§ (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 569 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 there-for.
§ Amendment proposed [22nd June]: In Sub-section (1), after the word "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."—[Mr. Samuel Roberts.]
§ Question again proposed, "That those words be there inserted." Debate resumed.
§ Sir A. MONDI, unfortunately, was not able to be present on the last occasion when this Amendment was before the Committee. But I have taken the trouble to acquaint myself with what passed on that occasion by reading the OFFICIAL REPORT of that Debate. It seems to me to have generated rather more heat than light, and therefore I should like to present to the Committee the case of the controlled establishments and the reason why they objected to the proposal of the Chancellor of the Exchequer. The case of the controlled establishments falls under two heads, and I do not think the Chancellor of the Exchequer has quite adequately dealt with either of those heads. In the first instance I must put the question of complication of accounts. The right hon. Gentleman passed over that very lightly. In dealing with the question of accounts he quite rightly observed that a considerable portion of the work had to be done by the controlled establishments for In- 570 come Tax returns, and that I fully agree to. But there is a great deal more to be done for the Excess Profits Tax, involving a considerable amount of labour, than for Income Tax returns. Might I put to the right hon. Gentleman the unfortunate position in which those who are in charge of controlled establishments are placed as it is? With a depleted staff, and large proportion of their financial and clerical staff gone, there is an excessive amount of work to do, and they are already in the position of having to produce three sets of accounts, namely, Income Tax account, controlled account, and their own balance sheets, and the unfortunate thing is that the complication is so much added to by the fact that the periods of the different accounts do not coincide a most unfortunate thing about this legislation is that it does not seem to have occurred to those who drew it what complication this will cause if you have to produce one set of accounts for the calendar year, from January to December, one set for the Government's financial year for Income Tax purposes, and another set for the company's own financial year whatever that may be, and there has been no provision made for intervening periods, to allow practically proportionate periods to be used in order to deal with this question of accounts in the intervening periods. I can assure the right hon. Gentleman that this question is a very serious one. I have discussed it not only with staffs connected with controlled establishments, with which I am connected myself, but with the heads of some of the largest controlled establishments throughout the country, and I can assure the right hon. Gentleman that they would not bring this forward as a serious thing if it was not a serious thing. The right hon. Gentleman cannot assume that those who are responsible for the control and management of vast businesses in this country know nothing at all about them.
§ Mr. McKENNAWhen did I assume that?
§ Sir A. MONDThe right hon. Gentleman dealt with a protest of this kind in a very slender kind of way, practically, as far as I can gather from his speech, pushing aside this part of the case as an unimportant one.
§ Mr. McKENNAdissented.
§ Sir A. MONDHe devoted very little time to it in his speech. He said the datum line had to be fixed, and the additional work of the Excess Profits Tax would be 571 relatively small, and he assumes from that, I take it, that there will be no new work imposed by the Excess Profits Duty of any very material amount. I think that is not an unfair summary of his statement. I think he is mistaken in the amount of work which will be involved. I am assured by those who, like myself, have had practically to deal with these matters that the amount of work involved is extremely great, and we do not want any more forms to fill up, and we do not want any more clerical work than can possibly be helped. I do not think it is sufficiently realised that already a controlled establishment has got to fill up endless forms and has got to wrestle with various and different kinds of accounts about many matters. The basis in some cases has not yet been arrived at, but apart from that those connected with these things look with horror on having to deal with two sets of officials instead of one. They will have to deal with the officials of the Ministry of Munitions on the question of settling their controlled profits, and they will have to deal with the surveyor of taxes regarding excess profits. I do not see how that can be avoided. The right hon. Gentleman and the Financial Secretary made a point which seems to me an extraordinarily weak one, that what we pay under control is not a tax but a levy, and that kind of point is presented to the business men of England as the best argument which the Treasury can produce. I am not in the least concerned, and I think very few people are, whether money that is paid over to the Government is called a levy or a tax. It makes no difference to the cheques we have to draw. It makes no difference to the forms we have to fill in. It is a purely technical point which has absolutely no interest at all, except, perhaps, to the different Government Departments. The right hon. Gentleman is entitled to say, and he has said, that his is the only taxing Department, but if that is so, he ought to have objected to another Department undertaking taxation, and he ought to have either carried that protest to the Cabinet or to have given it up. What the right hon. Gentleman does is this. He comes down to the wretched taxpayer and says, "Another Department having entered into a novel and, I think, entirely wrong form of taxation, I refuse to call that a tax, and I will now begin to tax you all over agian." That, surely, 572 is not the way in which to deal with a serious business proposition in a very serious and difficult time.
The right hon. Gentleman gives, to my mind, a very distorted picture of what happened when the Munitions Act was passed. He tried to conjure up a picture of a bargain which apparently had the following kind of form, that the owners of controlled establishments, in order to get more control over their labour, went to the Munitions Minister and asked to have their profits practically fixed as a quid pro quo. Nothing of the kind happened. I am not aware that the control of labour in munition factories has been asked for by employers. It was demanded by the Minister of Munitions, quite rightly, in order to increase the output of munitions in this country, and having settled with the trade unions that they would make certain concessions he went to the employers and said to them, "You must make concessions, not a concession advantageous to you, but a concession advantageous to the State," and the employers agreed to do this. There are something like 3,600 controlled works in this country. I do not think ten of these were ever consulted about this matter at all. All that happens when you become a controlled works is not that you are asked whether you want to make a bargain, but you receive an official notification from the Ministry of Munitions that he has established this control. I cannot see how the right hon. Gentleman can rely on his argument that there was a bargain made which was a quid pro quo of labour and limitation of profits, and that he is not in any way bound now to take any regard of the considerations then given by employers because they have already had their reward. That is not the true state of affairs at all, or what really occurred.
What really occurred was that at that time there was no Excess Profits Tax in existence, although one was foreshadowed, and the Ministry of Munitions did not want this Excess Profits Tax to be put into operation, which would, I believe, have been the right course to pursue, but made a special arrangement with those who were manufacturing munitions to limit their profits, and, of course, many thought that when the Excess Profits Tax came into operation, this dualism of taxation would cease, and then you would unify them by having only one form of Excess Profits Tax, and I think, on the 573 whole, those who now have their profits controlled would prefer to be under the Excess Profits Tax. It would certainly be more remunerative for most of them to be under the Excess Profits Tax than under the present conditions. They would accept either solution, but what they object to most strongly is that they are to have the worst of two worlds. It seems to me most grossly unfair. Here you have a number of works whose one crime is that they are really making things necessary in order to win the War. Their works have very largely been turned from their usual purpose to purposes which destroy, to a large extent, the businesses they have built up for years. They are in reality Government institutions, and you might as well apply the Excess Profits Tax to Woolwich Arsenal as to controlled works, properly understood, and yet they are to be put in a worse position than anyone making the most useless articles in the country. Anyone producing the most useless luxuries—the things the Chancellor of the Exchequer would like to see stopped because they are wasting the money of the country—is to be put in a better position than people who are devoting all their energies to producing war material. That is really the position. The right hon. Gentleman does not say, "I am going to equalise your position." He says, "If in regard to any of these controlled profits you have paid more than you should under the tax, I am not going to give you a refund. You will pay. But if you have paid less, then you are going to pay more." He says that is imposing equality of taxation. Where is the equality? There is no equality. It is the most unfair proposition ever put forward from the Treasury Bench. There is another point which demands attention. The arrangements already existing between the controlled works and the Ministry of Munitions are of a most complicated character. They are the result of long, tedious bargaining between the representatives of different works and the Ministry of Munitions. I want to put a specific case. In some cases, in order to induce a larger output and to increase the work generally, the Ministry of Munitions have agreed with manufacturers that they would remit, under the controlled profits levy, a certain percentage in order to pay for the increased capital cost of erecting works at the present time.
§ Mr. McKENNAWhen was that? I have no trace of it.
§ Sir A. MONDI understand an arrangement has been made with the spelter industry, and it is being negotiated in the steel industry. I understand there is a form in the Munitions Department which you have simply got to fill up. I have applied under this myself.
§ Mr. J. M. HENDERSONa co-operative agreement.
§ Sir A. MONDThat is only one instance. How is the right hon. Gentleman going to deal with that in all these cases?
§ Mr. PRINGLEIt is dealt with in the limitations of profits under the Munitions Act.
§ Sir A. MONDThe arrangements are very vague. There is another class of case of this character. People have been induced to put up works to manufacture explosives, factories which are liable to come to an end and be useless at the end of the War, and they have made arrangements by which they indemnify themselves for their capital outlay in their prices. That is to say, they have made bargains as to prices, the profit on which is calculated to repay them the capital outlay within a given period. Obviously the right hon. Gentleman, when he makes these proposals under the Excess Profits Tax, destroys the whole financial basis on which, these kind of arrangements are made.
§ Mr. McKENNAindicated dissent.
§ Sir A. MONDIt will do, so far as I understand it, and so far as I can see from any explanation which has been given up to the present time. Many of us would like to know how far the right hon. Gentleman proposes to safeguard these arrangements, and how far he proposes to make exceptions. If he does, does he not then, give away practically the whole value of his proposal so far as any Exchequer point is concerned? The Income Tax is already a very great hardship to many who have made arrangements of this character with the Ministry of Munitions, but they know that the Income Tax is an old-established tax and they do not complain; but this is an additional difficulty, and difficult of, adjustment. What is the right hon. Gentleman going to gain? What really is the motive, except certain uniformity of taxation, for making this proposed change? I do not believe that he will find that he will get much in the way of additional revenue. I think, in the huge majority of cases, the amount payable under the controlled levy will be greater than the amount payable 575 under the Excess Profits Tax. Therefore, I do not think he is going to get much revenue, but he is going to give a great deal of trouble, and he is going to stir up an enormous amount of bad feeling. He has already stirred it up. Is it worth while to do that? Is it wise to do it? You are dealing with men who have an enormous amount of heavy, responsible work on their shoulders—more than is recognised. They are already overworked. They are men who have loyally and earnestly been doing their best all this time for the country in the manufacture of munitions, working day and night, and surely it would pay the State better not to continue to adopt a policy which will drive these people, I will not say into opposition, but to diminish the effort, to diminish the good will, and to diminish the heartiness with which they support the Ministry of Munitions in every direction. That feeling exists, and I should be wrong if I disguised it. I have had an opportunity recently of speaking to men in the industrial world whose names are household words, as the heads of great concerns. They are serious men, earnest men, responsible men, and the spirit this proposal is generating amongst them is, to say the least of it, most deplorable and most unhappy, and unless the right hon. Gentleman has an overwhelming reason, much greater than any reason which has yet been given, for insisting upon pushing this through, I would ask him most seriously, in the interests of the whole community, and in the interests of winning this War, even at this moment, to withdraw a proposal which I think is most unfortunate to have introduced into this Bill.
§ Mr. McKENNAThe right hon. Gentleman opened his speech by prophesying that he was going to throw more light upon the Debate than we had last Thursday. He assured us that he had carefully read all that had taken place in that Debate. Perhaps he will forgive me if I say that he appears to have made some remarkable omissions in his reading, if he had studied that Debate, he would have observed that every argument which he has repeated to-day was used on Thursday, and so far as the arguments against his point of view are concerned, I am bound to say that I think he has stated them very badly. He charged me with conjuring up a picture of a kind of bargain, by which the employers agreed to 576 have their profits limited as a consideration for certain concessions made by the trade unions. That picture, if it was conjured up by me, is not my picture. When my right hon. Friend the Minister of Munitions introduced his proposals he used this language about the limitation of profits:
I come to the point where the trade unions insisted, and I think properly insisted, on their share of the bargain. They said workmen are quite willing to work for the State, to exert their whole strength, and to suspend their trade union regulations, as long as they know that the work is of advantage to the country. But the objection in their minds always is that they are suspending trade union regulations important to them in order to increase the profits of individual employers. That they will not assent to, and they say, as a condition of all the other conditions to which they have given their assent, there must be a Clause in the Bill which will limit the profits of those establishments which are working for the State, and that the provisions which I have enumerated only apply to establishments where the profits are limited. We propose to set up controlled establishments, so that where the State assumes control of a workshop all the conditions which I have referred to shall apply to that workshop. That means that the State assumes control of the profits of those establishments where munitions of war are being supplied at the present moment: that whatever suspension of regulations takes place it will be entirely for the benefit of the State and not of the individual employer. Upon those conditions the trade union leaders are prepared to accept those suggestions which I have already made."—[OFFICIAL REPORT, 23rd June, 1915, col. 1203. Vol. LXXII]Therefore the picture of the bargain as to the conditions upon which the trade union leaders were willing to give up their restrictions, and were willing to give the employers the right to retain men in their employment, was that the profits of the employers should be restricted. My right hon. Friend the Minister of Munitions rightly spoke of the trade unions insisting on their share of the bargain. What was the result of that arrangement? The result was that the controlled firms were put, so far as the making of profit was concerned, in a worse position than any other firms in the country. The right hon. Gentleman (Sir A. Mond) says to me, "Do you wish to put these firms in a worse position than other firms engaged in making luxuries which you desire to keep out?" How is that relevant to this argument to-day? Those firms were put in a worse position by the Munitions Act in relation to other firms, and in an infinitely worse position than they are to-day compared with other firms since the introduction of the Excess Profits Duty. At the time when the Munitions Act was introduced they, and they alone, had their profits restricted. Now all firms are made to give up 60 per cent. of their excess profits from the datum line or the standard. Therefore the effect of the 577 legislation for which I have been responsible is, so far from making the position of the controlled firms worse in relation to others, has been to bring their position very closely into relation to the position of other firms. We have got to get down to the root facts of this case before we can fully appreciate it. The right hon. Gentleman says that I am placing a new hardship on the controlled firms. Let me answer that point. The limitation of profits was originally imposed on the controlled firms as a payment which the employers were bound to make in compensation to the trade unions for the restrictions which the trade unions had to give up. That was so stated. I have read the words of the Minister of Munitions in introducing the Munitions of War Act, and there can be no doubt about it that it was a bargain. It was a bargain to which the employers on one side were parties and the trade unions on the other side were parties, and the State intervened to complete the bargain.
