HC Deb 03 July 1917 vol 95 cc909-37

(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, unless Parliament otherwise determines, to any accounting period ending on or after the first day of August, nineteen hundred and seventeen, and before the first day of August, nineteen hundred and eighteen, as it applies to accounting periods ended after the fourth day of August, nineteen hundred and fourteen, and before the first day of August, nineteen hundred and seventeen.

(2) Section thirty-eight of the principal Act shall, as respects excess profits arising in any accounting period commencing on or after the first day of January, nineteen hundred and seventeen, have effect as if eighty per cent, of the excess were substituted as the rate of duty for sixty percent, of the excess, or, in the case of an accounting period which commenced before that date, but ends after that date, as if eighty per cent, were substituted for sixty per cent, as respects so much of the excess as may be apportioned under this Act to the part commencing on that date.

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 accounting period commencing on or after the first day of January, nineteen hundred and seventeen, or, in the case of an accounting period which has commenced before that date, but ends after that date, on account of so much of the deficiency or loss as may be apportioned under this Act to the part commencing on that date, shall be calculated by reference to duty at the rate of eighty per cent.

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

(3) It shall be the duty of every person chargeable to Excess Profits Duty, 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 within 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.

Mr. HOLT

I beg to move, in Subsection (2), to leave out the words "the first day of January," and to insert instead thereof the words "the fourth day o): August."

I am afraid that this Amendment is not wholly satisfactory as it stands, but I move it for the purpose of obtaining some explanation from the Chancellor of the Exchequer as to the reason why he proposes that the increased rate of Excess Profits Duty shall be demanded as from the 1st January. Sub-section (2) of the Bill says that Section 38 of the principal Act shall, as respects excess profits arising in any accounting period commencing on or after the 1st January, 1917, have effect as if 80 per cent, were substituted as the rate of duty for 60 per cent, of the excess; or in the case of an accounting period which commenced before that date, as if 80 per cent, were substituted for 60 per cent, as respects so much of the excess as may be apportioned under this Act to the part commencing on that date. The rate of 60 per cent. Excess Profits Duty was substituted for the first rate of 50 per cent.; in other words, every person liable to the duty had in contemplation one year and 60 per cent, coming in another, but by this Subsection the result will be produced that all persons do not pay at the same rate in regard to the Excess Profits Duty, which began on the 5th April and ended on the 15th April. I desire to ask the Chancellor of the Exchequer what is the reason of the proposal for increasing the rate of Excess Profits Duty not over the accounting period, which I think is fair as between one taxpayer and another, but over a period of time which I submit, having regard to what has been the previous practice, is not fair as between one taxpayer and another.

The CHANCELLOR Of the EXCHEQUER (Mr. Bonar Law)

I think my hon. Friend is under a misapprehension as to the working of this proposal. When the rate was raised from 50 per cent, to 60 per cent, the arrangement was retrospective to a far greater extent than the arrangement I have made. I discussed this subject with the representatives of a number of firms—controlled and private firms—and I think it was considered that this proposal is really better in form. The reason for choosing the 31st December is twofold. In the first place, the accounts end on that day as a rule, and it is easier to work. In the second place, the House will remember that when this Government was formed my right hon. Friend said it would be necessary to increase the rate of Excess Profits Duty, and the result was the making of this proposal, the effect of which will be that if the accounting period is partly in last year and partly in this year, 60 per cent, will be paid in respect of the first part and 80 per cent, in respect of the second part. I think the Committee will be right in making the change, and I do not think it could be put on a fairer basis.

Mr. LEIFJONES

Would not the apportionment between accounting period and accounting period be exceedingly difficult if you make a change in the proportion of apportionment?

Mr. BONAR LAW

There would be so many months in one year and so many in the other. We could not expect them to make special accounts.

