolled body is quite capable of getting more than 20 per cent. It may get twice 20 per cent.; it may be 40 per cent. or 50 per cent. If that is the case, the generosity of the Government ought to extend to giving a man 20 per cent. from the beginning until the end. It is not a large thing to ask. There is no doubt that the chambers of commerce and many of the commercial men of the country are very much annoyed now. It will seriously affect the Government's reputation, and will cause the manufacturers to think that they have not been fairly done by if this tax is persisted in. I hope sincerely that the Government will carry out the bargain made in the first place, that the controlled firms should have their 20 per cent.

Sir A. MARKHAM

I think the Government have deteriorated since the time they started owning racehorses. It seems to me a proceeding on their part which is only worthy of gentlemen who are generally found in railway trains or attending race-meetings, namely, card-sharpers and welshers. This arrangement which was entered into by the Ministry of Munitions was an honourable understanding arrived at between the munitions firms of this country and the Government as a whole. I ought to have prefaced my remarks by saying that I have no interest in any controlled firm. Everybody in this House is judged more or less by the concerns in which he happens to be financially interested. I have no interest in controlled firms. I am fortunate in not having interest in any controlled firms because under this Bill the controlled firms appear to have been sold bag and baggage by the Treasury for reasons of which we have yet heard no explanation whatever. The position of the Government is one they are bound to explain. The Minister of Munitions ought to have been here this afternoon on an important matter of this kind which affects the whole output of munitions in this country. When the Minister of Munitions entered into this bargain with the controlled firms they thought that the word of the Government on a financial matter would be carried out. There is no precedent in the history of this House, so far as I know, in which an undertaking given by a Minister of the Crown on a financial matter has been repudiated by another Minister. I ask the right hon. Gentleman, is it or is it not a fact that the Minister of Munitions is in complete disagreement with the views of the Chancellor of the Exchequer upon this point? He remains silent.

Mr. MONTAGU

I will interrupt the hon. Member. I know nothing at all about the matter. This Bill was introduced on the authority of the united Cabinet, of which the Minister of Munitions is a member.

Mr. DENN1SS

Does he know anything about it?

Sir A. MARKHAM

That is not the question I put to the right hon. Gentleman. I asked him whether it was a fact, yes or no, that the Minister of Munitions was in complete disagreement—

Mr. MONTAGU

How can I answer that?

Sir A. MARKHAM

Surely the right hon. Gentleman is in charge of the Bill, with his partner, who sits next him, the Chancellor of the Exchequer. We always thought the Financial Secretary to the Treasury at least had the confidence of the Chancellor of the Exchequer on an important matter of this kind, which he knows has been the subject of acute difference among all the controlled firms. This matter is one of common honesty. Are you carrying out a pledge given or are you not? Does the right hon. Gentleman deny that this undertaking was arrived at between the Minister of Munitions and the controlled firms? Therefore all I ask is will the right hon. Gentleman and the Chancellor of the Exchequer explain why they put a controlled firm which is working its machinery night and day in a worse position than they put coalowners or shipowners who are making far more profits in proportion to their capital than any controlled firms? What is the reason why, then, you take the works of one man, who employs machinery, working it night and day, with all the depreciation that follows, you work that machinery to its utmost capacity at a time when it is impossible to carry on repairs, and you say that firm should be placed in a worse position than a firm which is only working probably five shifts a week? The whole thing is absolutely indefensible.] What is the; explanation that the Govern- ment is going to give us of this extraordinary proceeding? What actually occurs in practice is going to be this: If a controlled firm which before the War made a profit of £1,000 makes now a profit of £1,200 a year, the total amount it is going to receive under the Bill as it now stands is £1,080. That is to say, if the Government is going to take the Excess Profits Tax on the £200, which the company is allowed to retain under the bargain made with the Ministry of Munitions, all that they will be entitled to retain is £80 out of their excess profits over £1,000. But instead of paying Income Tax at 1s. 6d. in the £ on the £1,000, you are now levying tax on them at the rate of 5s. in the £, and therefore the controlled firm, working night and day, is going to be in the position of making a considerably less sum than it was actually before it was carrying out this bargain with the Government. I assume the Chancellor of the Exchequer is aware that the Minister of Munitions has entered into copartnership with a number of employers. Is he aware of the fact that he is finding part of the capital of some of these controlled firms with an undertaking that if the price of the commodities manufactured is below a certain figure, a certain scale is to apply, but if the price of the commodity exceeds the maximum amount named in the agreement, no further profit is to be made, and that at the end of the War there is a bargain on the part of the Government to take over this concern, or likewise there is a bargain for the firm itself to find the money to discharge the liability.

I am not going to say it is right or wrong that you should establish and gather together a great number of accountants, and put them in munition buildings. In my opinion, you have a very able staff at Somerset House, and you never ought to have departed from the principle of keeping the whole taxing arrangements in the hands of the officers who have had such great experience. But you departed from that principle, very unwisely, and set up in the Ministry of Munitions a brand new set of accountants, gathered together from all parts of the country, who are working in absolute opposition to the officials of Somerset House. When the Chancellor of the Exchequer came to his office he found that the Minister of Munitions would not give him over these officials, and therefore you have two Departments, the Ministry of Munitions and Somerset House, dealing with the subject of taxation. In both cases, owing to the Munitions Act not coming into operation till 15th July, all the accounts of these munitions firms have to go before the officials of Somerset House, and their pre-war standard has to be settled with the officials of Somerst House, and I cannot see for the life of me why you want to complicate the matter by bringing in another set of officials at the Ministry of Munitions, which can only be for the purpose of settling depreciation. That is all really that it is necessary to accomplish. I have always supported the Government on every single tax they have introduced for the purpose of raising money for carrying on the War, but I feel that this is an immoral proceeding. I have never yet known, since I have been a Member of the House, nor do I believe it has ever been in the history of the House, that a bargain entered into by a Minister of the Crown with the great industries of this country has been set aside for the sake of expediency because two Ministers did not happen to agree. The Chancellor of the Duchy says this is the Pill of a unanimous Cabinet. We have been told so often about this unanimous Cabinet, and we know that they have their secret meetings to discover how they can arrive at unanimity between one section and another. But be that as it may. There is no doubt whatever—the hon. Member for Sheffield said so across the floor of the House—that the Minister of Munitions was with the controlled firms. He was anxious to see that the bargain was carried cut. Therefore, I say to the Financial Secretary, even at this late hour, that Ministers have made a bargain which they have never repudiated, and it is the duty of the Treasury to see that it is carried out.