§ Mr. HENDERSONTo take the money.
§ Mr. McKENNAThere is no question about it that both sides gave up something. The employers on one side gave up their right to make unrestricted profits and the trade unions on their side gave up their trade union regulations.
§ Sir A. MONDThe bargain was between the trade unions and the State, and the only way that bargain could be carried out was by the employers consenting to make another bargain with the State. If the employers had refused to make this bargain, which they had every right to do in their own interests, the whole thing would have fallen through.
§ Sir A. MONDYes, it would have fallen through. It was not a bargain made by the State for the benefit of the employers and the workmen, but it was a bargain made by the workmen and the employers for the benefit of the State.
§ Mr. McKENNAI have read the language. I can do no more. The right hon. Gentleman and the House must draw their own conclusion. But I do not know that it is very material to my argument. Whatever the nature of the bargain, the fact stands that in the month of June, 1915, these controlled firms had these restrictions imposed upon them, and they were 578 restrictions which were in the nature of a penalty as compared with all other firms. I put this as the first proposition to the House: Is it right that that which was originally imposed as something in the nature of a penalty on controlled firms—as to whether rightly or wrongly imposed I have nothing to say now—should be turned now into a boon in regard to profits? I will not quarrel about words. I will use other language. In the month of June, 1915, as a condition of the trade unions giving up their restrictions, the controlled firms were limited in the amount of profits which they could receive. They were at that moment in a worse position than all other firms. Could this House tolerate the proposition that subsequent legislation should be so partial in its operation that the controlled firms, which were then worse off than any other firms, should be put in a position of being better oil than other firms? [HON. MEMBERS: "Yes!"] Hon. Members say "Yes!"—that what was originally imposed as a restriction of profit is to become in relation to the new taxation an advantage to these firms as compared with other firms, and so far from the trade unions having got any satisfaction out of the restriction of the employers' profits, a restriction in return for which they have given up their regulations, these controlled firms are to be better off than other firms. I hope that I am not stating the case unfairly.
§ Sir F. LOWEIt is an advantage to some and a disadvantage to others.
§ Mr. McKENNAI am very much obliged to the hon. Member for what he has said. It is an advantage to some and a disadvantage to others. I only propose to deal with those firms to whom it is an advantage. The whole of my argument—and what I propose to do is directed simply and solely to this—is that the taxation which affects all firms must not fall more lightly, less heavily, upon controlled firms than upon other firms, and that the joint effect of the munitions levy and the Excess Profits Duty may be such that the controlled firms shall not get off more lightly than other firms. I ask for no more than that. At the proper and suitable time let the right hon. Gentleman bring up his case for amendment of the Munitions Act. I have no doubt that he can then make out a very strong case for himself, as he has always done. That is right and proper. We are dealing now with taxation, and I submit to this House that there ought to 579 be no exception to taxation. Taxation must be universal and applied on equal lines to all.
Let me come back now, and find points in which I am in complete agreement with the right hon. Gentleman and those who have spoken on that side of the House. First, I am in complete agreement with him in thinking that it is most undesirable to do anything which would shake the willingness of the controlled firms to go on working as they have worked in the past to turn out munitions. I call it a matter of first-class importance that their energies and patriotism should remain as stimulated in the future as they have been in the past, and certainly I do not for one moment want to get at cross purposes with these great firms who have been doing such magnificent work for the State, and whom we rightly look upon as the best friends of the State. The next point on which we are entirely at one is this. He brought to the notice of the House cases in which controlled firms have erected new buildings and put up new plant, and introduced new capital into their business, with the object of increasing their output. He said in some of these cases an arrangement had been entered into with the Minister of Munitions that the depreciation of this plant, these buildings, and this new capital, should be at such a rate as would reduce the value of the capital in the books of the company after the War to the post-war value. I hope I make the point clear. I go much further than that. The arrangement, he says, has been made in some cases. I am prepared to accept that in every case, and for the determination of Excess Profits Duty I am perfectly prepared, and I publicly stated it, to accept the rules of the Munitions Act, and to agree that the allowance for depreciation in those cases should be in accordance with the Munitions Act rules, and not in accordance with the rules for Excess Profits Duty.
§ Sir A. MONDThe right hon. Gentleman mentioned the word "depreciation." Take a case where, say, out of £100,000 taxation, £50,000 has been allowed, not for depreciation, but for new capital expenditure. Does the right hon. Gentleman propose to cover that?
§ Mr. McKENNAI gave an assurance some time ago—and I am sure the House would expect me to give the assurance—that every bargain that had been entered 580 into by my right hon. Friend the Minister of Munitions or his Department would be respected by me. But I am informed by the Department that no bargain had in fact been entered into. If the right hon. Gentleman is right and there has been such an agreement, I shall respect it.
§ Mr. HENDERSONWhere there have been co-partner arrangements?
§ Mr. McKENNAThen I shall respect them all. I am sure that the House would wish it. There is one other point which was not raised by the right hon. Gentleman, but was raised in the Debate on Thursday. There is, in some cases, great hardship in connection with controlled firms. Take the case of a firm which has been engaged in a certain class of business. I suggest something—I do not know if there is any such case—a firm which has been making needles, and that firm has been completely turned off its original business of making needles, in which it had a large trade, and has been given up to the work of making gun sights. I daresay it is a ridiculous suggestion, but I will take that as an example. That firm in the course of two years has lost the whole of its outside trade, and after the War when it goes back to making needles it may have to-begin again with practically no goodwill. I am perfectly prepared to allow a write-off for such loss of goodwill as is shown to have been effected after the War. And, as the House knows, in connection with the Excess Profits Duty there is a provision for the repayment of such loss which brings the profit after the War below the standard. When I have met the case of arrangements entered into by the Munitions Department, the case of depreciation and of the loss of goodwill, in what other respects are controlled firms hit in a manner in which other firms are not? If they are hit in other ways, and any special cases are brought forward, they will always find that we are willing to meet them according to all independent ideas of equity and justice.
But if you get to the larger question and say that these firms should be excluded from the general taxation applicable to all other firms, then I must ask the House to support the views of the Treasury in this matter, and not only the views of the Treasury but the views of the Government. The right hon. Gentleman made a point with regard to the keeping of accounts. I do not think that he did 581 either what I stated or the facts the least justice. He complained of the multiplication of accounts in consequence of the Excess Profits Duty. I am sorry to have to go over the ground again, but I must remind the House of the facts. In the first place, every controlled firm in the country has got to make up its accounts for Excess Profits Duty for the year 1914–15. The result of having to make up their accounts for that year—this is, for the year before they became controlled firms—is that they have already had to settle their datum line. They have not now got to go through all the complicated questions involved in inquiry as to what is the datum line. All that has been done once for all when the datum line is settled. I am dealing solely with the point as to whether the existence of the Excess Profits Duty in 1915–16 really adds so very materially to the complications of the firms' accounts. They have got the datum line because they had it in 1914–15, and it is the same line.
§ Mr. HENDERSONa different standard for controlled establishments.
§ 5.0 p.m.
§ Mr. McKENNAa controlled establishment admittedly has got to pay Excess Profits Duty for 1914–15. Therefore every controlled establishment has already done all the necessary work of establishing a datum line. Next they have got to keep accounts for Income Tax purposes. The right hon. Gentleman forgot that so far as Excess Profits Duty is concerned the basis taken is the year of account, and therefore the year of account is the ordinary business year of the firm, and there is no additional task of making up accounts for Excess Profits Duty required of the firms. It is their ordinary business account. It is made up in a different form in respect of certain particulars for depreciation, and they are made up in a different form as regards certain other minor items, but they are not very important. They are not such difficult or important items as to give trouble. We take the business year and therefore any trouble in making up the accounts is not due to the Excess Profits Duty, but is due to the Munitions Act. That was accepted in 1914–15. Something was said as to a bargain, that the controlled firms were not to be subject to further taxation. That was said by the hon. Member for Liverpool (Mr. Pennefather), who described my conduct as that of one partner who refused to honour the cheque of another partner. I really thought the hon. Gentleman must 582 have spoken with some knowledge or with some ground for what he said, and therefore I made the very closest inquiries in both Departments in regard to this matter, and from beginning to end I can find no trace anywhere, not the slightest evidence of a bargain, or hint of a bargain, or suggestion of a bargain, either explicit or implied, that controlled firms were to be freed from further taxation, or that they were not to come under the Excess Profits Tax.
§ Mr. PENNEFATHERI will not interrupt the right hon. Gentleman now, but I may have an opportunity of saying a few words later.
§ Mr. McKENNAI think it is necessary for me, in vindication, to say this, because, as I understood the hon. Gentleman, I thought he meant to imply that there had been something said to the employers by the Departments to justify them in saying that the Departments are honourably bound, as between themselves, not to bring in any further tax affecting excess profits. I can assure the Committee that after the closest inquiry I could not find that there was any bargain, or hint of any bargain of that kind, and that the Government are absolutely free to introduce, and ought to be free to introduce, this taxation. It would be unfair upon this House if a bargain of that kind were made. The hands of the Government are absolutely free to introduce such taxes as they think this House will in due course approve. One other point was raised on the other side. It has been said—and it was said by the right hon. Gentleman again to-day—why enter into all this discussion if the result of it is gong to be no real or no appreciable increase to the revenue? I agree that is a forcible argument. Whatever the principle of the case may be, if there was no revenue in it, there would be no good in disturbing the whole business world, who have got a grievance—I do not think they have, though they think they have—if there were no advantage to the revenue. I have had inquiry made, and I find that there is considerable difficulty in framing an estimate so far as the Munitions Act is concerned, and it is quite impossible to say what the return of revenue will be. The munitions levy, not being a tax, but a limitation of profits erected upon a bargain, or a series of bargains, as the right hon. Gentleman said, is largely discretionary, both in fixing the datum line and 583 in fixing the ultimate amount to be paid. The Minister has very wide discretionary powers which will enable him to ultimately determine what is the amount which should be paid. It may be very proper that on a limitation of profits which is the result of a bargain that such powers should be vested in a Minister, but I do not think that any such discretionary powers ought to be vested in a Minister with regard to any tax.
That is the first difficulty with which I am confronted, that I do not know what the munitions levy is going to be because of the discretionary element. My second difficulty is that I do not think that we can admit a discretionary element, nor do I think the House would be willing to admit a discretionary element in regard to taxes. I feel, and I hope the House will support me in it, that whatever ultimately might be adopted in the way of Excess Profits Tax, it ought to be of general application, and, therefore, in making inquiries, what would be the charge to the revenue if the Excess Profits Duty were so amended that nobody would have to pay more duty than would leave him a balance of 20 per cent. in excess of the standard, I thought that if it did not come to a very large sum that might be a way of meeting the complaint of the controlled firms, in their getting what they hoped they would get, a clear 20 per cent, over the standard; but I hold the view that if the controlled firms were allowed to keep that 20 per cent, other firms also must be allowed to keep the 20 per cent. I am sorry to say that the loss to the revenue would be such that I would not be justified in recommending it to the House. It would cost £10,000,000. [An HON. MEMBER: "A rough estimate?"] It is a very fair estimate, and we have had a great deal of data to go upon. My first argument is that I cannot distinguish between controlled firms and other firms as to taxes; and my second argument is that any concession made to controlled firms must apply to all; and a concession of this kind, which is of general application, would cost £10,000,000, and I do not feel justified in recommending the Committee to accept a reduction upon our revenue of that amount. The Excess Profits Duty has been accepted by this House and by the country with general approval. We have repeatedly adhered to our other duties and our Customs Duties—tea, sugar, and other foodstuffs of the people. We have made no concessions with 584 regard to those duties, and I think it would have a very bad effect on public opinion outside if we were to make such a gigantic concession as regards the excess profits. I put it to the Committee, who, I hope, will support me, that in dealing with this tax we should leave it as it stands. When in time of war firms get 40 per cent, of excess profits over the standard, it cannot be said that firms making those profits are doing badly, and I hope the Committee will support the Government in their proposal.
§ Sir J. HARMOOD-BANNERI do not think I have ever heard on any occasion such a special plea or statement as that which has just been put before us by the right hon. Gentleman. All the difficulties have been laid before us but none of the advantages of the present relations between the firms and the Departments. In the first place, as to account keeping, while it is, of course, objectionable to have so many accounts, I do not think it is a matter worth saying anything more about. So far as I am concerned, I have found the Munitions Department very reasonable and very ready to hear everything. I have found the Somerset House authorities dealing with these matters in exactly the same way. I am chairman of two controlled establishments and a director of three, and in all these cases we have settled our differences, though we strongly object to all these formal accounts which we are asked to keep. But the whole question is so paltry that it is not worth while taking up the time of the Committee upon it. As regards the main question, I would put it to the Chancellor of the Exchequer whether the position is not this: that as regards professional men, doctors and barristers, and others who made 100 or 1,000 per cent. of excess profits, nothing is said, while every firm in the country, except controlled establishments—shipowners, corn millers, weavers, cotton spinners, and all other uncontrolled establishments—are entitled to 40 per cent, of their extra profits. That is to say that, whatever they earn above their pre-war standard, they are entitled to 40 per cent. As to controlled establishments, they are limited to 8 per cent, above their pre-war standard of excess profits.
§ Mr. McKENNAdissented.