Mr. HOLT

If you are going to take a period of time, of course the 1st January is far more convenient as mostly coinciding with accounting. The right hon. Gentleman has not convinced me, however, that the result of this arrangement will not be that some persons will pay at the rate of 60 per cent, for a greater period of time than will others. I do not think, as between one person and another, that is a fair thing. But the right hon. Gentleman has given the explanation, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The following Amendment stood on the Paper in the name of Mr. CURRIE: In Sub-section (2), after the word "date" ["commencing on that date"], insert the words "always provided that any society registered under the Industrial and Provident Societies Act, 1893, and liable for excess profits duty shall pay such duty at the same rate as last year, namely, 60 per cent., and further provided that any such society shall be entitled at its own option to pay in lieu of such duty at the rate of 60 per cent, a sum equal to 1 per cent, upon its whole sales for the year under taxation at the same may be computed and determined in such manner as may be prescribed by regulations to be made for the purpose by the Commissioners of Inland Revenue."

The CHAIRMAN

The Amendment in the name of tine hon. Member for Leith Burghs (Mr. Currie) is out of order on this Clause, and as it deals with matters of a special character, it should be brought up in the form of a new Clause.

Mr. J. M. HENDERSON

I beg to move, in Sub-section (3), to leave out the words "or, if the accounting period terminated before the passing of this Act, within one month after the passing of this Act." I move this Amendment in order to get an explanation as to the-meaning of this Sub-section.

Mr. DENNISS

May I interrupt the hon. Member. I have an Amendment earlier, and did not happen to be here at the moment it was reached—[at the end of Sub-section (2), to insert the words "Provided always that so much of the excess as is over 60 per cent, of the excess shall be treated as a loan bearing interest at the rate of 5 per centum per annum."]

The CHAIRMAN

I called the hon. Member's name without response, and 1 am afraid I cannot now call on the hon. Member, at is might be extended to other cases.

Mr. HENDERSON

The Sub-section provides that "it shall be the duty of every person chargeable to Excess Profits Duty.…to give notice to the Commissioners within two months after the termination of any accounting period in respect of which he is chargeable." And the Sub-section proceeds, in the words I propose to omit, to give a period of one month if the accounting period terminated before the passing of the Act Why should there be two months in one ease and only one month in the other? Surely two months is little enough time to give in the second case.

Mr. BALDWIN (Joint Financial Secretary to the Treasury)

We have taken the words from the 1916 Act.

Mr. HENDERSON

That is no sound reason. My point is this: that one man gets a period of two months and another man a period of one month. If anyone is to get two months to ascertain whether he is chargeable or not, then I say everybody should have two months.

Mr. BALDWIN

According to our previous experience the period has been found ample and there has been no complaint.

Mr. HENDERSON

That is not my experience.

Amendment negatived.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. CURRIE

I wish to take this opportunity, if it is appropriate, to ask the Chancellor of the Exchequer if he can give us more information than we have at present as to the sources from which this tax has been derived. Last year it amounted to £140,000,000 which corresponds to excess profits amounting to from £280,000,000 to £300,000,000. At a time when the House is about to consider a great many questions involving trade in tea, tobacco, shipping, beer, whisky, and Army contracts of various kinds, I think it is really a pity if no information can be given as to where that £140,000,000 comes from, and even more unfortunate is it that the Treasury take up the position that they themselves do not have that information. It seems to me impossible that any of those trade discussions can be conducted satisfactorily in the absence of information as to what the excess profits are derived from. I understand that in Norway and in Sweden that particulars of the amount of people's incomes are more or less public property. I do not make that suggestion here, but I see no reason why trade by trade a good deal of information should not be placed at the disposal of the country by the Treasury Bench. I think, if that were done, a good deal of current misunderstandings to the effect of so-called profiteering would be done away with. There are two other points to which I desire to refer. I still have a strong feeling that it is unfortunate that professional men are exempted from this test. I know that that feeling is shared by a great number of people, mostly, of course, mercantile people. I feel it very strongly myself. Another suggestion I should like to make would be that the profits of short operations on the Stock Exchange should be made liable to taxation of some sort, and this would appear to be a proper kind of taxation in that case. I know that it is part of the accepted Income Tax law that profits of that sort are not assessable to tax at all. At a time like this, when the Chancellor of the Exchequer is badly in need of money and when speculation is highly undesirable, I think it would be fair that taxation of some sort should be applied in this case.