Mr. NEEDHAM

I wish to support my hon. Friend by quoting the opinion of large numbers of engineers and firms situated in Manchester and the neighbourhood. Mainly those firms are textile machinists engineers, who have in previous years never done a single stroke of munition work until the War came. They all feel very strongly indeed that, having entered into this arrangement with the Minister of Munitions, it is not competent for the Chancellor of the Exchequer to start fresh terms at all. It is an unfortunate thing that there is an endeavour to make a new set of conditions in regard to excess profits, and whether the bargain is a good one for the State or not, at any rate they feel that having made the arrangement of 20 per cent. over the prewar average, that is a position which should be adhered to. I want to give evidence from firms in Manchester and the district that they feel very strongly and urge upon the Chancellor of the Exchequer that the arrangement made with the Minister of Munitions should be adhered to.

Mr. MONTAGU

I wish to assure the Committee generally that I feel very deeply the accusation of bad faith which is made from all quarters of the House, and I rise at the earliest possible moment to explain what I think to be the perfect justification, on that score, of this tax. I am not now talking of merits, but of the argument which has been advanced in all parts of the House about the bargain which was entered into by the Minister of Munitions with the controlled firms, and the statements which have been made that the whole of this arises out of a quarrel between two Government Departments, and that one Minister has repudiated the bargain of the other. In answer to the remark made by the hon. Baronet (Sir A. Markham), the Bill was introduced with this Clause in it after discussion and correspondence with the Minister of Munitions. I will also say that since my right hon. Friend made his Budget speech there have been conferences at the Treasury between the officials, the Minister of Munitions, the Chancellor of the Exchequer, and myself, as a result of which, in order to improve the dovetailing of the two charges one into the other, we agreed to accept the Ministry of Munitions calculations for depreciation and allowance for new capital, and we agreed that appeals should go from our tax to the Ministry of Munitions referee in order that there should be no avoidable duplication. So that the two Departments, the heads of the two Departments and the officials of the two Departments, have worked in complete harmony throughout this matter. Now I come to the charge of breach of faith.

Sir A. MARKHAM

Does the right hon. Gentleman say, in specific language, that the Chancellor of the Exchequer approves of the principle embodied in this Bill. Yes, or no?

Mr. MONTAGU

Yes, certainly.

Sir A. MARKHAM

Docs the Minister of Munitions agree?

Mr. MONTAGU

Yes.

Sir A. MARKHAM

Does the Minister of Munitions personally agree? That is the question I asked.

Mr. MONTAGU

There was a controversy—

Sir A. MARKHAM

made a remark which was inaudible in the Reporters' Gallery.

Mr. MONTAGU

The hon. Member, I regret to say, suggests that I have said something which is not true. There was a controversy between the Minister of Munitions and the Chancellor of the Exchequer on the subject of the dovetailing of the two plans. The Chancellor of the Exchequer, just before the introduction of this Budget, received a letter from the Minister of Munitions on the subject. This plan was explained to him in a letter, and he expressed himself satisfied with it. That is the whole history of the thing so far as I know. The Chancellor of the Exchequer is by my side, and he knows the circumstances. I very much resent the charge of untruthfulness that has been made against me. Now as to the charge of breach of faith. I base myself, Mr. Whitley, now that you have resumed the Chair, on an argument that was used by you. When this munitions levy was introduced, a point of Order was raised by the hon. Member for East Aberdeen, and you described it as not being a tax. You said it was a bargain, and that it could not be described as a tax. Your exact words were: The State proposes to give certain establishments orders for war materials, and then it proposes limitation of profit, or what in Committee of Supply is called an Appropriation-in-Aid. That is a statement which I accept, and which I take as the foundation of my argument. This was part of a bargain between the Minister of Munitions, the trade unions and the controlled firms as a condition precedent for certain work which was to be done by those firms for the Government. I quite accept that, but it was not a tax, and it was not a bargain which in itself can exempt either party or any party from taxation. At the time that this bargain was made it was known that there was to be an Excess Profits Tax. On the 16th June I announced in this House the intention of the Government to introduce a War Profits Tax; therefore the people who made that bar- gain with the Minister of Munitions knew that there was pending an Excess Profits Tax and had no reason to suppose that they would be exempted from it. The hon. Member's argument is this, if it is carried to its logical conclusion—I made last year £1,000 profit. This year I am entitled to make 20 per cent. extra on that or £200 extra. I made that bargain when the Income Tax was 3s. 6d. in the £; it has now been put up to 5s., and I have taken away from me by the subsequent enactment of another Department a large share of the profits that I believed at the time the bargain was made we were to be allowed to keep."

10.0 p.m.

The Income Tax is wholly different from the Excess Profits Tax, but my point is that they are both taxes and nobody can be exempt from one or the other by any bargain that may have been made with the State. That bargain does not contract them out of taxation. The Chancellor of the Exchequer, in his capacity as Chairman of the Sugar Commission, has made certain arrangements in regard to sugar, but that does not exempt the sugar merchants from the Excess Profits Tax. Under the Defence of the Realm Act there are numbers of contracts, where the contracts were bargains, but that does not enable those concerned to escape taxation, either Income Tax, Super-tax, Death Duties, or Excess Profits Tax, and I am at a complete loss to understand why a bargain entered into for the supply of materials on the one hand, or the supply of labour on the other, and for the limitation of profits in addition, can exempt the person who consents to it from any taxation which may be afterwards imposed. I cannot understand the argument. The position seems to me perfectly plain and straightforward. These gentlemen who are making munitions for the State are, like every other trader, to pay a tax which will leave them 40 per cent. more profits than they made before the War, as a consequence of their activities during the War. Is that a bad thing in principle?

Mr. HENDERSON

made a remark which was inaudible in the Reporters' Gallery.

Mr. MONTAGU

I am talking of the Excess Profits Tax. That is levied on everybody alike. We take 60 per cent. and leave them 40 per cent. Is that a fair thing?

Mr. HENDERSON

Not in controlled establishments.

Mr. MONTAGU

I am talking of the Excess Profits Tax, which is the subject we are now discussing. I hope the hon. Member (Mr. Henderson) will be kind enough to bear with me while I make my point. He said very hard things of me and my colleague.

Mr. HENDERSON

I never said a word about you.

Mr. MONTAGU

Does the hon. Member think that an imputation of bad faith in not keeping a bargain is a fair thing to have to listen to from this bench? We have our feelings as much as anybody else. The Excess Profits Tax leaves 40 per cent. in addition to the pre-war profits and takes 60 per cent. Is that unfair? That applies to everybody. I venture to suggest that just as the Super-tax applies to everybody who has more than £3,000 a year, so Excess Profits Tax ought to apply to everybody who has excess profits more than, I think it is, £200 that we allow. We allow no exceptions from the one and no exceptions from the other, and no relation between the State or any person, apart from taxation, ought to affect the taxation. You might just as well say that because a man has entered into a bargain with the State to supply munitions he ought to be exempted from the Super-tax that is put upon everybody with over £3,000. Taxation is a thing which does not admit of exceptions. It is a thing which ought to apply equally to all people.