§ Sir J. HARMOOD-BANNERIn the position which the Chancellor of the Exchequer takes up, the controlled establishments cannot possibly make more than 585 8 per cent, over their pre-war standard. If that is so, does he consider that he can expect these controlled establishments to accept calmly and without discontent such a position as he is now taking up? It is needless to go over the controversy as to why controlled establishments were created. Undoubtedly the labour question had a good deal to do with it, and, in order to satisfy labour, controlled establishments were asked to agree to a limitation of their profits They have agreed to a limitation of the profits, and remember what that limitation meant. It meant that for an extra 20 per cent, they were prepared to advance whatever money or find whatever capital was needed for an increase of their works. They were expected, being controlled establishments, to themselves bear the cost of any loss that might be made on their trading. I say that because I know it, for I put this question to the Munitions Department, "If you interfere with our works and carry them on in this way, who will bear the loss? Will you bear the loss?" They said, "No, you will have to bear the loss." So that for 8 per cent, we have to bear all the burden of going to the bankers and raising money for this expenditure, which is to be incurred according to the direction, or losses incurred to carry on works according to the direction of parties who do not it all times know the nature of our works, and we are bound to 8 per cent, to take that on. Do you think that controlled establishments are likely to be content with that position? a firm came to me on Saturday and told me they were summoned by the Munitions Department and wove going to be a controlled establishment. They were expected to give up their other work and double their output and make all arrangements accordingly. Just now the Chancellor seemed to raise the question as to whether there were any agreements made between controlled establishments and the Munitions Department. I can assure him I have put my hand to the seals of a good many a discussion was going on between the Munitions Department and the firm to which I have just now referred as to whether they should execute this work, and the representative of the firm said to me, "What do you say about it?" I asked what did the firm expect, and he said, "We expect to get 20 per cent, above the pre-war standard, and we want no more." All I could say to this gentleman was, "I re- 586 commend you to get the Chancellor of the Exchequer to back the bill of the Minister of Munitions. The Munitions Department will lead you on and make you think you are getting all sorts of things." I can assure the right hon. Gentleman that every controlled establishment in the Kingdom considers they were in a position which has been put before him, and that they had a definite arrangement of an excess of 20 per cent. I think the right hon. Gentleman will find, and the Munitions Department will find, that they will not get their work done with extensions and extra supplies when we find that the bargain which has been made with the Munitions Department is to be departed from and refused.
I would ask the Chancellor whether it is not the fact that the controlled establishments cannot possibly get more than 8 per cent.?
§ Mr. McKENNAIf the profits of a controlled firm are 50 per cent, above the standard they pay nothing in Excess Profits Duty. Consequently they will get the full allowance of 20 per cent, which the Munitions Department gives them. Any payment to the Munitions Department is reckoned by us as payment on account of Excess Profits Duty.
§ Sir J. HARMOOD-BANNERThey would get that under the Excess Profits Duty.
§ Mr. McKENNAWe do not touch the 20 per cent, in any case in which 60 per cent, of the full profits has already been paid.
§ Sir J. HARMOOD-BANNERI really cannot follow that. You take the 20 per cent, profit and then you take your 60 per cent, of it.
§ Mr. McKENNANot necessarily.
§ Sir J. HARMOOD-BANNEROn the first 20 per cent, you take your 60 per cent, and that leaves 8 per cent.
§ Mr. McKENNAThat is not so. We do not do that. We estimate what would be 60 per cent, of the total of the profits above the datum line. If that 60 per cent. is less than an amount in excess of 20 per cent, above the datum line, we do not take anything. Therefore we do not touch any profits of any controlled firm which exceed by 50 per cent, the datum line.
§ Sir F. LOWESupposing the total of the excess profits is, we will say, £2,000, 587 and that that represents 20 per cent, on the pre-war standard, does the Chancellor of the Exchequer propose to take any proportion of that £2,000?
§ Mr. McKENNAYes, in that identical case where it is reduced to 8 per cent.
§ Mr. McKENNAIn that identical case, but in any ease in which the controlled establishment makes 50 per cent, above the pre-war standard we take nothing.
§ Sir J. HARMOOD-BANNERThe establishment in that case will pay out of the £2,000 a sum of £1,200 and will retain £800. If it happens to be 30 per cent., then the establishment pays £1,000 as Munitions Duty and £800 as Excess Profits Duty. If it is 40 per cent, it pays £2,400 as Excess Profits Duty and it retains £400 for itself. When it comes to 50 per cent. profit, then the balance becomes normal, because 50 per cent, is £3,000 and that makes it normal, so that there is nothing further to pay. But for all sums above 50 per cent, the controlled establishment suffers. Is not that so, and in that case are not the controlled establishments heavily penalised and are they not allowed to have no more than 8 per cent.? I do not consider that that is a fair profit. When you give shipowners 40 per cent., corn millers 40 per cent., and all other firms in the Kingdom 40 per cent, of the excess profits, is it right or proper that you are to limit the controlled establishments in the way you are going to do by the added taxes you are putting on them. The arrangement with them was clear and distinct. I will not say it was a legal arrangement, and, as the Chancellor has pointed out, Parliament can override any bargain. Still there was a clear bargain in their mind. Let the right hon. Gentleman ask in Sheffield, in Newcastle, Glasgow, Manchester, Liverpool, Birmingham, Leeds, or any other place, whether or not there was not a clear understanding. Now, having got that clear understanding in accordance with an arrangement made with the Labour Party, I hope that they will confirm it.
§ Mr. SNOWDENThere is no Labour Member here who made that bargain.
§ Sir J. HARMOOD-BANNERYou ask for the goodwill of the controlled establishments, and, having done that, you 588 really, although I do not like to use the word, commit a fraud upon the agreement which they made with the Munitions Department. I do not attack the Chancellor of the Exchequer in any way. I do say distinctly that the Munitions Department led the controlled establishments to believe that this was the arrangement. The Chancellor of the Exchequer is entirely within his rights in coming here and saying, "I do not uphold it," but I do say that the Munitions Department ought to have been represented here and stated what their views were. We have not had a word from the Minister of Munitions as to what he considered to be the agreement from first to last, even from the Budget in April, when all these questions were put before the Chancellor. I am sure the Chancellor cannot but admit that the controlled establishments did state what they understood. The controlled establishments complain bitterly that the Minister of Munitions has not put out a finger in support of the proposals which he induced us to enter into, and he has not put out one hand or said one word to us such as, "I made those arrangements with you, and I will do my best to see that they are fulfilled." I mentioned already that I had to instruct a gentleman to-day who was entering into arrangements with the Munitions Department. I had to tell him, "Do not accept a word or condition the Munitions Department make with you unless you get an endorsement of that bill by the Chancellor of the Exchequer." [An HON. MEMBER: "YOU know Lloyd George."] Now when we come here and speak of the agreement we are told to "Go to Jericho." and you know what happened to the man who went from Jerusalem to Jericho.
§ Sir CROYDON MARKSI have come in contact with many thousands of workmen who have interpreted the arrangement made by employers precisely in the way that the employers themselves have interpreted it. I have had to discuss these matters with many thousands of men collectively and with leaders of trade unions and with men individually, and asked them, when making concessions, to understand that the employers were not going to get more than 20 per cent, increase upon the dividend they had paid in pre-war time, that is, if they had paid 5 per cent, before, they were to be, limited solely to 6 per cent, no matter how large 589 profits they might earn. I have pointed out to the men that where some workmen had previously 30s. per week they now would be receiving £3 or £4 per week, while the employer on his 40s. earning would be limited now to 48s. per week, and that that being so there has been, so far as the employers earning is concerned, a greater sacrifice on their part than on the part of labour in giving up that which they had. I have been asked repeatedly why we have not had in any Act of Parliament something which would make clear to the workmen that the conditions under which they are now permitting things to be done whereby their trade is diluted and whereby their period of apprenticeship of years has been set at naught by people coming in and getting the same money that would give to them the assurance that when the War was over the conditions under which they worked before the War would be reverted to. My answer has been, "You can trust those who have made the promise. You can trust those who have told you that there shall be a reversion to the pre-war conditions without any Act of Parliament." What then is to be the condition of mind of 4,000 manufacturers throughout this Kingdom, who are meeting to-day in different centres, and who are asking themselves whether they have not been deceived, not by that which is proposed now, but by a misunderstanding in their minds as to what the conditions were? They are asking themselves, "What faith can we have hereafter? How can we go forward, believing that that which we are going to do is going to be justified by that which the Department was understood to be going to do by us when we went forward?" I have known men, directors of the largest firms in this country who have slept in beds in their offices while their men have been working night and day. [Laughter.] That shows how little hon. Gentlemen understand. There is such a thing as two shifts, and hon. Members are laughing as if the men were working right through. There are three shifts in some firms, but only one set of directors, the directors sleeping in their offices while the men go to their homes and rest.
§ Mr. PRINGLEWe knew that.
§ Sir C. MARKSIf you knew it your laughing was ill-timed. The suggestion employers make is: "We, as controlled firms, have worked as hard as we can 590 work. We have given our time when other people have not given theirs, and this is how it works out. If we as a firm previously have paid 5 per cent, and our profit has been, say, £10,000, on a capital of £200,000, and we increase by a three-shift arrangement our profits so that they hereafter become £15,000, out of that £15,000 we only receive £2,000, and the State takes the £3,000. We are willing to stand by that. But now there is a proposal by which the State is further coming in and taking £1,200 out of that £2,000 that has been left"—leaving them, therefore, with £15,000 earnings, £10,800 only as the net amount to be paid to them, while the corresponding firms who are not controlled have less taken from them, and they have not been giving of their best or helped the State as the others have been doing. Take the case of a firm who has been engaged in making jewellery; and the jewellery trade has had a great time during the War. Large sums have been spent. They increase their profits from £10,000 to £20,000. The controlled firm increasing its profit from £10,000 to £20,000 has, out of that £10,000 increase, {he State now proposes to take £9,200. From the jeweller, who has not worked night and day, who has not been contributing his work to the upkeep of the country, from that firm, uncontrolled, you only take £6,000. £9,200 in the one case, and £6,000 in the other. Those who have discussed somewhat lightly the troubles of a controlled firm, and their reverting to their old conditions, know-little of the difficulties with which the firm will be faced after the War in endeavouring to recapture the trade that has gone to the firm that is not controlled, or that has gone to a neutral who has captured that trade, and who probably intends to hold it. These firms, who have had their lathes altered from dealing with the production of articles of commerce to deal now with the production of things they have never made before, who have given the whole of their benefit, find themselves going down, while the other firm not controlled is going up. Then this proposal comes, that that which they have made up their mind was to be their own, the £2,000, if it is to be an increase of £2,000, is taken down to £800. It is not worth while to disturb 4,000 firms in this country and to have 4,000 firms feeling that you have broken faith with them, even though it may not be that they are entitled to say that you have broken faith.
591 No person who knows the present Chancellor of the Exchequer would make a single suggestion that he was not always fair, and did not always seek to meet conditions brought fairly to him. I am persuaded that he cannot have had the conditions of the controlled firms brought clearly home to him when this arrangement was proposed. I know that there are Government officials who may perhaps have come in contact with him, or with those giving him the information, who would put it in such a way as would not give to him that technical knowledge he should possess in order to appreciate the difficulties the firms are in. There are some Government officials who are only skilful in one thing, and that is in making forms and schedules for other firms and other people to fill up a controlled firm lives in harass; it lives in worry; the owner's works are not his own; ho is manager no longer of his own works, and this has been put into his mind: "There is one thing certain, the Government are going to stand by me, and I am going to get 20 per cent, increase on my previous profit." Now it is not 20 per cent. The Chancellor of the Exchequer suggested that he wanted equality, and that is what the controlled firms want. Instead of losing money under the arrangement, controlled firms say, "Get more money. We have given you of our best, we have given you of our skill, and of our goodwill. What have the other people given you?"
§ Mr. CROOKSTheir lives!
§ Sir C. MARKSI am not talking about lives; I am talking about uncontrolled firms. If the hon. Member for Woolwich had been a little longer in the House tonight he would not have made that interruption. I am speaking of uncontrolled firms who are going to have only £6,000 taken from them for making jewellery, and not making ships, while other firms get £9,200 taken from them. That is what they have given. They cannot have given their lives. They have given nothing. Their pockets are being filled, and now the controlled firms ask for equality to put everybody on the same basis. If you are going to deal with 20 per cent, as being enough for firms who are maintaining the country, 20 per cent, is enough for anybody else too. Make it 20 per cent, all round. Make your deduction, if you are going to do it, but do not take 60 per cent, of 20 per 592 cent, of this profit, and thus leave all these firms under a misapprehension that they entered into a bargain believing that they were sure of this. They have made their financial arrangements believing they were sure of it, and now, at the last moment, they find the Government standing, as it were, firm upon a misconception that has arisen. It is a misconception, but it is such a misconception as ought to have been prevented inside the Cabinet before it was brought to this House, so that there could not be any possible suggestions of one Department saying it was the other that did it, or that it was a bargain by one or a compact by the other. All the firms know is that they are going to get less than they were told they were going to get, and my fear is that when this passes, and if the Government carry this Vote, they will have 4,000 disaffected firms, who will still work, but you will have taken out of those firms that spirit which makes them feel they can sacrifice even more because everybody is sacrificing the same. When these men, who have lost their goodwill, who have lost their trade, and who have doubts whether they will ever get it back again, see these other people not making these sacrifices, they ask, "Why should we out of the earnings we have given be made to give you more than the other man who has given you nothing, and is himself rich out of the War which we have been trying to bring to an end?" I appeal to the Government not to go on with this. You are going to undermine the confidence of the employers, and in time you will undermine the confidence of the men.
§ Mr. SNOWDENOh, oh!
§ Sir C. MARKSI have met the men the hon. Member has never met, and whom, possibly, he would not dare to meet. I have met them, and I know what they have to say. They have to believe in the good words of a Government official and a Government Department for restoring to them by and by, without Parliamentary power, that which they have promised shall be restored. The right hon. Gentleman the late Home Secretary (Sir J. Simon) stated on that bench that the conditions were going to be restored. There is no Act of Parliament to bring it about, but they believe his word because he was a Minister Ministers promised the employers that they were going to have 20 per cent., and the employers made their arrangements believing it was so. All the firms in 593 the country should be brought on to the same level, if there is to be a levelling, but this proposal, while it may cost £10,000,000, is going to be more than £10,000,000 discredit to a Government that would go to 4,000 firms in a time of stress and anxiety and add to their responsibility and worries by taking away the profits they thought they were going to have.