HON. MEMBERS

Hear, hear!

Sir A. MARKHAM

That is my point.

Mr. MONTAGU

My contention is, if the hon. Member for Mansfield would see it, that the munitions levy which he has so much in his mind is not a tax; it is part of a bargain with the Minister of Munitions. That is wholly apart from taxation.

Mr. HENDERSON

You referred to it as a tax which was going to yield £65,000,000.

Mr. MONTAGU

The munitions levy?

Mr. HENDERSON

Yes.

Mr. MONTAGU

Oh!

Mr. HENDERSON

When you introduced the Bill, one hon. Member raised the question that you were not raising enough taxation, and you said, "We are raising taxation by the Munitions Act of £65,000,000." Those are your own words.

Mr. MONTAGU

I am surprised to hear that estimate. I do not know where I got it and I do not recognise it. I will make my hon. Friend a present of the fact that very possibly in some connection or other at some time or other—I have a very limited vocabulary—I forgot to use the word "revenue" and used the word "tax." Nobody knows better than the hon. Member himself that it is not a tax.

Mr. HENDERSON

I can assure my right hon. Friend that the Minister of Munitions and he himself constantly referred to it as a tax.

Mr. MONTAGU

I submit that a tax is something which is paid to the State as part of the cost of keeping up the Government of the country. This was part of a bargain. You got contracts from the Government, you got your labour under particular conditions, and you agreed to limit your profits. I appeal with confidence to the judgment of the House. The fact is that controlled firms are looked upon in the country, and I submit rightly looked upon, as a privileged class of firms, and to-day they are claiming additional provisions, exemption from taxation, which I venture to suggest they have no right whatever to obtain.

Mr. HENDERSON

I would refer the right hon. Gentleman to a passage in Volume LXXIV. of the OFFICIAL REPORT, in which he will find he stated that the munitions taxes were £65,000,000.

Mr. MONTAGU

Have you got it there?

Mr. HENDERSON

I will get it.

Mr. STUART-WORTLEY

The right hon. Gentleman who has just sat down referred to privilege. If the word means anything, it means a difference of status. In this case the difference of status means difference in burdens as well as the difference in rights, and if the right hon. Gentleman thinks that by basing the moralities of his behaviour and the equities that he seeks to impose upon others upon high-and-dry distinctions of House of Commons Standing Orders phraseology he will find himself led into some very strange places and he will find himself in some very strange company. I do not rise to make charges of bad faith, because for the benefit of the case for this Amendment no such charges are necessary. Whether you call it the levy of a tax or whether you call the state in which these 4,000 controlled establishments are being put a state of privilege or not, it was expected when the Munitions Act was passed that the thing was being seen through, and that a definite arrangement was made which would be honoured by all parties. The Chancellor of the Exchequer says you cannot have a difference between classes of persons who are subject to taxation. So you ought not to. The person who has the least right of all to claim the protection of such a doctrine is the person who, if he has not created, has stood by while other persons have created—a fundamental distinction which makes that further distinction necessary. These firms were placed in a position of difference by the Government themselves, a position of difference such that you cannot in subsequent dealings with them do otherwise than recognise that difference. The right hon. Gentleman who has just sat down distinguishes between charges of bad faith, between charges of quarrels that have taken place between Ministers, of which I know nothing and say nothing, between those and the merits of the case. Those things are the merits of the case. There is nothing else in the merits of the case. Arrangements were made under which value has been given and received on both sides, expenditure incurred and risks taken, and every possible expectation created that you were finished with a matter which would benefit the State as much as the firms. I do not know whether after all the extremely able speeches that have been made much remains to be said. But it does remain possibly to say that in this doubtful position of getting what can in no case be a large additional revenue the Chancellor of the Exchequer is offending against all the canons of taxation of which previously he had been a defender in Parliament. While he is going to keep alive duplication of collecting staffs and a large and most unreasonable expensive collection, he is going to harass to the utmost the subject in his taxation, and he is going to leave behind him the deepest possible sense of injustice.

Mr. MONTAGU

On a point of personal explanation. I have now discovered the horrible truth of the accusation of my hon. Friend behind me (Mr. Henderson). But if he bases his case on this quotation, it is a poor one. I will read it to the House. The hon. Member for Blackburn—this was the argument—asked whether our principle was to obtain no more in taxation than that which is necessary to pay the, interest upon the debts which we have incurred, and I said— That is certainly not our intention. Neither is it the result of what we have done. So far the interest on the New Debt will be £78,500,000 on the 31st March next, and the new taxes imposed by the Minister of Munitions will yield £65,000,000. I was interrupted, and I repeated: A full year's interest on the debt that we shall have created by the 31st March next will be £78,500,000. The yield of the taxes proposed by the Minister of Munitions next year will he £65,000,000, and it is provisionally estimated that the yield of the new taxes proposed by the Chancellor of the Exchequer will be £101,000,000."—[OFFICIAL REPORT, 13th October, 1916, col. 1343, Vol. LXXIV.]. The House will observe from those figures that I was giving the yield of the new taxation under two Budgets, one proposed by the Minister of Munitions when he was Chancellor of the Exchequer, and one proposed by my right hon. Friend.

Mr. HENDERSON

That is not the point at all. The point was he spoke of taxes.

Mr. MONTAGU

Those are not munitions taxes.

Mr. PENNEFATHER

Like the hon. Member for Mansfield, I can say that I have no interest in controlled establishments, and I do not speak for them. But I would ask the Chancellor of the Exchequer to believe that there is a very strong feeling with regard to this subject among the commercial men of this country, and for this reason, that all respectable commercial men, such as those who constitute the chambers of commerce referred to by the Mover of this Amendment, who, as he very truly said, are generally agreed in this matter, have a very strong regard for what they call the sanctity of contract. What would the right hon. Gentleman say if in a private firm there were two partners and if one of them repudiated the contract on the ground that he himself did not sign the contract but that it had been signed by a partner? He would at once say that however honourable the intentions of that man might be, that in his act he was doing something which was not regarded as being strictly honourable—something which would not stand in a Court of Law. I would further ask the right hon. Gentleman: Are two Ministers in the Cabinet not practically partners in the Government of this country; and, if it is wrong for a private individual to repudiate a contract made by a partner, can it be right, no matter how good his intentions, for a Minister to repudiate the act of another Minister with whom he is in co-partnership? That really touches the question of morality, and I do hope that the Government will not bring the House of Commons into disrepute in the country by urging it to repudiate, or consenting to repudiating, a contract made by one of His Majesty's Ministers in the name of the Government.

Mr. McKENNA

Will the hon. Member point to any contract which liberated controlled firms from future taxation?

Mr. PENNEFATHER

That is exactly, if I may say so with all humility and deference, the line of argument which is resented by the business men of this country. They will call it to-morrow or next day "legal quibbling." It is perfectly true, perhaps, that the Financial Secretary on some day in June, made the casual remark in this House that there would be an Excess Profits Tax, but does anybody suppose that went through the length and breadth of the country? I do not suppose one business man out of a hundred in this country was ever aware that the remark was made. What the business man does know is that when the Munitions Bill was introduced the Minister of Munitions made a very definite statement, and at this point I think that anyone who was likely to make munitions began to take notice, and to read very carefully, and he would find that the Minister of Munitions had said very definitely on the 23rd of June that the trade unions had insisted that there should be a definite Clause in the Bill in regard to the munitions profits. Therefore the people naturally turned to the Bill to sec what was the definite Clause. This was one proposing to increase the profits by 20 per cent. (not up to 20 per cent., as was said just now), but by 20 per cent. That was definitely proposed in the Bill and agreed to. Then the point was raised by the hon. Member for West Aberdeen as to what was the nature of the proposal. The Financial Secretary to the Treasury has just read out some words in support of his view, but unfortunately he read out the wrong words. If he had looked a little bit higher up he would have found that the Chair had ruled on that occasion that these two Clauses in the Bill relating to this limitation. of profits "contained an arrangement by which certain persons who receive certain benefits" in the way of relaxation of customs and rules would at the same time surrender certain financial advantages which would otherwise accrue to them. It is in the nature of a contract; in other words a quid pro quo. Here was a very definite statement made by the Minister of Munitions, and here was a ruling by the Chairman, and I think the controlled firm and every business man would say that there was something "in the nature of a contract," and would never imagine, that a year afterwards the head of another great Department of the Government would turn round and say, "Ah, but we now have another proposition to make which will vitiate that contract." That was never contemplated. I do not impute any bad motives, but this what I may call mistaken and misguided action on the part of the Government is creating an intensely bad impression in the country. Rightly or wrongly, people think, and I can only use their own words in my own Constituency, "that it is crooked, that it is not straight." That is their view. I have here a communication from the Chamber of Commerce in my own Constituency which says definitely: The Chancellor of the Exchequer has now stated that he will respect the arrangement, made in so far as it limits the surplus profits of such firms, but that he will ignore that portion of it which provides that such firms shall be entitled to receive profits up to the agreed amount. I think that is a fair statement of the case; a perfectly fair statement, and at all events that is the impression people are under. I submit it is a bad thing for the country and for the Government if, as a consequence of this—unintentionally perhaps—sharp practice, the best class of men in the country lose confidence in the Government. I do not think any amount which the Treasury can get out of these proposals will compensate it for that loss of confidence in the country. I should like to remind the Committee of certain matters which passed in this House, and which have convinced the people of the country that an agreement was made which is now being repudiated.

Mr. McKENNA

An agreement not to impose taxation?

Mr. PENNEFATHER

No. Of course everybody knows of Income Tax. If I may say so, I think the Financial Secretary endeavoured to make a very weak point when he tried to show that his mere statement on 1st June that there was to be Excess Profits Tax—of an unspecified kind and an unspecified amount—practically put everybody under notice. He compared it with the Income Tax. We all knew there was Income Tax and Super-tax. That we could take into calculation, but how could anybody at the time the Munitions Bill was brought in bear in mind that simple statement of the Financial Secretary. I do not suggest that there was any bargain that no future taxation should be imposed, but if the right hon. Gentleman wants to secure the confidence of the country let him come boldly to the country and bring in a new Bill stating definitely that he proposes to introduce some new taxation under the authority of this House, and submit to this House and discuss it as a new measure. Do not let him try to bring this, thing in by way of a side-wind. I do not mean anything offensive, but I am telling him quite frankly the way the matter is looked at in the country. The country do believe that they have good reason, because the Minister of Munitions, in reply to some interruption—I think by the hon. Member for Blackburn—gave an example of what the new Regulation about the 20 per cent. increase of profits would mean. He said, on 28th June, that if they had paid—that is the munition firms—5 per cent., I assume he meant dividend previously paid, they would now pay 6 per cent. He did not say "provided an Excess Profits Duty does not come in and take away the means of paying 6 per cent." He made no reservation whatever as to an Excess Profits Duty being brought in and levied concurrently with this. Again, the hon. Member for the Attercliffe Division (Mr. Anderson), speaking on 1st July, 1915, made quite a number of calculations as to how this percentage would affect certain large firms, and in none of those calculations did he make any allowance for an Excess Profits Duty. Yet the Minister of Munitions, and the other members of the Government present, never disputed any of his calculations, or suggested that those calculations might be vitiated by the introduction hereafter of an Excess Profits Duty. There has been no correction of the common impression until quite recently, and until that announcement the munition firms were quite satisfied to pay liberally; but they feel now, rightly or wrongly, that they are the subjects of sharp prac- tice, that they are being taken advantage of, that they are having something extracted from them more than was originally intended. It is only because of that feeling that the commercial men of the country are rising—the right hon. Gentleman smiles; I do not know why he should. I come into contact with chambers of commerce and with at least as many of the leading commercial men of the country as he does, and they do not smile; they take this matter very seriously, because it is, they say, against public morality. They think it cannot be good for the Government to set a bad example in commercial morality, and they claim, I think rightly, that the Government should not endorse the action of the sharpers in the City—[HON. MEMBERS: "Oh, oh!"]—one of whom would say, "I will not be bound by a contract because I did not sign it personally; it was only signed by my partner." That is the point which rankles in the minds of commercial people, and that is why a large number of influential business men of the highest class are prepared to support the owners of the controlled establishments in their resistance to this arrangement.