§ Sir J. SIMONIt appears to me that the difference of opinion which develops in this Debate is due to two feelings which every Member of the House of Commons is very willing to recognise as feelings which will influence his judgment. On the one hand, as the hon. Member who has just spoken has so powerfully urged, there is the feeling that if a bargain was made the bargain must be stuck to. On the other hand, I think the House of Commons is equally determined to maintain this principle and to be governed by this feeling that when you impose taxation, taxation ought not to pick and choose between cases that stand on the same footing. The difficulty is to say, as between those two good principles, what is the right course for the Committee now to steer. My hon. Friend (Sir C. Marks) made reference to the fact that in the Debates of last summer on the Munitions Bill I took some part, and I have refreshed my own memory about it by reading what was then said. There can be no question that in June of last year there was in many quarters a statement that something in the nature of a bargain had been arrived at. Nobody doubts it, but the only material question is, what is the nature of that bargain and what are the limitations of the bargain? On the one side, which is represented by the speech we have just heard, it seems to be thought that the bargain among other things involved the understanding that the firms which were going to be controlled should not be exposed to any general Excess Profits Duty. My recollection does not in the least serve me that anything of the sort was said, and I do not think it was implied in what was said. Indeed I think it would astonish anyone who took part in those Debates last year if they thought that they were guaranteeing such firms as might afterwards be controlled such a privileged or exceptional position as contrasted with the mass of other firms throughout the country. What was involved and what was most certainly intended was not that they should be put in a position of exemption as compared 594 with others, but, so far as it went, in a position which involved a greater burden upon them than upon others.
§ Sir J. SIMONCertainly! There can be no question whatever but that it was because of that that those who spoke in the name of organised trade unionism were prepared, in those establishments, to see for the time being a suspension of trade union rules. I may remind hon. Members here what the position then was. May I take a simple illustration I Take the situation as it was in June of last year. You had two establishments side by side, neither of them was controlled, because the arrangements for controlling establishments had not been made. Both of them were under the same law as regards taxation. Both of them were quite aware that in time of war taxation was likely to be heavy Both of them were aware that if the War was prolonged taxation was likely to get heavier. Both of them were quite aware that as their profits, so was their taxation likely to be. In these circumstances then the two firms, being like to one another, one became a controlled firm and the other did not. So far as the controlled firm was concerned the trade unionists were prepared to waive their trade union rules in order to secure a more rapid production of munitions. In return for that, and as part and parcel of the arrangement, they wanted to be satisfied that there was not going to be an unlimited profit made by the firm that had thus at its hand a labour organisation not protected by trade union rules.
In my, understanding, and I think it was in the understanding of everybody at the time, the essence of this bargain was not that the controlled firm was, for all time to come, never to have put upon it a greater burden than the maximum of the 20 per cent, profit, but that the trade unions were, to be satisfied that, to that extent, the firm was going to give up unlimited profits which it otherwise would make. I cannot see how an arrangement of that sort made at that time in the least ties the hand of the Government. I draw no distinction between the Chancellor of the Exchequer and the Minister of Munitions—it is one Government and answerable for a consistent policy. I cannot see how that arrangement, made in June of last year, in the least ties the hand of the-Government when afterwards it comes forward and proposes that upon allpersons— 595 like, persons—shall be imposed an Excess Profits Duty. If I am not right, see what follows: Of these two establishments that were side by side and in the same position before the Munitions Act was put into force, one of which, getting the advantage of the relaxation of trade union rules on certain conditions, has in the interval therefore been so far in the position of having to make a certain contribution to the State, is now going to be put into this position: that the other firm is going to be made to make its full contribution to the Excess Profits Tax, while the Excess Profits Tax is to have no operation in any conceivable circumstances to the firm which has got the trade union labour removed from restrictions! I cannot believe that it was ever the intention of Parliament that firms which in the first instance adopted limitation of profits in return for special labour privileges should now be the firms that have the special privilege of being exempted from the Excess Profits Tax altogether! [HON. MEMBERS: "NO, no!]
§ Sir A. MONDMay I ask the right hon. Gentleman if he alleges that the relaxation of trade union rules was made for the benefit of the employer, or for the benefit of the State?
§ Mr. PRINGLEIt was made for the benefit of the employer!
§ Sir J. SIMONI will very gladly answer my right hon. Friend opposite. If a firm can secure unlimited supplies of labour with the assistance of the Government without any relaxation of trade union rules, I apprehend they are in a fair way to make much larger profits than if trade union rules are applied. It is just because greater production was to be expected from the removal of trade union rules that the trade unionists insisted that there should be this limitation of profits.
§ Sir A. MONDMay I—
§ Sir J. SIMONReally, my right hon. Friend has had his answer. He may not like it, but I think it is perfectly true. One thing further. It is perfectly true that last year, in the previous Finance Bill, that the Chancellor of the Exchequer limited his proposals in regard to Excess Profits Duty so that they should not in any way overlap the period during which these controlled establishments were having a portion of their profits taken. That is quite true. But did anybody at that time 596 suggest that it would be impossible for him, when he extended his Excess Profits Duty—if ever he did so—to apply them to these firms? It seems to me, therefore, that the position now comes to this: Here is a general proposal for the taxation of excess profits. It should, therefore, apply to everybody who is in like case. There can be no justification for excluding from its application firms merely because they come within the Munitions Act. If any adjustment has to be made, it cannot, I submit, be made properly by exemption from the operation of the Excess Profits Duty. Indeed, as I understand it, the Excess Profits Duty is a measure of that which is to be taken from anybody who is in the same position, whether his firm is or is not a controlled one. In these circumstances, while I have a very clear recollection of what happened last summer, I am in candour bound to say, as I understood the matter then, and as I understand it now, there is nothing in what happened which, in my belief, prevents the Chancellor of the Exchequer, and the Government, from making the proposal the right hon. Gentleman has now made to the House.
Mr. DENNISSI wish at the outset to associate myself in the strongest possible way with those who object to the personal charges made on the last occasion against the Chancellor of the Exchequer and the Financial Secretary to the Treasury. I had hoped they would not be mentioned, again. I am sure that the Chancellor of the Exchequer has not been guilty of the slightest breach of good faith. At the same time I feel quite convinced that he is absolutely wrong in this matter. The right hon. Gentleman has this afternoon given us the result of his promised inquiry. He has told us something in regard to the firms in the Kingdom that are taxed on excess profits which do not exceed 20 per cent, above the pre-War standard. His suggestion is that if they were let off he would lose £10,000,000. Inasmuch as these firms number many, many thousands now—possibly tens of thousands—and there are only between 3,000 and 4,000 firms which are controlled, and more than half of these controlled firms will not come under the Excess Profits Duty at all, it is perfectly clear that the portion of that £10,000,000 which would be raised from those controlled firms would be very, very small indeed. Let me point out to the Chancellor of the Exchequer one or two things. First of all, he has told us that he is going 597 to take into consideration the loss of goodwill. The moment he does that he will find—if he takes goodwill into proper consideration—that the amount of excess profits that these controlled firms make would be very small indeed. I really wish that the Chancellor's statement had been before us before the House adjourned, in order that the Chancellor might have taken that part of the question into his consideration before he made his answer here to-day. Again, he told us just now that under the Munitions Act there is a discretionary clement in the datum and as to the amount to be paid. That being so, how can the Chancellor of the Exchequer say that the accounting will be so simple? The datum under the Munitions Act is going to be one thing, and the datum under this Excess Profits Tax is going to be another. I do not see how he can get out of the difficulty he has got himself into by his statement. The principle on which the excess profits above a certain datum is calculated must be different in the case of the Munitions Act and of the Finance Act. That may prove to be a very great difficulty, and may put the whole matter into confusion. The Chancellor of the Exchequer cannot put a discretionary element into the tax, but he can have a single total assessment, I think, with regard to the Munitions Act and with regard to the Excess Profits Tax under the Finance Act.
6.0 P.M.
The basis of the argument of the Chancellor of the Exchequer last time—I noted it very carefully—was that the employer reaped all the benefit by this arrangement with the Minister of Munitions. As a matter of fact, I am going to show that he did nothing of the kind, but that he mostly reaped a disadvantage. What happened was this: The great difficulty was not the employer; the difficulty was the trade unions, who, it was feared, would not allow their members to give up their privileges and customs for the purpose of greater production and doing more work than they were accustomed to do. That was the difficulty. The Minister of Munitions had to persuade the trade union members to relax their rules. When he had persuaded them to relax their rules, their leaders turned to him and said, "Yes, we will relax our rules, but if we relax them we are not going to do it for the benefit of the employer, and the employers must not make a profit out of the relaxation of our rules." 598 That is exactly how the matter stood. Thereupon the Minister of Munitions called together a few—and only a few— representatives of the manufacturers of this country and asked them whether they would be willing to fall into line with the request of the trade union leaders. It was of no benefit to them. On the contrary, it was a hindrance to them. It was taking them out of the category of those who could make as much excess profits as they pleased, only paying 50 per cent, or 60 per cent, to the State. These few employers came in and agreed on the basis that the trade unions should relax their rules, that the employers should not get more than one-fifth more profit than they had in the previous pre-war year. That was agreed to, but that was of no benefit to the employers. It was a drawback. Then the Act was passed. It was a compulsory Act, and 3,600 employers have come in since. These 3,600 employers never agreed with the Minister of Munitions to limit their profits. It was only a few representative men whom the Chancellor of the Exchequer first consulted. The rest of the employers have been compelled to come in against their will—many of them—and to fall into line, so that they are compulsorily put under this disability. I submit, therefore, that I have disproved, or partially disproved, as my first argument the argument of the Chancellor of the Exchequer, that the employers reaped all the benefit. They did nothing of the kind. What happened was that the Act of Parliament was passed in which a fixed limit was put on the profits that the employers could make. Limit to what profits? Excess profits—profits over the profits earned before the War. Therefore that Statute fixed the limit of excess profits which the employer was allowed by the bargain, as it is called. It fixed that absolutely. If the excess profits are once fixed by Statute, how can you whittle them away by putting on a tax which makes them less than was fixed? I put it to the Government that this Munitions Act dealt with the remuneration of the employer above pre-war rate—with excess profits, and having fixed it it was incapable of alteration by taxation by the Chancellor of the Exchequer. So long as the Section stands in the Statute you cannot whittle it away by a tax, because I submit that that Statute is a limitation itself of excess profits. The Chancellor of the Exchequer asked whether anyone could say the con- 599 trolled firms should have better terms than the uncontrolled? Certainly, I do. They are carrying out great national work. They have been blindfolded, so to speak, forced to work under this Act. They do not know what effect that will have on their business. The lion. Member for Launceston (Sir C. Marks), who spoke so clearly just now, pointed out the difficulties under which these controlled firms labour—how they have abandoned their ordinary businesses. One firm which made needles is now making gun-sights. Another firm, instead of making textile machinery, makes shells a motor-ear firm, instead of making motor-cars, makes munitions of war. What is the result in the case of the motor-car company? The owner loses his goodwill. He no longer makes motor cars, but motor cars come over from America. Traders who buy-heavy motor cars, and other people who buy lighter cars, especially the traders who buy the heavy cars, buying a fleet of two, three, four or up to twenty, might naturally continue to supply themselves after the War with similar cars, and the goodwill of the motor-car manufacturers here has gone in many cases for good to America. They have sacrificed something which the uncontrolled firms do not sacrifice. The uncontrolled firms are not risking their goodwill, but are increasing it by continuing to manufacture the products of their own business. Controlled firms are losing their goodwill by being obliged to discontinue their ordinary business and to divert it to the manufacture of munitions.
Again, they are using their machinery night and day with no time to stop for repairs. I hope the Chancellor of the Exchequer will allow for depreciation if this tax goes through. The machinery wears out at a much greater rate, because no pause is given to it, and no necessary repairs get done. Then there is capital outlay, which has been referred to before. There is another consideration which the uncontrolled firm is not put under. The prices for the articles turned out by the controlled firms are strictly fixed by the Minister of Munitions, so that, although expenses may be very heavy, the manufacturer cannot put what price he likes on his goods, as can the uncontrolled firm. He cannot make unlimited profits even if he wishes to, because the actual prices are regulated. The only way in which the controlled firm can make larger profits than heretofore must be by greater output and 600 not by higher price; and greater output means greater energy and greater attention to the business—in fact, putting the whole soul of a man into it, which is for the benefit of the country and the reason why the Munitions Act was passed. On the other hand, the uncontrolled firm can simply put up prices and get the same result without putting much more energy into the business. The Chancellor of the Exchequer says that taxation must be upon an equal basis. In order that this taxation may be on an equal basis, if you are going to charge these firms excess profits the same as uncontrolled firms, you must discontinue the control of those firms and allow them to revert to their own business. Then you will have put them, on the same terms. But if you do not, they are not upon the same terms. The two cases are not parallel, and when the right hon. and learned Member for Walthamstow said just now that everybody must be upon the same footing if they are to be taxed the same, I think they are not upon the same footing, and therefore ought not to be taxed the same. Unless you put them on the same footing by doing away with the control and let them revert to their own business again, they are not on the same footing. The tax is not equal; it is not just. To do that you must repeal the Munitions Act, and you cannot do that, and therefore you ought not to put on this tax.