Sir FRANCIS LOWE

Representations have been made to the Committee by Members representing several of the large towns, including Sheffield, Liverpool, and, I think, Manchester, to the effect that this proposal of the Chancellor of the Exchequer is creating a great deal of ill-feeling amongst the owners of the controlled establishments in those large towns. I want to say that I represent Birmingham, another large town, where there are a great many controlled establishments, and that a like feeling of irritation exists there. I have had a very great many communications on the subject. It is perfectly certain that in the case of the smaller establishments of this kind this proposal will press very heavily. An instance was given to me in which a firm's standard amount of income was £10,000, with excess profits of £2,000. That meant that they were entitled to retain the £2,000. Under the proposal of the Chancellor of the Exchequer, £1,200 of that £2,000 will be taken, so that the firm will only be entitled to retain £800. The Chancellor of the Exchequer made a great deal of the advantages that were given to the controlled establishments by the arrangements entered into. I fail to see that advantages were conferred upon them. They did not seek to become controlled establishments: they were asked by the Government to become controlled establishments. [An HON. MEMBEB: "No!"] And they simply, as patriotic men, consented to do so. On the basis of that arrangement a certain agreement, or, as it was described by the Chairman of Ways and Means, a contract was entered into. That contract having been entered into, whether it is by one member of the Government or another, I myself think it is very desirable that it should be observed. If the contract is abrogated by one side it certainly is likely to cause a very considerable amount of irritation in the minds of those people who are injured by it. I cannot for the life of me see why that irritation should be caused, unless the Chancellor of the Exchequer can tell those concerned that he is going to gain a considerable amount by breaking the contract. I do not believe that he will gain anything at all by it. He said himself that some of those controlled establishments would have to pay more, and some less, under the alteration which he had proposed. I think if he works it out he will find that the chances are that he will get less rather than more by making this alteration. I say unless he can absolutely convince himself that he is going to make more by the alteration proposed than he does by the present system it is perfectly childish and foolish for him to cause this irritation in the country, and lay open to the imputation of bad faith any member of the Government. For these reasons I most strongly urge upon the Chancellor of the Exchequer to reconsider his position in this matter. It is perfectly worth while that he should do so even from the practical financial point of view. The amount he will gain by this alteration, I am perfectly certain, will be practically nil. Therefore, I do not think it is worth while for the right hon. Gentleman to lay himself open to this charge of bad faith.

Sir GEORGE TOULMIN

do not wish to follow on the lines in which, in rather too large a fashion, a Minister is charged with bad faith, because there is certainly something in the argument of the Chancellor of the Exchequer as to the necessity of equality in any such tax as an Excess Profits Tax. But I think that in this case he is not doing quite justice by imposing his tax in the manner in which it will be imposed, unless this Amendment is carried. It is penalising the smaller firms, who are not making great profits. The Secretary to the Treasury spoke of the controlled firms as a "privileged class." But this privileged class is privileged in paying not 60 per cent. extra, but the whole of the extra above a certain datum line—that is, extra over one-fifth above their standard year. Against that they have had to have their whole ordinary business disturbed. Why were they allowed this one-fifth extra profits It was given to them because the whole of their business and the whole of their goodwill were put at the disposal of the Minister of Munitions. It was too much for the disturbance which in many cases was caused to businesses which were developed on a special line. Lathes had to be changed, new machinery set up, and their ordinary customers very frequently very much disappointed. It was not too much to say to those men that they should be allowed to secure one-fifth extra profit—that is to say, if they were making 5 per cent. they should be allowed to make 6 per cent.—and even if there is a large and generous allowance made to restore the works to their past footing, it still is for a great many of them, I might almost call it a gamble as to whether they will come out with any particular profit at the end of it. Several speakers have quoted the instance of a firm making £10,000 and now being allowed to keep £800 instead of the £2,000 less Income Tax which ought to have gone to meet the liability which every firm will have to face at the end of its period of control. I really think that the Chancellor of the Exchequer should look upon this as a question of graduation. He has allowed a lump sum as a graduation of this Excess Profits Tax. He allows a couple of hundred pounds whatever the profits may be. In the case of small firms that is a substantial amount, but in the case of a large firm it is not a matter of very great moment. I think the graduation with regard to controlled firms ought to be the amount of the graduation which the Minister of Munitions allowed, which was a fifth. I hope the Chancellor of the Exchequer will take notice of the fact that, so far as I recall, not one Member of the House has supported his proposal. During the whole of this evening every Member has criticised it, and I hope he will reconsider this tax before it is carried.

Mr. PETO

I want to ask the Chancellor of the Exchequer whether, before we divide on this Amendment, he cannot give the Committee some estimate, at any rate an approximate estimate, as to what it is he is really out to gain for the Treasury, because if you get a proposal on the part of the Treasury which meets, as the hon. Member who has just sat down said, with the absolutely undivided opposition of every member in the Committee who represents any business, or is in contact with any business of any sort or kind, surely there must be something of real import for the winning of the War to make it worth while to persist in a proposal which, however much it may be defended by the Chancellor of the Exchequer and the Secretary to the Treasury, does in the eyes of the business community certainly not savour of straight and fair dealing. I do not wish to add to the many hard things that have been said by various Members. Several have merely tried to represent to the right hon. Gentleman what is the ordinary accepted opinion of the business community as a whole. Now is it worth while to run counter to that opinion? With all deference to your ruling whether this is technically within the Rules of Order or not, what does all that mean to the business community outside? Our technicalities are incomprehensible to the business community outside this House. All that they know is that one Minister has made an arrangement by which a large contribution—I use the word advisedly—to carry on the War is made on a certain basis, and that after they think the whole matter is finished and settled, after they have entered into elaborate arrangements with the Minister of Munitions, another Department of the Government can come over the head of that Minister, who was so lately Chancellor of the Exchequer, and who therefore stood in a peculiar position of responsibility in any matter of any charge upon the trade, and can say, "Quite apart from that, our rights as the Treasury override everything that has been done." The Financial Secretary said that they had made arrangements to accept the scale of depreciation fixed by the Minister of Munitions in order to avoid duplication of accounts, but the Chancellor of the Exchequer says they had to ascertain whether he would pay more or less under the munitions levy or the Excess Profits Tax, and I ask is it possible to avoid this duplication of accounts? I will not go further into the question now, but will the Chancellor of the Exchequer tell us now how much he is out to get? There will be an enormous loss of time in making up two statements of accounts to satisfy two sets of officials and that, quite apart from the question of bringing in the Treasury officials to go over the accounts a second time in order to get practically nothing at all in £ s. d. to help to win the War. Is it worth while? There is no money in it, and why run counter to the universal opinion of the business community throughout the country? Is it worth pressing to a Division in this Committee a proposal about which not a single Member who has spoken can vote with the Government although most of them have been consistent supporters of the Government all through in order to get nothing and merely to maintain the principle of Treasury control over all taxation? The Munitions Act is a temporary measure, and all that the Chancellor of the Exchequer is out to gain will be ensured to the Treasury the moment the War is over, and then this special imposition ceases to be operative. I know that in the view of the Chancellor of the Exchequer this is not a tax, that it is an imposition purely temporary in its operation, which must not be reckoned in with the total of his Budget. It is a thing, sui generis, that must not be reckoned up as part of the general taxation of the country. I know that that is the view of the Treasury, but the whole thing will lapse in a few months, or a year, and what the Chancellor of the Exchequer really wants to get is the maintenance of a principle which is bound to come in the moment the country is at peace. I cannot help thinking that the Chancellor of the Exchequer will think it worth while to give up this proposal even at this late hour in the discussion.

Mr. CURRIE

I have listened with growing indignation to most of the speeches made to-night levelling charges of bad faith against the Government and the Chancellor of the Exchequer. The myth as to the attitude of the late Chancellor of the Exchequer has been dissipated, and the story about the £65,000,000 of so-called taxes has been discovered to be a first-rate mare's nest. The hon. Member for Windsor (Mr. J. Mason) admitted that at least 90 per cent. of the firms affected were not in existence as controlled establishments when the alleged bargain was made, and the hon. Member for West Aberdeenshire (Mr. J. M. Henderson) admitted that no time limit or element of permanency was attached to the original bargain. I admit that a contract was made, but it was a contract for the division of profits, very much of the same nature that an ordinary manufacturer makes a dozen times in a week. After all, most of his contracts effect a division of his profits in some way. But to make a contract as to the division of profits is one thing, and how you are to be taxed on your profits after you have made them is another thing. I submit that the persistent attempt to assume that the one hangs upon the other, which has underlain nine out of ten of the speeches in this Debate, is extremely fallacious. Nothing would induce me to believe in the proposal that the Chancellor of the Exchequer or the House of Commons should give up the right to say what tax ought to be levied. When I hear arguments as to the unfair incidence of the tax, I must say that if the War goes on long enough, some of those who use them may have to revise their views. I do not think it sound to lay such emphasis on the trouble caused to firms by the different accounts required by the Income Tax and the other taxes. I agree that the trouble is great, but it is not so great as it has been endeavoured to make out. The hon. Member for West Aberdeenshire (Mr. J. M. Henderson) drew a picture of the profits which controlled firms were not making, and instanced the case of a contractor who unfortunately had made bad shells of some sort and had made no profits. I ask him: If there is no profit, where is the tax? If there is no profit, there is no tax.

Mr. HENDERSON

The hon. Member attributes to me something which I did not say. I never said anything of the kind. I said that a man who makes a small profit requires the whole of it and more to replace his goodwill which he has lost.

Mr. CURRIE

My recollection is that the hon. Member said a great deal more than that, but one thing the hon. Member did say was that the Minister of Munitions had been quite right to reduce his prices for a good many things 40, 50, and 60 per cent. It appears to me that if he adheres to that opinion he has not very much of a case against the Ministry of Munitions. I do not agree that the goodwill of all businesses which have spent large sums in falling in with this agreement has been dissipated. It remains, of course, to be seen. If, when the time comes, these firms are badly treated by the Government, then I dare say that some of us may have a good deal to say, but they have not been badly treated yet. I do not know what the Chancellor of the Exchequer intends to do, but something has been said about the feeling in the country. If the Chancellor of the Exchequer is going to tax some 4,000 firms, of course I suppose he knew all along that there would be a good deal of feeling among them; tout, after all, there are other people in the country in addition to the 4,000 being taxed. I have had the ordinary circular sent to me on the subject, and I know the argument quite well, and the feeling quite well, too. The feeling in the country is behind the Chancellor of the Exchequer. When we were first told by the Chancellor of the Exchequer that the tax for the coming year was to be 60 per cent. he did indicate that he recognised that 60 per cent. was as high a tax as he could possibly impose, and the Secretary of State for India (Mr. Chamberlain), who spoke the same afternoon, indicated that he shared that view. I do not know what view the Chancellor of the Exchequer might have been inclined to take on the merits of the argument addressed to him, but I sincerely hope that as he has been accused of unfair dealing, or being a sharper, a swindler, and a dishonest shopkeeper, he will inform those who used that language that whatever he might have done in response to argument he is not going to give in response to their abuse.

Sir J. COMPTON-RICKETT

Those hon. Members who have brought this question forward at the desire and on behalf of constituents have, if I may say so, overdone their ease. It makes it very difficult indeed for the right hon. Gentleman to make concessions, supposing he were inclined to do so, when he has to make them under levelled guns and charges of dishonesty and unfair treatment. So far as the Government is concerned, I think they have made out an unanswerable case The only thing that could be said is that when arrangements was first made it was not known although it had been foreshadowed that there might be and probably would be a step taken by which a large proportion of the profits in excess of those made in ordinary times would be taken. But subsequently there was a large addition to the number of munition factories, and I should have thought it would have occurred to the representatives of those interested to have got from the Chancellor of the Exchequer a statement whether the arrangement made would preclude any subsequent taxation on the profit left in their hands. I want to be perfectly fair: they were negotiating with a Minister who had once been Chancellor of the Exchequer, and they may have fallen into the mistake that the large proportion taken in excess of the normal profits was all that would be demanded. If the case had been urged in another way—in a more moderate way there might have been reason for asking the Government to reconsider the matter to some extent, but it could only follow the withdrawal of the charges that have been made; otherwise I do not see how the right hon. Gentleman could make a concession when technically he is on safe ground. The proportion of the profit is sometimes spoken of as if it were the whole of the profits. But many of these firms had been making other profits up till then, and this is only the sugar on the cake itself. I would suggest if the matter is allowed to go over to-night, some further consideration could be given to it. It is not for me to say, but if a better spirit were shown the Government might see their way to listen, at any rate, to further explanations, and perhaps make some further concession.

Mr. ANDERSON

One would rather gather from listening to the speeches that have been made that the country is more or less seething with discontent in regard to this matter.

Sir F. LOWE

Not seething.

Mr. ANDERSON

I can only say that so far as many of us are concerned we have not yet encountered any of this discontent, and I am quite sure working people are not aware of any of the terrible hardships the Treasury are said to be imposing on these firms. The general feeling is that far too large profits are being made out of the War, and that the prices of commodities are being forced up very high indeed. [An HON. MEMBER: "Not on shells!"] The question that seems to have been raised is that there was a contract between the Government and the controlled firms, and that any increase in taxation is a breach of that contract.

Mr. HENDERSON

No.

Mr. ANDERSON

Yes. It is said that to increase the amount of the excess profit that is taken is a breach of the understanding.

Mr. HENDERSON

made an observation which was inaudible in the Reporters' Gallery.

Mr. ANDERSON

You are quibbling on the matter. I can say this, that the financial needs of the country will be paramount in regard to a matter of this kind. The point I particularly want to make is one that must be taken into account by those who are pressing forward this matter and also by the Chancellor of the Exchequer. It was not only the heads of these controlled establishments who were affected by the establishments becoming controlled. Very serious restrictions were placed upon labour at the same time under the Munitions of War Act. Under that Act, which deals with the question of controlled establishments, the working people were legally debarred from leaving one establishment in order to go to another establishment where they could get higher wages. If you have a contract with labour and working people are debarred from going where they can get higher wages, are you going to stop all increase of wages? Have you done anything to bring down the Income Tax? Have you done anything to bring down the taxes on food stuffs or the tax on sugar? Do you propose to stop all those taxes because labour in regard to all these controlled establishments is not entitled to leave except under the penalty of six weeks' enforced idleness? These matters are vital. It is not only you who will have charges to make against the Chancellor of the Exchequer. We, in turn, may also have charges to make against the Chancellor of the Exchequer in regard to a matter of this sort. No contract of this kind can be made that will not be subject to the financial and other exigencies of the country. That seems to be the paramount interest. I know hon. Members do not mean anything. I know they do not expect to get anything out of this matter. If that is the position, I do not know what all the trouble is about.