These are the short arguments I wish to put before the right hon. Gentleman. I should have liked the Chancellor of the Exchequer to have heard them as well as the Financial Secretary to the Treasury, because it is a little inconvenient when one point is replied to by one Minister and another point by another Minister. I am not in the least decrying the abilities of the Financial Secretary, or in the least suggesting that the arguments I am putting would not be understood by him. But it is almost impossible in the course of debate to convey to the Chancellor of the Exchequer, who after all decides, what has been said by this Member or that Member, or what argument has been put forward. I do hope that the right hon. Gentleman will reconsider his decision. All through the Debate some Members have been jeering and laughing at the position of the controlled firms. After all, they are exerting all their energies to win this War. Without them this War cannot be won. Those Members who have been jeering and laughing at the controlled 601 firms all this time are those who have not lifted a finger in this War. They have not helped England in recruiting, or helped England in any, way. I do put it to the Chancellor of the Exchequer that these controlled firms ought to be treated differently from the uncontrolled firms, who are making large fortunes out of this War without in the least helping this country to win its way through.
§ Mr. ARMITAGEThere is one point I should like to ask the Financial Secretary about, and that is the question of depreciation, which the Chancellor of the Exchequer has just mentioned. I understand that there are two ways of arriving at depreciation—under the Munitions Act and under the ordinary Income Tax Act. Now the Chancellor of the Exchequer has said that he will adopt the depreciation allowed by the Minister of Munitions, but under the Income Tax Act I believe it is impossible for him to allow any depreciation upon buildings and upon land bought at excessive prices to increase works and to put up new establishments. What I really want to find out is whether the Chancellor of the Exchequer is going to introduce legislation so that that depreciation can be allowed upon buildings and upon land.
§ Mr. MONTAGUThere is no question of the Income Tax Act. The Chancellor of the Exchequer does not propose to alter the Income Tax law at all. The Income Tax Act will be in existence long after the Excess Profits Tax is dead and done with. The depreciation will be allowed for in estimating excess profits, and will be the same depreciation as is allowed by the Munitions Department in estimating the munitions levy. The Income Tax does not come into it at all.
§ Mr. A1NSWORTHI would venture to ask the question which was asked by the Chancellor of the Exchequer on Thursday, and which, I think, should go a long way to shorten the Debate. The Chancellor of the Exchequer said, in answer to the hon. Member for the Kirkdale Division of Liverpool (Mr. Pennefather), "Will the hon. Member point to any contract which liberated controlled firms from future taxation?" If hon. Members who have spoken on this matter are really able to give us a specific by which we can clear ourselves of the danger of future taxation, we shall all be delighted. We want to avoid taxation, no doubt, but I would like 602 to remind the House in this crisis of what was said to me by a former Conservative Member of this House, a friend of mine who is much respected, who, I am sorry to say, is not here now, but who, I am glad to say, is quite well. He met me not long after the commencement of the War, and he said, "I do feel sorry I cannot take any part at present, but I do like paying my taxes."I would like that idea to sink a little into the minds of hon. Members. We have been talking to-day, and we did last week, about the difficulties, the dangers, and the troubles of controlled firms. I was very much amused by one speaker who lately sat down who asked what controlled firms were to do after the War. Really I think we may be satisfied to get to the end of the War, and then we can begin to talk about what controlled firms will have to do. But I would ask controlled firms and all men in business who feel distressed and anxious at the present state of affairs just to consider what the Chancellor of the Exchequer said to-day on this subject and how he promised that whenever justice required that a point should receive consideration he was quite certain the authorities would be ready to deal with it. Do not we all know that if these questions do arise, as they do arise, you have only to go to the tax authorities or to Somerset House and you get your case dealt with?
When these Gentlemen speak so eloquently about the troubles of controlled firms, I wonder how^ they would like to be in the trenches for five minutes, or whether they would prefer to be in an ironclad when a shell had just gone through the boiler. Upon my word, it is difficult to speak without heat with regard to what has been going on every day. There might be no war. No one might be killed, no household made desolate, no human hearts torn with sorrow. Yet hon. Members can meet here and talk about grievances of controlled firms. Let me get back to business. What do we mean by controlled firms? We all know that the output of munitions is essential to this country. The Government formulated a scheme which, I think, we might all agree was a good one. What did people gain who joined the controlled firms? They got free of all trouble with the workmen and with labour questions, and they also were sure, probably altogether, but, at all events, very largely, of Government work. I ask any hon. Member here who knows about the conduct of business at the present day whether that 603 is nothing. What are they asked to do now in regard to which there is all this trouble? Merely, like every other subject, to be liable to pay taxes. I would like to call attention to an excellent speech made by my hon. Friend the Member for the Attercliffe Division (Mr. Anderson), who said distinctly that the arrangements as to the dilution of labour with the trade unions were agreed to on the understanding that the employers gave up a part of their profits. If you disturb that arrangement now you must not only deal with the employers but the workmen as well, and are you going to raise the whole question again? Personally I should like to see savings enormously increased in this country, and if this could take place the nation would be more healthy and more sober. However this War may end, we know one thing, and it is that the British Empire is going to be bigger than it ever has been before, and it is the duty of every hon. Member here to put his shoulder to the wheel. We are tired of hearing talk about small troubles, and we want to get on with what we are doing. We want to win the War, and leave this country and ourselves and our Allies stronger and more capable as a nation than we have yet been.
§ Mr. HEWINSThere are one or two points I should like to allude to before we go to a Division. I listened almost to the whole of the Debate on the First Beading, and I am bound to say that I do not think the case which was then made for the controlled firms has been met in any way. The Committee will remember that at the conclusion of the proceedings on Thursday evening the Chancellor of the Exchequer promised that he would look into the figures with a view of meeting the arguments advanced by several hon. Members. He has now looked into those figures. I should like first of all to draw attention to the fact that the Chancellor of the Exchequer brought forward this scheme, which is regarded with the keenest hostility by so many great firms in the country, without knowing what sum of money or any approximation to it would be involved. That was a reflection upon the efficiency of the Treasury which, I trust, is not true, and whatever else may be said about this proposal it is a very important one. I think too little in this Debate has been said about the important industrial complications arising in connection with it. One would think from the speeches made by Members of the Government that we 604 were engaged merely with little questions, of ordinary public importance as to how to screw this or that amount of money out of a given number of people. These great firms, now controlled firms, engaged in the production of munitions, and the workmen they employ, are the pick of the brain and energy and inventive skill of the country. The opinion amongst these firms is unanimous that if the proposals of the Chancellor of the Exchequer are carried they will be seriously handicapped in the conditions they will have to cope with after the War. I protest against the explanation of what has been called a bargain given from the Front Bench, and I think too highly of the working men and employers to think that this is merely a question of a quid pro quo between the two. The working men of England have behaved throughout the War in a highly patriotic manner, and so have the employers. This was not a question addressed to working men as to whether they would give up the principles and customs to which they always held so closely in return for the sacrifice of a sum of money by the employers, but it was more a question of what my hon. Friend on the Front Bench stated in the course of his speech. This is a very important question, and I should have thought the Treasury ought to have made full inquiry into the statistics of what they are proposing before they introduced it at all. They have not done so, and now we know from the Chancellor of the Exchequer that they have not got the figures at the Treasury. The Chancellor of the Exchequer, instead of doing what he said in answer to a question on Thursday night, proposes now to give an approximate answer to another question that was not asked. On the score of the figure which the Chancellor of the Exchequer has given, he appeals to the Committee to support him in carrying this particular proposal. That does not seem a very strong argument, and it is certainly not the way to meet the arguments put forward against this proposal.
There are two other points in the Chancellor of the Exchequer's speech which I would like to deal with. First of all, there is the allowance he was going to make for depreciation. I suppose I am right in concluding that the several headings in the rules under the Munitions Act are to be included. The Chancellor of the Exchequer was asked this question on Thursday night, but he did not give a 605 very clear answer, and before a decision is come to on a matter like that we ought to know what is meant, and any modification of this proposal requires the consideration of the original parties. The Chancellor of the Exchequer said that he was prepared to make an allowance or take into consideration or compensate— I forget the exact phrase—in regard to the question of the goodwill of the firm lost in consequence of munition activities during the War. I do ask my right hon. Friend to consider what on earth he is promising. The controlled firms have not asked for that. At the present time, in connection with most of these firms, their trade and markets have been lost never to be recovered. Trading routes have been altered. All the conditions of trade have been revolutionised, and yet the Chancellor of the Exchequer actually comes down here and, instead of accepting the reasonable proposals which have been put forward, he says, "I will make a bargain with you after the War." But on what basis? I can mention firms in the North and in the Midlands who have had established trades generation after generation in particular parts of the world, and those trades are now gone for ever; before, they were trades which rested upon continuity. They have all gone, and how does the Chancellor of the Exchequer propose to compensate them. I would like to know exactly and precisely what the right hon. Gentleman means by his proposal. It is perfectly obvious that it will have to be very carefully studied. I do not believe that the controlled firms have asked for anything of the kind, and I think they are prepared to take the risk. I should have thought it would have been simpler to have taken the line of argument expressed on behalf of the controlled firms by several of my hon. Friends than to enter into vague promises of that kind. At any rate, the consideration which the Chancellor of the Exchequer puts forward are extremely vague, and require a great deal of consideration before they can be accepted. The proposal which has been put forward on behalf of the people who object to the scheme of the Finance Bill is really so very much more reasonable and easier to carry out, that if it is not accepted my hon. Friend has no option except to go to a Division.
§ Mr. BOOTHI want to put before the Committee the case of the machine tool-makers in this country which has not been brought into this Debate. I think 606 a good deal of the Debate would have been better directed if it had more basis of fact. If I understood the Chancellor of the Exchequer aright, the opposition to the Bill has now been largely modified. I join issue with the last speaker in belittling what I think was an important and just concession, and one which is, capable of being estimated easily and fairly. I took it that the suggestion was not to compensate every tradesman for the loss of his business because of the War. If so, what about all those individuals who have given up shops and little businesses? I understand that where a controlled firm, at the instance of the Government, has diverted its operations away from its legitimate lines to something the Government prefer, in assessing the tax you take into account their loss of goodwill.
§ Mr. HEWINSHow can they?
§ Mr. BOOTHI will give an instance in the business with which I am associated. We diverted our trade entirely to making munitions. We had not made one before. Our drawings and patterns, for our legitimate trade of wood working have become obsolete, and we do not know whether we shall ever be able to use one of them again, and they stand in our books at a reasonable cost. When the Government take over a firm like this, when the point of taxation is reached, you must consider how far those patterns will have been made obsolete and useless through following the lead of the Government. I understand that to be the suggestion of the right hon. Gentleman, and it is a matter which it is perfectly easy to estimate. I do not think any controlled firm wall want that pushed to any unreasonable extent, but the fact that it will be taken into account shows that the Government wish to act fairly. I say quite candidly to the House, as I have made a personal allusion, that whether this Amendment is carried or not, it will not make one pennyworth of difference to my firm. Therefore, I feel the more free to speak. Being associated with three establishments, one of which is under the Excess Profits Tax alone, another of which is half under the Munitions Tax and half under the Excess Profits Tax, and a third of which is entirely under the Munitions Tax, I air probably in as good a position as even older and more experienced men to judge. There is one firm of each kind, and one 607 half-and-half. The last thing that I want to do is to lessen the revenue to the Exchequer. It would be imagined from some remarks that have been made that when the Government controls a firm it is a sort of onerous burden and a miser-able life for the men conducting the business. There is no doubt that there are hundreds who are in a better position under control, but that is no reason for doing an injustice to others. I do not see, however, what is to be derived by an over-statement of the case. I want to put a point to the Chancellor of the Exchequer with regard to two machine-tool firms who, so far as I know, do not resent Government control. Naturally, a man likes to fancy that he is the sole arbiter of the destiny of his own business, but when he gets over that feeling it is really not the irksome thing that some hon. Members seem to imagine. The machine-tool makers will have to be considered by the Chancellor of the Exchequer in connection with his promise where there is a special case. I do not say that there are others, but I think this is one. The Minister of Munitions called the machine-tool makers together and announced that he was going to control them. It had nothing to do with labour. Many of the firms have been brought in since last year when there was an Excess Profits Tax, and it did not apply to them.
§ Mr. PRINGLEOh, yes, it did!
§ Mr. BOOTHThe Chancellor of the Exchequer can correct me if I am wrong. I remember very well the distinction drawn last year. The machine tool makers were asked to increase their output, and a distinct promise was made—I am perfectly sure that the shorthand note will confirm it—that if they would increase their out put they would be allowed to keep a larger reward than those firms who did not increase their output. If in a time of national emergency you call the whole of a trade together and make a distinct condition that you will reward merit—
§ Mr. PRINGLEWhat was the condition?
§ Mr. BOOTHI am stating it. If you make a distinct condition that you will reward merit by allowing those who increase their output through their own diligence to receive a larger share of the profits, that should be respected. My hon. and learned Friend (Mr. Pringle) does 608 not understand what I mean. I am sure it is my fault, because, if I may say so, he is one of the clearest-headed men in the House. They were assured that the shareholders in a company which increased its output by its own diligence in following the lead of the Ministry of Munitions should be allowed a larger division of the profits than those who refused the appeal of the Ministry of Munitions. The right hon. Gentleman said that he was going to respect every bargain made by the Ministry of Munitions and all these agreements. That is all I am asking. If he does, he will have to make some distinction between controlled firms and those who are not controlled. The question of the bargain with labour is not at all as stated by the right hon. Gentleman the Member for Walthamstow (Sir J. Simon). He cannot be in the least aware what it meant when the trade unions removed their restrictions. He seemed to think that every time they did that it was a concession to the employers. It was nothing of the kind. In many cases the employers did not want it. They very much preferred the older method. Take, for example, the question of Sunday work at time and a half or double time. What employer desires to pay time and a half or double pay for Sunday work? All trade unions were opposed to female work and to dilution of labour. The firms were entirely in agreement with the trade unions on some of these points. If my hon. Friends would go down into the industrial districts before they make their speeches they would not make these mistakes. I know one firm who have had the task of trying to enforce female labour and dilution of labour. They know they have the resistance of their staff as well as of the trade unions. When the trade unions removed these restrictions they did it in response to a lot of their own members. If this thing is gone into at all it should be gone into thoroughly.