Mr. HENDERSON

made an observation which was inaudible in the Reporters' Gallery.

Mr. CROOKS

You expect to make a bit out of it. Do not make a row.

The CHAIRMAN

The hon. Member for West Aberdeenshire (Mr. Henderson) has had a good share of time in this Debate.

Mr. ANDERSON

The whole question that arises in this Debate is whether more money is going to remain with these controlled establishments, or whether more money is going to the Treasury. If that is not the issue, I should like to know what it is and what the Debate has been about. The whole question from the workers' standpoint is involved in this matter, and from every point of view the Chancellor of the Exchequer will be well advised to stick to his guns and see the thing through.

11.0 P.M.

Mr. McLEOD

After hearing one or two speeches in this Debate, I made up my mind that I would take no part in it, for the simple reason that what was said by hon. Members who have spoken fully and entirely expressed my views. But since I have been in the House lately I have heard a reference made to the opinion of certain Members for large industrial cities in England, and I should like, as representing one of the large industrial cities in Scotland, to say that the feeling there with regard to the proposals of the Chancellor of the Exchequer is very strong indeed. I regret certain expressions which have been used. They are wholly unnecessary. I am sure the Chancellor of the Exchequer believed be had the power to make this charge, but I can assure him that if he went to Glasgow and induced the Financial Secretary to go with him and make speeches such as we have heard tonight, it would not alter one whit the feeling of all the controlled firms in Glasgow that something that they held to be a bargain has been broken. Reference has also been made to the fact that the controlled businesses have certain advantages over the uncontrolled businesses. It is entirely the other way. All the uncontrolled busineses are allowed to go on continuing their whole businesses, and in no way losing their goodwill, but in a very large number of cases they have had to drop entirely the work they were doing before they took on munitions work for the Government and look on, while other countries are eating up the business they did before. Therefore the position of the controlled business is very much worse than that of the uncontrolled.

Mr. POLLOCK

I agree with the hon. Member (Mr. Anderson) that the issue of the Debate has become a little obscured. Thinking over the weight of the arguments, it occurs to me that we may cast aside all the so-called charges which have been levelled against the Chancellor of the Exchequer. I do not think he looks any the worse for it, and, as I understand, there was an effort to translate from Parliamentary language into the vernacular certain things which are being said in the market place and in the various places where people meet, and, like many other translations, they suffer somewhat in the process. There we may leave it. But the Chancellor of the Exchequer will feel not the least uneasy. He will sleep just as soundly, although a great many observations have been made, possibly in order that he may understand what he would hear if he was to go down to the market place, where he, happily, has not got to go. He is here with us, and we may cast aside all this sort of observations as rather obscuring the Debate. Then let us see how he puts the case. As I understand it, it is this. I cast aside, from myself, these words "levy," or "tax," or "imposition," and so on. We might possibly focus attention on an expression like loss of money, because in both cases it involves loss of money. But the Chancellor of the Exchequer might fairly put it this way, that such money as is taken from the controlled establishments is by way of an entrance fee, whereby these controlled establishments were able to come into the body which now numbers 4,000, and in which control was to be exercised, he says, for some privilege that they gained.

Sir A. MARKHAM

They were forced to come in.

Mr. POLLOCK

You are quite right. They say, "No privilege was granted to us. We were forced to come in. Therefore we have paid the entrance fee, if you like to call it that, under force. We were compelled to pay it." Having made them pay this entrance fee the Chancellor of the Exchequer comes down and says, "We will now impose a further tax which is to be levied upon you and is to be levied upon the uncontrolled establishments in respect of excess profits in precisely the same measure and in the same way," subject to this, that there is to be a superfluity of method by which he is to get this tax. In fact, having got this entrance fee he now levies a tax upon the just and the unjust. That is very fair on the right hon. Gentleman's part, but those who are going to suffer do not feel it in that way, and they have expressed their feeling warmly through their representatives to-night. That feeling exists, and what I cannot understand is that the Chancellor of the Exchequer has not told us what is the real amount that is at stake. Supposing we were told this, "Well, if I give up I shall lose £10,000,000, £20,000,000 or £30,000,000." In that case we should all feel that in the finance of the nation it is a very important thing not to lose so large a sum, but if the sum is, as the hon. Member for Birmingham said, a matter of estimate only, and possibly that the Chancellor of the Exchequer will lose more by this method than he will gain, then why on earth do we have this discontent? Why do we have these misgivings arising? Why do not we have a system on which we can all work harmoniously together? I suppose we are going to proceed to a Division at once. I regret very much that the Committee should be put in the position of striking possibly a discordant note. I should have thought the Chancellor of the Exchequer, unless he is going to gain some very large sum from it, would have made some sort of proposal which would have enabled us to join together and to report what is really the true feeling of the country, and desire, even under some difficulty, to work together.

Sir T. WHITTAKER

I should like to say how this Debate has struck me. I came here with an absolutely open mind on this matter, and, as hon. Members know, I have no interest of any shape or form in it. I will say what appears to me to be the real view of what has been called a bargain. I think there was a feeling that when these concerns were being taken over by the Government there should be some limit put on the profit which they were to be allowed to make, and it was decided that the limit should be as was provided. It was a decision that there should not be above a certain amount of extra profit made. When you have arrived at the amount of profit made these firms are in the same position as anybody else, and if the Excess Profits Tax is to be levied upon people who have made a profit in excess of the profit they were making before the War, surely these people who as controlled firms have made these extra profits should be liable to that Excess Profits Tax in the same way as anybody else.

Mr. HENDERSON

But no more.

Sir T. WHITTAKER

They are not going to pay any more.

Mr. HENDERSON

Yes, they are.

Sir T. WHITTAKER

No. The provision which limits their profit is not a tax. It is a provision that under the conditions under which they are working, where the ordinary rules of commerce will not apply, they shall not make profits in excess of the profit they made before beyond a certain limit. That simply decides what the amount of profit is to be, but they will still be making possibly an excess profit as we understand it, a profit in excess of what they made before the War If they are in that position surely it is just that they should pay Excess Profits Tax in the same way as anybody else who is making a profit in excess of that which was made before the War. That is the way the matter strikes me. I am free to confess also that I am much impressed by the fact that the representatives of large industrial constituencies do say that this has not been their interpretation of what it means. I regret very much that charges should have been made—most offensive charges, and in my judgment absolutely indefensible and unjustified—as to bad faith. I do not believe that there is an atom of ground for them. That is perfectly clear.

Mr. HENDERSON

I did not make them.

Sir T. WHITTAKER

Yes you did. There does remain the solid fact that there is a feeling that this was intended as a tax and that there is some misunderstanding in connection with it. I do not know whether the Chancellor of the Exchequer will see his way after what has taken place to do anything to meet that feeling. Personally I feel that the tax which he proposes to levy is perfectly justified on the ground that it is a tax on profits in excess of those which were made before the War.

Sir H. DALZIEL

I cannot but feel that the Committee has been labouring during the whole of the evening under the disadvantage and not having someone present able to speak with full authority on behalf of the Ministry of Munitions. It does seem to me that in a Debate of this kind the Committee would have been greatly assisted by someone who was in a position to say exactly what the view of the Ministry of Munitions was. Then the Committee could have decided as to the merits and demerits of the various arguments put forward. I am not blaming, my right hon. Friend the Minister of Munitions. We all know that his hands are very full at the present time. But I do think that someone might have been able to state the views of the Ministry of Munitions on the present occasion. I do not agree with some of the strong language that has been used as to charges of breach of faith. I believe that my hon. Friend the Member for Mansfield (Sir A. Markham) did make some rather strong charges. Even he, I am sure, would not suggest that he was making any charge of a personal breach of faith against the Chancellor of the Exchequer. So far as I am concerned that is the only thing that counts. To make a charge of breach of faith against the Government is patriotism in perpetuity, therefore I think we need not attach too much importance to what has been said on both sides with regard to this matter. I am concerned principally with what is going to assist the successful carrying on of the War. I am against undue profits of manufacturers in regard to the making of munitions, but I am also against the Government doing anything that is going to cause any disgruntled feeling among the people who are responsible at the present time for the equipment of our arsenals. I would suggest to the Chancellor of the Exchequer that he does not wish to carry this merely by a vote to-night with all the influence which the Government can bring to bear by putting on the official Whips. That would probably not settle the question, and I appeal to him as an old Parliamentarian who is able to judge the opinion of the House generally whether, apart altogether from the merits of the case, there has not been stated to-night a case which requires a little fuller consideration than has been given to it at the present time. He can lose nothing, because this question can be raised again. He will have the satisfaction that he is not simply carrying this out in the teeth of the expression of opinion which has been made in all parts of the House. He will still have a majority at his command which he can use on a future occasion. I would suggest whether it would not be to the benefit of the general purpose he has in view to adjourn the Debate in order that he may confer with his right hon. Friend the Minister of Munitions; and probably he might come forward with a further view on a future occasion, not necessarily a different view from what he has expressed to-night. Therefore, I beg to move, "That the Chairman do report Progress and ask leave to sit again."

Mr. McKENNA

My right hon. Friend who has just spoken, and my right hon. Friend behind me (Sir T. Whittaker) have both suggested that it would be advisable that the conclusion of this subject should take place on a later occasion, on Monday next, instead of going on at this late hour. I am very much impressed, and particularly impressed by the fact that I have been asked through the whole course of this Debate if I can give any figures as to the effect on the revenue of accepting the Amendment. At this moment I am not sure that I could give figures on Monday, but I do feel the force of the argument which has been advanced that we are having a great deal of discussion about matters concerning pounds, shillings, and pence. It has been said that it would not be a very large amount, but in my opinion it would be a very large sum. I do not know whether I shall be able to give the figures on Monday. I hope that I shall be able to give some figures, and I do feel the importance of the argument that we-should know the sum. I accept the-Motion to report Progress.

Mr. S. ROBERTS

I should be only too pleased to agree with the Motion if I thought that the object of the Adjournment is really to meet this question, but I am rather doubtful whether it has not been accepted because the right hon. Gentleman has not got a majority.

Mr. McKENNA

I have got a majority. I understand it is small, but it is a clear majority.

Mr. ROBERTS

I will put it in this way—a better majority on Monday, and I do not think that a proper reason. But if the Adjournment is for the purpose of really meeting the question, then I concur; if it is only for a larger majority, I do not.

Sir W. ESSEX

I am one of the Members who have sat patiently listening to the Debate, and I cannot but resent the charge implied against the Chancellor of the Exchequer by the hon. Member with regard to the Adjournment. We have 6at here as men of business, some of us having no interest whatever in munitions, and we have felt that a lot of cant is being talked by these people.

Mr. STUART-WORTLEY

On a point of Order. Is it in order, on a Motion to report Progress, that an attempt should be made to bring back the main subject of discussion by the use of unparliamentary language?

The CHAIRMAN

What are the points of Order?

Mr. STUART-WORTLEY

They are the raising again of the main debate and using unparliamentary language.

The CHAIRMAN

Whether the hon. Member was speaking irrelevantly to the Motion I was unable to gather from his first sentence. With regard to the use of unparliamentary language, I gather from what I have heard since I resumed the Chair, that there has been a great deal of unparliamentary language used, and I do not think, having regard to the character of this Debate, that I can rule out the discussion.

Sir W. ESSEX

I do not want to excite feeling, but what I say must, on the whole, stand. I do not want to say I am not prepared to support the Motion to report Progress, but do not let it be supposed that by the acceptance of that Motion those of us who have sat here have less strong feelings or are one whit less loyal in our support of the Government. Our anxiety to get this business through has kept us silent.

Sir F. LOWE

I readily and cordially accept the suggestion of the Chancellor of the Exchequer that we should not come to a decision to-night. I know that on several former occasions the Chancellor has proposed the Adjournment in order that he might have time to consider the question further, and with most admirable results. I venture to express the hope that this Adjournment will lead to a very satisfactory settlement of this undoubtedly great difficulty.

Mr. AINSWORTH

I think that hon. Gentlemen might very profitably spend the time between now and the resumption on Monday in making up their minds as to the reply to the question asked earlier this afternoon by the Chancellor of the Exchequer as to the taxation to be imposed.

The CHAIRMAN

Is the hon. Member proposing to resume the Debate on the main subject?

Mr. AINSWORTH

Oh, no, Sir!

The CHAIRMAN

At any rate he was doing so, perhaps unconsciously. He must deal solely with the Motion to report Progress.

Mr. AINSWORTH

The only reason for the Motion to report Progress is to enable hon. Members to come to a decision, and I suggest that they should employ the time in considering what answer they will give to the question of the Chancellor of the Exchequer.

Committee report Progress; to sit again upon Monday next.

The remaining Orders were read, and postponed.