As far as I can understand his speech to-day, and I have also carefully read his speech last Thursday, the Chancellor of the Exchequer had solely in mind in the control of a firm the limitation of profits. But prices and profits have been limited before that point is reached. Supposing a firm, has a refund of £15,000 to make because the Ministry of Munitions has been charged too high prices? The customer has been glad enough to pay. It is a perfectly straightforward bargain, and the customer knew what he was 609 about and paid higher prices in preference to buying American goods. He got better quality. Now the Machine Tool Committee of the Munitions Department—I want to pay a tribute to them for their magnificent work on behalf of the State—quite rightly review all these orders and cut down the prices and order refunds to be made. They will not allow contracts to be entered into unless they pass the price. When a firm has had its profits cut down by the direct intervention of the State and the great bulk taken away, and when the Chancellor of the Exchequer takes over 60 per cent., is it treating that firm fairly when compared with one never interfered with at all? Probably I shall get the support of the hon. Member for Blackburn (Mr. Snowden). I would have liked—it may not be feasible—that in the interests of the State you should have power to go into non - controlled firms, and particularly luxury firms, and where they have been charging too much cut them down and make them refund, and then for the Chancellor of the Exchequer after that to take his 60 per cent. I hope he will say that the treatment of the machine tool firms is not fair compared with those firms who have never been approached by the State at all, or whose profits and contracts have never been interfered with. I give no support whatever to any idea of making a sacrifice of £10,000,000, and I think the Chancellor of the Exchequer will have the support of the Committee in remaining firm upon a point like that. I am perfectly certain that the only way out of this quagmire is to have one system for all firms. I am not suggesting removing the control. I think the firms should be controlled with regard to labour conditions, prices, and methods of working—that is unavoidable—but when it comes to the limitation of profits, if all firms were treated alike, I feel sure that there would be satisfaction, and there can be satisfaction in no other way.
§ Mr. PRINGLEI desire to associate myself particularly with the concluding words of my hon. Friend's speech. It is of the utmost importance to treat not only controlled and uncontrolled alike, but that all of them should be under a single system of taxation. If I express my own individual preference, it is that all should be subject to the Excess Profits Duty in the Budget. During the whole course of this Debate a great deal of prejudice and a great deal 610 of feeling have been aroused quite unnecessarily. I can understand the heads of controlled firms being somewhat worried by the necessity which is imposed upon them of rendering accounts both in connection with the Excess Profits Duty and in connection with the Muntions Department, but apart from that grievance nothing of any real consequence has emerged in the course of the Debate. After all, that is an administrative matter, and the removal of this dual system would not only be an economy to the firms, but an economy to the State. It is absurd at a time when national economy is required that two Departments should have a staff of accountants doing precisely the same work. Under these circumstances, as the Treasury has to do the work for all the uncontrolled firms, the obvious course would be for the State to abolish the unnecessary accounting department in the Ministry of Munitions and have the uniform system I suggest. There is no foundation at all for the argument regarding the bargain being for ever binding on the State so that no further Excess Profits Duty can be drawn from these firms than is embodied in the Munitions Act and in the rules under that Act. It was long before the Munitions Act was passed that the first negotiations in regard to excess profits, or at least to the limitation of profits, took place, and at that time there was no idea whatever that there would be an Excess Profits Duty affecting any firms in the country. The solo object of the limitation of profits was to secure greater output of munitions not only by the withdrawal of trade union restrictions, but also by the complete control of labour—a control of labour far greater than was ever anticipated. We have, for example, not only the withdrawal of these restrictions, but we have the employer with a tie upon his workpeople, or a right to retain his workpeople, in a particular department. The employer has the power to get his workpeople fined if they are late in going to their work. With all these new conditions, with all this additional control over labour, it was perfectly fair and equitable that those who represented the working men should insist that the increased profits due to that greater control of labour should go, not to the employers, but to the State, and if subsequently the State for the purpose of financing the War decided that everybody should pay on their excess profits, that fact should not exempt from 611 that taxation those people who had agreed to these limitations at a time when there were no excess profits for anybody. I think under these circumstances the Chancellor of the Exchequer is absolutely justified in the course he has taken, and he might fairly have been saved from the attacks of the hon. Member for the Brightside Division and of the hon. Baronet the Member for Mansfield (Sir A. Markham), the latter of whom seems to have substituted in his affections the Chancellor of the Exchequer for the late Secretary of State for War.
§ Mr. HENDERSONI hope the Committee, before we go to a Division, will clearly understand the position on which we are to divide, and will appreciate what it is the controlled establishments want, because there has been a good deal of misrepresentation with regard to their wishes in certain quarters. The Chancellor of the Exchequer, in his speech, said that the limitation of profits was a tax, or penalty, or levy, imposed on the controlled firms as a quid pro quo for the arrangement made with the trade unions. May I ask if that is so?
§ Mr. McKENNAI quoted the language of the Minister of Munitions on the subject, and I endorse absolutely what the right hon. Gentleman said.
§ Mr. HENDERSONThen, if that is so, I want to appeal to my right hon. Friend to be quite logical. The controlled firms had a standard fixed for them in the Munitions Act. That standard was two prewar year plus 20 per cent. They had no profit over and above that, and that was given as a quid pro quo for the concessions made by the trade unions. It was a penalty, or fine, or whatever you may choose to call it, imposed upon these establishments. If the right hon. Gentleman is logical, the controlled firms had no profit beyond that 20 per cent. Will anyone say that when the profit was limited to 20 per cent., they were to get no more, however much work they did? Will anyone say that the controlled establishments believed that that 20 per cent, was subsequently to be subjected to an Excess Profits Tax? They certainly do not want anything which nobody else is going to get, and they are asking no favours for themselves. I do not know whether the OFFICIAL REPORT of last Thursday is correct, but if it is, the Secretary 612 to the Treasury repeated what it was that the controlled establishments wanted. He said:—
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?"—[OFFICIAL REPORT, 22nd. June, 1916, col. 406.]That is exactly what we want, and it is what the Treasury want. The Treasury are taking all the rest of the profits beyond the 20 per cent, as a fine for the arrangement that was made with the trade unions. To be logical, you ought to tax the 20 per cent, because they have no other profit. The controlled firms, in fact, are barred from making any other profit, and all the rest goes to the Treasury. They took the pre-war standard plus the 20 per cent.—
§ Mr. McKENNAThat is not in the Munitions Act. The datum line is not necessarily that mentioned. The level may be altered, either above or below.
§ Mr. HENDERSONThe firms only want to be put in the same position as other firms. If you tell them now that they misunderstood, and that all this excess on their earnings was to go as a quid pro quo for the removal of the trades union limitations, then all I can say is that that is not what they understood. They do not ask to be treated any better than anybody else, but they say they ought to be treated no worse. I will make one appeal to the right hon. Gentleman. He knows there is a very great feeling of antagonism amongst the controlled establishments. They feel, rightly or wrongly, that they are being badly used. They may be wrong in that view. I think that they are right. But I ask the right hon. Gentleman not to finally decide this matter until the Report stage. In the interval something may, and very likely will happen, which may relieve the situation. And may I say I never intended to make any attack on my right hon. Friend. The right hon. Gentleman the Member for Spen Valley (Sir T. Whittaker) thought it right to come in here and suggest that I have made charges of bad faith against the Front Bench. One is apt to say something in the heat of the moment, and I thought, perhaps, I might have done so, but I have looked carefully in the OFFICIAL REPORT at all that I said, and I challenge the right hon. Gentleman to produce a single sentence which 613 could give offence to my right hon. Friend. I never intended to use such language, and I am sure now I never did.
§ Mr. SAMUEL ROBERTSI should like to join with my hon. Friend the last speaker in making a final appeal to the Chancellor of the Exchequer, and I will use his words. I will appeal to him not to come to a final conclusion on this matter until the Report stage is reached. I have a reason for doing so. I do not think the right hon. Gentleman appreciates the hostility of the controlled firms to this proposal. This afternoon, at a large meeting at Westminster Palace Hotel, an association of controlled firms was formed, representative of all the munition areas, so strongly do they feel that on this and other matters they are being unfairly used by the Government, although they have been giving their best to the country—both masters and men. In this question they do feel they have a real grievance, and I am appealing to the right hon. Gentleman not to push matters too far. We do not want to quarrel. This is not the time for quarrelling. We should like very much to come to an amicable arrangement, and, personally, I feel that that can be done. Therefore, let the right hon. Gentleman do nothing in a hurry. I am sure if he does he will regret it afterwards. I should like him to postpone his final decision until the Report stage. I do not think it is to the interest of the State that two Departments of the State should be opposed to one another in an important matter like this. The Minister of Munitions is with us.
§ Mr. McKENNAHow do you know that?
§ Mr. ROBERTSI know it from his Parliamentary Secretary. He told me. I should not have mentioned it if the right hon. Gentleman had not asked me for my authority, but being asked I was bound to give it. That is the second reason why I think the final decision ought not to be taken now, and I sincerely hope the right hon. Gentleman will see his way to fall in with this suggestion.
§ Mr. McKENNAI think it is in the interest of the House of Commons that it should not go out to the public that there is a divergence of opinion between two Departments, and it is necessary for me therefore to say, in view of what the hon. Gentleman has just stated, that the language I used on the Budget, in dealing with this part of my Bill was put into 614 writing by me, submitted to the whole Cabinet, and accepted by the Minister of Munitions, as well as by the rest of my colleagues. Before the introduction of the Bill there were one or two questions about which my right hon. Friend the Minister of Munitions desired to have assurances from me. I gave him those assurances, and in his letter, in which he asked for some information about the collection of the tax, he stated that my assurances were completely satisfactory to him. I told the right hon. Gentleman that the taxes would be collected in accordance with the plans he suggested, and there the whole incident closed. It is absolutely without foundation to allege that there is a divergence of opinion between the Minister of Munitions and myself upon this subject. If the hon. Gentleman, whose opinions I hold in very high esteem, and who I am sure would make no statement unless he implicitly believed in the truth of it—if he desires I will show him the correspondence.
§ Sir W. ESSEXWhen the hon. Member for Sheffield (Mr. Roberts) rose to urge the Chancellor of Exchequer to give more time to the consideration of this matter, he might have gone a step further and enabled that consideration to be given by withdrawing his Amendment. He would thus have avoided calling upon the Committee to takes sides on the matter, it might be to the harm of any possible consideration later on.
§ Mr. ROBERTSI should.be only too glad to take that case if I could get the slighest hint from the right hon. Gentleman—
§ 7.0.p.m.
§ Sir W. ESSEXI suggest it should be done without any pledge at all. I think the hon. Gentleman would be justified in withdrawing the Amendment, seeing that he will have an opportunity of raising the question again later on, and it may be that meantime these various meetings in London to which he has referred may be able to produce such arguments that the splendid, and to my mind unanswerable, case built up by the Chancellor of the Exchequer to-day, might be weakened or destroyed. But evidently the hon. Gentleman has not the courage of his opinions. He feels the matter ought now to go to a Division, with the result that the position may be hardened for him in the future. I hope the Government will sit tight in this matter. These 4,000 firms are in many respects regarded by the many 615 thousands of other firms, which are not controlled and are not in munition work, with considerable envy. They have had their undertakings supported by the Government with gigantic contracts. They could not as a body of men have expected, in the rotten conditions that necessarily followed for trade upon a great War like this, to have maintained their output in their various factories. Their trade would have shrunk, they would not have had excess profits, but diminished profits, and even absolute losses in many cases. Another point I would urge, even at this late moment, is that large numbers of these firms, as I know, will come out of this association with the Government, wherein they have had the advantage of consultation, advice and counsel from the splendid experts of the Ministry of Munitions, better in their workshop practice, in the possession of different and higher methods of organisation, with better equipment and tools, and in a number of cases they will find what many of us who are not in those trades and who are not benefiting feel, that their bread is buttered on both sides and in many cases the crusts cut off. Firms which are losing money to-day are asked, apart from their losses having regard to the law of average with regard to Income Tax, to make a further contribution out of their losses to outset this possible £10,000,000 referred to by the Chancellor of the Exchequer. The whole position is grossly unfair. I yield to no one in the admiration I feel
§ for what these firms have done for the nation and the Allied nations in this time of stress for everybody, but what is their position? Their profits have been maintained.
§ Mr. HENDERSONHow do you know?
§ Sir W. ESSEXIt is pretty evident it is so, because it is excess profits we are dealing with now. In regard to the bulk of the trading community there is no complaint where there have been excess profits. The bulk of the trading community are suffering in these times, but are paying their taxes without grumbling or gruntling, yet they see the 4,000 firms over whom the benefit of the protecting arm of the State has been thrown, grumbling at this. It makes them feel that there ought not to be any excess profits for anybody in this hour of the nation's stress. It is a sorry spectacle. My hon. Friends who support this Amendment no doubt feel their case strongly, but they might have withdrawn this bone of contention for the present and still have put pressure on the Chancellor of the Exchequer, who is not unamenable to pressure, because some of us have had anxious hours during the weekend for fear that he was going to weaken.
§ Question put, "That the words 'except as to controlled establishments under the Munitions of War Act, 1915, during the period they are under such control,' be there inserted."
§ The Committee divided: Ayes, 72; Noes, 158.
617| Division No. 28.] | AYES. | [7.4 p.m. |
| Armitage, Robert | Ferens, Rt. Hon. Thomas Robinson | Newdegate, F. A |
| Ashley, Wilfrid W. | Gelder, Sir W. A. | Newman, John R. P. |
| Astor, Hon. Waldorf | Grant, J. A. | Nicholson, William G. (Petersfield) |
| Banbury, Rt. Hon. Sir F. G. | Gretton, John | Nield, Herbert |
| Banner, Sir John S. Harmood- | Guinness, Hon. W.E. (Bury S. Edmunds) | Norton Griffiths, J. |
| Beach, William F. H. | Haddock, George Bahr | Pearce, Sir William (Limehouse) |
| Bellairs, Commander C. W. | Hardy, Rt. Hon. Laurence | Peel, Lieut.-Colonel R. F. |
| Bonn, Arthur Shirley (Plymouth) | Henderson, John M. (Aberdeen, W.) | Pennefather, De Fonblanque |
| Bigland, Alfred | Herbert, General Sir Ivor (Mon., S.) | Perkins, Walter F. |
| Bird, Alfred | Hewins, William Albert Samuel | Peto, Basil Edward |
| Boyton, James | Hickman, Colonel Thomas E. | Pollock, Ernest Murray |
| Bryce, J. Annan | Hunt, Major Rowland | Pryce-Jones, Colonel E. |
| Burn, Colonel C. R. | Joynson-Hicks, William | Rutherford, Sir John (Lancs., Darwen) |
| Carson, Rt. Hon. Sir Edward H. | Lonsdale, Sir John Brownlee | Rutherford, Watson (L'pool, W. Derby) |
| Cautley, Henry Strother | Lough, Rt. Hon. Thomas | Samuel, Samuel (Wandsworth) |
| Cecil, Evelyn (Aston Manor) | Lowe, Sir F. W. (Birm., Edgbaston) | Terrell, George (Wilts, N.W.) |
| Coats, Sir Stuart A. (Wimbledon) | MacCaw, William J. MacGeagh | Thomas-Stanford, Charles |
| Cooper, Sir Richard Ashmole | Mackinder, Halford J. | Warde, Col. C. E. (Kent, Mid) |
| Cory, Sir Clifford John (St. Ives) | M'Laren, Hon. H. D. (Leics.) | Willoughby, Major Hon. Claud |
| Cory, James H. (Cardiff) | Macleod, John Mackintosh | Wood, John (Stalybridge) |
| Cowan, W. H. | M'Neill, Ronald (Kent, St. Augustine's) | Wortley, Rt. Hon. C. B. Stuart- |
| Craig, Col. James (Down, E.) | Malcolm, Ian | Yate, Colonel C. E. |
| Dalziel, Davison (Brixton) | Marks, Sir George Croydon | |
| Denniss, E. R. B. | Mason, James F. (Windsor) | TELLERS FOR THE AYES.—Mr. |
| Falle, Bertram Godfray | Mond, Rt. Hon. Sir Alfred | S. Roberts and Sir Tuder Walters. |
| NOES. | ||
| Addison, Dr. Christopher | Harcourt, Rt. Hon. Lewis (Rossendale) | Phillips, Sir Owen (Chester) |
| Ainsworth, John Stirling | Harmsworth, Cecil (Luton, Beds) | Pratt, J. W. |
| Allen, Arthur A. (Dumbartonshire) | Harmsworth, R. L. (Caithness-shire) | Pretyman, Ernest George |
| Anderson, W. C. | Harris, Percy A. (Leicester, S.) | Price, Sir R. J. (Norfolk, E.) |
| Baring, Sir Godfrey (Barnstaple) | Harvey, A. G. C. (Rochdale) | Pringle, William M. R. |
| Barlow, Sir John Emmott (Somerset) | Harvey, T. E. (Leeds, West) | Prothero, Rowland Edmund |
| Barnes, Rt. Hon. George N. | Helme, Sir Norval Watson | Radford, Sir George Heynes |
| Bathurst, Col. Hon. A. B. (Glouc, E.) | Hemmerde, Edward George | Raffan, Peter Wilson |
| Beale, Sir William Phipson | Henderson, Rt. Hon. Arthur (Durham) | Rawlinson, John Frederick Peel |
| Beauchamp, Sir Edward | Hinds, John | Rea, Walter Russell (Scarborough) |
| Beck, Arthur Cecil | Hobhouse, Rt. Hon. Charles E. H. | Rees, G. C. (Carnarvon, Arfon) |
| Bethell, Sir J. H. | Hogge, James Myles | Roberts, Charles H. (Lincoln) |
| Birrell, Rt. Hon. Augustine | Hohler, Gerald Fitzroy | Roberts, George H. (Norwich) |
| Bowerman, Rt. Hon. C. W. | Hope, Harry (Bute) | Robertson, Rt. Hon. J. M. (Tyneside) |
| Brace, William | Hudson, Walter | Roch, Walter F. (Pembroke) |
| Broughton, Urban Hanlon | Jacobsen, Thomas Owen | Rowland, James |
| Bull, Sir William James | John, Edward Thomas | Samuel, Rt. Hon. H. L. (Cleveland) |
| Burns, Rt. Hon. John | Jones, Edgar (Merthyr Tydvil) | Samuel, J. (Stockton-on-Tees) |
| Butcher, John George | Jones, William S. Glyn- (Stepney) | Sherwell, Arthur James |
| Byles, Sir William Pollard | Jowett, Frederick William | Simon, Rt. Hon. Sir John Alisebrook |
| Cawley, Sir Frederick (Prestwich) | King, Joseph | Snowden, Philip |
| Chaloner, Colonel R. G W. | Lambert, Rt. Hon. G. (Devon, S. Molten) | Spear, Sir John Ward |
| Chancellor, Henry George | Lambert, Richard (Wilts, Cricklade) | Strauss, Arthur (Paddington, North) |
| Cochrane, Cecil Algernon | Law, Rt. Hon. A. Bonar (Bootle) | Strauss, Edward A. (Southwark, West) |
| Collins, Sir Stephen (Lambeth) | Layland-Barrett, Sir F. | Swift, Rigby |
| Compton-Rickett, Rt. Hon. Sir J. | Levy, Sir Maurice | Talbot, Lord Edmund |
| Cornwall, Sir Edwin A. | Lewis, Rt. Hon. John Herbert | Tennant, Rt. Hon. Harold John |
| Craig, Ernest (Cheshire, Crewe) | Lloyd, George Butler (Shrewsbury) | Thomas, James Henry |
| Crooks, Rt. Hon. William | Lynch, Arthur Alfred | Thorne, G. R. (Wolverhampton) |
| Currie, George W. | Macdonald, J. Ramsay (Leicester) | Tickler, T. G. |
| Dairymple, Hon. H. H. | McKenna, Rt. Hon. Reginald | Toulmin, Sir George |
| Davies, Ellis William (Eifion) | Maclean, Rt. Hon. Donald | Turton, Edmund Russborough |
| Davies, Timothy (Lincs., Louth) | Macmaster, Donald | Valentia, Viscount |
| Dickinson, Rt. Hon. Willoughby H. | M'Micking, Major Gilbert | Walton, Sir Joseph |
| Dougherty, Rt. Hon. Sir J. B. | Macnamara, Rt. Hon. Dr. T. J. | Wardle, George J. |
| Duncan, Sir J. Hastings (Yorks, Otley) | Macpherson, James Ian | Wason, Rt. Hon. E. (Clackmannan) |
| Edwards, Sir Francis (Radnor) | Magnus, Sir Philip | Wason, John Cathcart (Orkney) |
| Elverston, Sir Harold | Manfield, Harry | Watson, Hon. W. |
| Essex, Sir Richard Walter | Mason, David M. (Coventry) | Watt, Henry Anderson |
| Falconer, James | Middlebrook, Sir William | White, J. Dundas (Glasgow, Tradeston) |
| Fell, Arthur | Molteno, Percy Alport | Whittaker, Rt. Hon. Sir Thomas P. |
| Fenwick, Rt. Hon. Charles | Montagu, Rt. Hon. E. S. | Wiles, Thomas |
| Finney, Samuel | Morgan, George Hay | Williams, Aneurin (Durham, N.W.) |
| Fitzgibbon, John | Morrell, Philip | Williams, Llewelyn (Carmarthen) |
| Flannery, Sir J. Fortescue | Morison, Hector | Wilson, Rt. Hon. J. W. (Worcs., N.) |
| Fletcher, John Samuel | Morton, Alpheus Cleophas | Wing, Thomas Edward |
| Galbraith, Samuel | Munro, Rt. Hon. Robert | Wood, Rt. Hon. T. McKinnon (Glasgow) |
| Gardner, Ernest | Nolan, Joseph | Yeo, Alfred William |
| Gilbert, J. D. | Nuttall, Harry | Young, William (Perthshire, East) |
| Glanville, Harold James | O'Connor, T. P. (Liverpool) | Yoxall, Sir James Henry |
| Goddard, Rt. Hon. Sir Daniel Ford | Outhwalte, R. L. | |
| Goldstone, Frank | Paget, Almeric Hugh | TELLERS FOR THE NOES.—Mr. G. |
| Greenwood, Sir G. G. (Peterborough) | Pearce, Sir Robert (Leek) | Howard and Mr. Bridgeman. |
| Gulland, John William |
Question put, and agreed to.
§ Mr. LOUGHI beg to move, in Subsection (1), to leave out the words "until Parliament otherwise determines, to any," and to insert instead thereof the words "to the."
This Amendment will not involve such a long and, may I say, pleasant Debate as the last one. The point I desire to put before the Committee is very simple. The words I propose to leave out are those which make the Excess Profits Tax permanent. It will come with astonishment to the Committee that the suggestion should be made by the Government that the tax should be permanent. It contradicts everything the Chancellor of the Exchequer said with regard to it.
§ Mr. MONTAGUHear, hear!
§ Mr. LOUGHI was going to quote two statements to make that good. The 618 Chancellor of the Exchequer said, when introducing the Bill,
For this purpose we ought not to take into account revenue obtained from a temporary tax such as the Excess Profits Tax.Note later on he said again:Of this sum a certain amount is attributed to Excess Profits Tax, which can only be temporary in character.After these two direct statements the Bill is brought in and it is made a permanent tax, and words are used which do not oblige the Government to come before Parliament ever again in regard to this tax. If the Bill stood as it is it would go on for ever without any renewal. I think there must have been some oversight in drawing the Bill in this form. I believe it is contrary to everything we have heard with regard to the tax and I hope the Government will be willing to put it back in 619 the shape in which every one thought it would rest on the Statute Book. All I ask is that the same course should be adopted in regard to this tax as to many other taxes, such as the Excess Tea Tax and the Sugar Tax, that it will go on from year to year as long as the War lasts or it may be necessary, and that this permanent character which has been given to it in a phrase which must have come in, I think, by mistake shall not be maintained.
§ Mr. MONTAGUI do not think this Amendment need take us long. I quite appreciate what my right hon. Friend has in mind and what he wants. He apprehends that this tax may, despite the assurances given, be permanent, and he is very anxious that that should not be so. So are we, and it was not the intention to prejudge that question at all. I am quite prepared to draft some words which will limit it, say, to 31st July next year. I would not adopt the right hon. Gentleman's suggestion.
§ Mr. HENDERSONI quite agree to the suggestion of my right hon. Friend and I would recall the words of the Chancellor of the Exchequer when we were discussing the tax last year:
It would be, in my judgment, as a permanent measure absolutely indefensible.
§ Mr. LOUGHI am glad to accept the answer I have received from my right hon. Friend. As I understand it it is that the tax shall remain in operation until 31st July next year.
§ Mr. McKENNATill the accounting period ending 31st July, 1917.
§ Amendment, by leave, withdrawn.
§ Mr. PENNEFATHERI beg to move, in Sub-section (2), to leave out the words "in any accounting period beginning," and to insert instead thereof the words "on or."
I do not propose anything which is going to cost the Government any money, at least that is not my intention. I think you, Sir, have received notice of an Amendment to a consequential Amendment to this to substitute the words 1st September for 1st July. Upon more mature consideration I have come to the conclusion that that would be a more convenient date from the point of view of the Chancellor of the Exchequer. There was a great discussion on the Finance (No. 2) Bill, 1915, in regard to the hardship admittedly inflicted upon a great many people whose Accounting periods began nine, ten, and 620 eleven months before the War. The Chancellor of the Exchequer, for very-good reasons, did not see his way at that time to make the suggested alteration which would remove that admitted hardship from these people. But Clause 2 in this Bill as it stands now would throw a new and additional hardship upon those same people who had suffered that hardship before, because if the Clause passed into law as it now stands people whose accounting periods began six, nine, ten, or eleven months before the War would not only have been called upon to pay pre-war profits during that long period before the War, but to pay those profits over for many months before their competitors were called upon to pay excess profits, and this Clause would mean that again this year these same unfortunate people would be called upon to pay the increased 10 per cent, tax many months before their more fortunate competitors. I do not think I need say another word about it than that. I am sure that the Chancellor of the Exchequer and the Financial Secretary will see that what I have stated is absolutely correct, and that the Clause, as drawn, will heap further hardship upon people who have already suffered hardship, the only difference being that the first hardship was perhaps inevitable but this is not inevitable, because the very next Clause provides the machinery for the apportionment of this increased 10 per cent, tax between any stated periods which the right hon. Gentleman likes to take.
§ Mr. McKENNAThe principle which we have adopted in the Bill is that where Excess Profits Tax is payable by a firm the firm should pay Excess Profits Tax on the first year's profits of 50 per cent, and on the subsequent year's profits at 60 per cent. It is quite true that the profits in one case may have been earned a long time before the beginning of the War, and in the case of another firm they have only been earned practically during the War. The hon. Member thinks that may operate as a hardship. In some cases it may, but in other cases the hardship might be the other way. The War may not be a particularly fortunate time for earning additional profits. The principle on which we have proceeded throughout is not to ask whether the profits have been earned or not earned in consequence of the War, or earned or not earned during the War, but whether they are enjoyed during the War. And if we once abandon that principle and 621 adopt the principle of the hon. Member we shall get into new and unending difficulties. I quite see the force of his argument, but that does not end the question. The hon. Member (Mr. J. Mason) has also got a remedy. We admit the difficulties and always have admitted them, but we say, after careful examination of the whole question, that the proposal which we adopt is, on the whole, the simplest of them all, and in the long run will work out, we believe, the fairest on the whole. It must be remembered that we have agreed to repay, in the last year of the operation of the tax, any amount up to the full amount of the payment by any firm if it can show that its profits had dropped below the datum line. That repayment will operate in favour of those firms who, according to the argument of the hon. Member, are most injuriously affected by the first accounting period covering only a short period of the War. Of course, we quite admit it may depend to a certain extent on the date at which the War ends. We cannot tell what that may be. Looking at the whole effect of the tax we believe that the system we have adopted is the fairest one on the whole, and it will be quite impossible for us to accept the Amendment.
§ Mr. JAMES MASONThe difference between my Amendment and that which we are now discussing is really only one of date. It has exactly the same effect, but the object of the Amendments is to avoid, if possible, aggravating an injustice or hardship which we all admit exists in the case where the accounting period finished shortly after the outbreak of the War. I think it is undeniable that this does aggravate the hardship, and I cannot think from anything the right hon. Gentleman has said that there is any objection to making the 60 per cent, apply to all people equally on a given date. Take a particular case which clearly shows how extraordinarily hardly this would fall in certain particular cases. I have taken two exactly similar cases, the only difference between them being that in the one case, A,the accounting period ends on the last day of June, and in the other case, B, it ends at the end of September. A's accounting period began in June, and it will have paid in June 1915—that is, ten months after the beginning of the War— £50,000 out of £100,000, which I have taken in each case as being the amount of excess of profit over the standard period. For the next three months it will be liable to a 622 quarter of a year at 60 per cent., that is assuming that £100,000 will still be the amount of the excess profit; therefore, in September, after fifteen months of paying the tax, firm a will have paid £50,000, which is 50 per cent, of the year's profits, and £15,000, which is a quarter of 60 per cent, on the second year's profits, making a total of £65,000. The other firm, in September, 1914—that is, within two months after the outbreak of the War—will have paid £50,000, or 50 per cent, of the excess profits, which was due very largely to pre-war conditions, because after all that is a very common case. I have the most striking cases of firms which through other accidents than the War made larger profits just before the War than they did a year or two previously. So that in September, 1914, that firm pays £50,000, and in September, 1915, on the same date at which firm a pays £15,000 out of the second year, the second firm will have to pay in full £60,000, making a total of £110,000. The difference between the two firms up to September, 1915, due to nothing but the accident of the dates of the accounting periods happening to finish, is £45,000. It seems to me that although the original hardship cannot be overcome entirely it would be very much better if the 60 per cent, was made to apply to a definite date for all alike. The right hon. Gentleman says that this can be put right at the end of the War. I am sure he will not mind my quoting some words, which I think he will recognise:
An opportunity will, however, arise in connection with the repeal of the duty for considering the question of making such adjustment as will compensate for any difference in the date at which the tax commenced to operate.According to that statement at the end of the War an adjustment can be made which puts matters right between one firm and another, but I do not think that can be seriously contended. It cannot be contended that a special tax of this nature can be carried after the end of the War for the sake of allowing one firm to be put on an equality with another firm. These are special War taxes, which must be brought to an end at the earliest possible date on which we can consider them after the War is over. Even supposing it was not so. Supposing you were going to keep certain firms subject to these Excess Profits Taxes for perhaps nine months longer than certain other firms, in order to put them on an equality. Supposing those firms had been engaged 623 in making munitions on which very large profits could be made which were the subject of this tax. Surely you are not going to make munitions nine months after the War is over in order to enable one establishment to get even with another! That idea of bringing about equality between different competing firms after the War is one which I am sure will not hold water, and I cannot see why this suggestion should be refused now, because it does something towards remedying the hardship which undoubtedly exists.
§ Mr. McKENNAThe error into which the hon. Gentleman is falling I think explains the difference between us. He gives the case of two firms, a and B. The principle of the tax is that both a and B shall be taxed for excess profits over the same number of years. The Excess Profits Tax does not come to an end at a fixed date. It will come to an end, say, at the end of four accounting years. In that case it will come to an end for every firm when every firm has been taxed four times. In the case that the hon. Member gives we must not stop short at September and say that one firm will pay £50,000 in June, 1915, and will owe another £15,000 in September, 1915. That firm will have to pay for the whole year whether the tax is repealed or not in principle before the expiration of its accounting year. It will have to pay for two whole years. In the second year it will pay £60,000, and will pay altogether £110,000. For the first firm, whose accounts end earlier in the year, the tax will cease earlier. For the second firm, whose accounts end later in the year, the tax will go on later.
§ Mr. McKENNAIf there is nothing to tax because he has given up his business and he is no longer making money, instead of the tax being a hardship upon him it will be a boon to him, because he will be entitled to get back-from what he has paid an allowance in respect of the amount by which the income on that account would have fallen short of the standard income. That is why I say that these hardships are quite evident in the early stages of the tax, but if you take the tax throughout the period of its operation it is the fairest to all concerned.
§ Mr. HENDERSONIf there is to be four accounting periods then the right hon. Gentleman's argument will be all right, and I quite agree with him that it would have to be levelled up. I think that there is a very great hardship in the earlier cases. The first accounting period dates back according to this Bill to 5th August, 1913. The 6th August, 1914, two days after the War had broken out, is the first accounting period a year after the War there is the second accounting period. This year there will be a third accounting period in a short time, Up to 14th August a man pays 50 per cent. On 15th August according to this Bill he pays 60 per cent. Another man whose balance sheet was made up to the 30th June, 1915, which would be his first accounting period, would only have to pay 50 per cent. So that you have two people within range of thirty or forty days of each other, one paying 50 per cent, and the other paying 60 per cent. I have nothing to say against the 60 per cent., but I do think that up to a certain day the 50 per cent, should obtain, and I have put down an Amendment to that effect. To that extent I think the 50 per cent, should obtain and not the 60 per cent., because you can never make it right if you take 10 per cent, more from one man. If the four years that the right hon. Gentleman adumbrates are all the same, that is all right, but if you take 50 per cent, from one and 60 per cent, in another case you cannot get right.
§ Mr. McKENNAmade a remark which was inaudible in the Reporters' Gallery.
§ Mr. HENDERSONIf that is your idea, that there should be one year at 50 per cent, and the subsequent years should be at 60 per cent.—
§ Mr. McKENNAOr whatever scale Parliament accepts.
§ Mr. HENDERSONOne never knows where you are. The trouble of this thing is that it is all retrospective taxation, which is always a very difficult subject. Therefore I think if the right hon. Gentleman could possibly limit the 50 per cent, to one date and commence the 60 per cent, on another date for everybody it would be better. I do not know whether that can be done, but it does seem to me that if you have a 70 per cent, tax next year, and 80 per cent, in the following year, if the War unfortunately lasts so long, you will have a very big reckoning to make, and you will impose a deal of injustice if you 625 have these verying rates for varying periods. I think you will do better to adopt the suggestion I make, and then things would come right. I would appeal to the right hon. Gentleman to do that if he can. If not, it is not worth while my proceeding further.
§ Mr. PENNEFATHERI beg leave to withdraw my Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. HENDERSONThe Amendment which stands in my name is to leave out, in Sub-section (2), the word "commencement" ["the commencement of the first accounting period"], and to insert instead thereof the word "end." That raises the whole question. I suppose my right hon. Friend cannot see his way to agree to that?
§ Mr. McKENNAThat gives two years at 50 per cent.
§ Mr. HENDERSONYes.
§ Mr. McKENNAThat is altering the tax.
§ Mr. HENDERSONThen I will not move it.
§ The CHAIRMANThe next Amendments, standing in the name of the hon. Member for Liverpool (Mr. Pennefather) and the hon. Member for Windsor (Mr. J. Mason), are consequential. I think that applies to the Amendment standing in the name of the hon. Member for West Aberdeenshire (Mr. Henderson).
§ Mr. HENDERSONIt is not quite the same. My Amendment relates to a business starting after the 4th August, 1915, and provides that it shall pay 50 per cent, for one accounting period and 60 per cent, for any other accounting period.
§ The CHAIRMANSo that there will be one year at 50 per cent.?
§ Mr. HENDERSONYes. I beg to move, in Sub-section (2), to leave out the words "fourteen, the rate of duty shall be 60 per cent, of the excess in respect of any accounting period ending after the fourth day of August, nineteen hundred and fifteen," and to insert instead thereof the words "fifteen, the rate of duty shall be 50 per cent, of the excess in respect of the first accounting period, and at the rate of 60 per cent, for any subsequent accounting period."
§ Mr. McKENNAI am afraid my lion. Friend's Amendment would not read.
§ Mr. HENDERSONYou can put it as you like, but I should like to see everybody having one year at 50 per cent. Therefore my Amendment provides that for the first year it shall be 50 and for subsequent years 60. I only want my right hon. Friend to carry out the principle he has enunciated, so that a firm may have one year at 50 per cent, before it is raised to 60.
§ Mr. McKENNATake the case of a new business which has not had a full year of accounting period before the 60 per cent, comes into operation. Clearly for that-new business, because it has not been in existence for a whole year at the 50 per cent, rate, it will pay partly at 50 and partly at the 60 per cent. rate.
§ Mr. HENDERSONNot partly at 50 because this Bill says 60.
§ Mr. McKENNAUntil this Bill comes, into operation the rate is 50. Suppose a new business is started during the year. Part of the first year it would pay at 50, and later on it would pay at 60. What we propose is, that 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 60 and 50 per cent, of the excess. If the Amendment of my hon. Friend is accepted and it reads: "Before the date of the expiration of a year from the end of the first accounting period, etc," what is to happen in the intervening period? I do not think it reads. It is-nonsense. I cannot make anything of it.
§ Mr. HENDERSONMy point is that in that, in the case of a business commencing after the 4th August, 1915, the rate of duty shall be 50 per cent, of the excess in respect of the first accounting period, and at the rate of 60 per cent, for any subsequent accounting period.
§ Mr. McKENNAThat is the hon. Member's next Amendment.
§ Mr. HENDERSONNo, it is the Amendment I have moved.
§ Mr. McKENNAI am sorry, we are at cross purposes.
§ Mr. LOUGHI think the right hem. Gentleman ought to look a little more closely into the hon. Member's Amendment, because it is plain from this Section that if a business was started, say, after the 4th August, 1914—that is to say, if it was started on the 1st September, 1914, the rate of duty for that business would be 60 per cent, for part of 1914 and for 1915. That is not what the Chancellor of the Exchequer means. The Chancellor of the Exchequer means that there should be three years running at 50 per cent., whatever the accounting period might be, and that it is not until that period has expired that the 60 per cent, comes into operation. I do no think that the Chancellor's intention is carried out in the Sub-section, and I would suggest that some words are required to do so.
§ Mr. McKENNAConsider the effect of these words. What is to happen to a business commencing after the 1st of August, 1914?
§ Mr. HENDERSONI beg your pardon. Now that you have decided the other point, it should be 1914.
§ Mr. McKENNA1915 is the second period, because the firm must have already paid from August, 1914, to August, 1915, at 50 per cent. If a firm came into existence during that period, it will pay 50 per cent, for that portion of the period to which the 50 per cent, applied and 60 per cent, on the balance.
§ Mr. McKENNAa new firm does not have a clear run. For a portion of the period it was not in existence.
§ Amendment negatived.
§ Mr. HENDERSONI beg to move to leave out from the words "In calculating" to the end of the Sub-section.
§ Sir J. HARMOOD-BANNERI would like to be quite clear as to the effect of this Amendment. If there is a deficiency in 1915 as compared with 1914—say, that there is a difference of £3,000 between the two—will they get the whole sum back on the calculation or will they only get 50 per cent.?
§ Mr. McKENNAI think that the words are quite clear, but I will inquire into that.
§ Amendment negatived.
628§ Sir W. PEARCEI beg to move, at the end of Sub-section (2), to insert the words "This Section shall not apply to any trade or business which is subject to munitions Exchequer payments."
§ The CHAIRMANI am under the impression that the effect of this Amendment is identical with the effect of that which we discussed at such length.
§ Sir W. PEARCEI submit that it limits the duty to 50 per cent. The object of my Amendment is to plead with the Chancellor that controlled establishments should be only subject to 50 per cent, instead of 60 per cent., and I suggest this as a sort of compromise on the matter which was discussed at such length this afternoon.
§ The CHAIRMANWhat the hon. Member desires is to provide that the Subsection shall not apply. He has put "Section" on the Paper.
§ Sir W. PEARCEYes, I leg to move to add to the Sub-section the words "This Sub-section shall not apply to any trade or business which is subject to munitions Exchequer payments."
I would recommend to the Chancellor of the Exchequer this suggestion, that a controlled establishment should be subject to Excess Profits Duty limited to 50 per cent, instead of 60 per cent. I think that it would make a great deal of difference in many cases in which large establishments are subject to Excess Profits Duty. I would like the Chancellor of the Exchequer to consider this as a means of alleviating what is known to be a great hardship to the businesses referred to in the long discussion this afternoon.
§ Mr. McKENNAI regret that I cannot advise the Committee to accept this proposal. It would run counter to the principle which I think ought to be in force, that taxation must not discriminate between firms and businesses. I do not think that it would be wise to accept one standard for one set of firms and another standard for another.
Mr. DENNISSThese controlled establishments came into existence a year after the War. They are put in a more invidious position than uncontrolled establishments, because uncontrolled establishments for the first year pay only 50 per cent, and for the second year 60 per cent.
629 It struck me that you might treat the eon-trolled establishments in the same way, and in the first year they should pay 50 per cent.
§ Mr. McKENNAThey do pay 50 per cent, the first year.
§ Mr. McKENNANot as controlled firms but as firms.
§ Amendment negatived.
§ Clause ordered to stand part of the Bill.