Mr. SHERWELL

I confess to some amount of surprise that the substance of this Clause should pass without more discussion in Committee. It occurs to me that whatever may be the view as to the soundness of the principle of this Excess Profits Duty there is at least room for grave doubt as to whether the figure at which this Bill proposes to place the amount of that duty is not one which might be attended by consequences of greater permanent mischief to the trade and industries of this country than the amount of revenue which might be derived from it would justify. There is no disagreement in the Committee as to the justice or soundness of this particular tax, but I am concerned by considerations which pass beyond the scope of this financial year. We are getting many reminders—we had a very impressive one from the Government only last week—as to the absolute necessity of having regard to the extension and development of the industrial and commercial prosperity of the country in the years that will immediately follow the conclusion of peace. I myself give it as only a personal misgiving that I am gravely disquieted by the fear which possesses me that when peace comes, and what I believe will be unprecedented opportunities for commercial and industrial expansion offer, the great traders of this country will not be in a position to take full advantage of those unparalleled opportunities. This particular duty is one which, for the convenience of the Treasury, has been levied without discrimination and without particularity. It is levied on the small and young firms with equal pressure as on the old and well-established and strong firms. I myself hold very strongly that the future of the industry of the country really depends upon the encouragement that is given not to the established and strong firm, but to the young firms with no great history behind them. What, as a matter of fact and actual experience, has been the case with the levying of this particular tax 1 It is within the knowledge of practically every Member of the Committee that there are in the country a great number of young commercial and trading firms who had for a few years prior to the War, and without any anticipation of the War, laid their plans for success in the immediate future, and the expenditure and effort of many of those young firms tended automatically to fructify within the period which, unhappily, has been covered by the War. Yet those firms are hit as heavily as firms of long standing with large reserves of capital behind them. I cannot help thinking that in the case of young firms in connection with taxes of this kind, where no discrimination whatever is shown, there may be no small hardship, and what, in my estimation, is of very much more importance, considerable injury, to the commercial and industrial prosperity of the country in the near future.

I myself gravely doubt whether the Chancellor of the Exchequer does not propose to put this tax at a level which is highly dangerous to the maintenance and cultivation of those reserves of capital which are absolutely essential if this country, in company with her competitors, is to seize to the full the opportunities that will occur at the close of the War. I know one is open to the charge, in expressing a doubt of this kind, of favouring the rich. As a matter of fact, there is no question of capital and labour involved in this consideration. There is not even a question of Capitalism versus Collectivism. Everyone who has thought at all about the subject knows that under whatever economic system the country may be governed, collectivist or capitalistic, capital is essential to the maintenance and development of trade and industry. This particular tax would be as objectionable from the point of view I am suggesting if the country were under a collectivist system as it is to-day when we are under a capitalistic or competitive system. I suggest to the right hon. Gentleman the Chancellor of the Exchequer that he might reconsider the point as to whether this tax is not placed at a level which will really frustrate the hopes, which, I know, he himself personally shares, in the possibility of the expansion of the trade of the country in the years following the peace. My own doubt is that we have now advanced in the direction of this particular form of taxation to a point where we may actually endanger the permanence of the commerce and trade of this country. I am out for everybody contributing to the utmost extent of his power to the expenses of this War, but it would be altogether a false view to accept the impression that taxation of a direct character placed upon an industry may be carried to the full limit without grave risk to the future development of the trade of the country. For this reason I venture to challenge the particular figure which is named in this tax.

Major HAMILTON

I should like to press a little further the point raised by the hon. Member for Leith Burghs (Mr. Currie). I do think it is necessary for the House and the country to know where this £140,000,000 Excess Profits Duty is coming from. One question we are being asked in the country is, "Are the Farmers paying any portion of this Excess Profits Tax?"

Mr. PRINGLE

We are giving them a bounty!

Major HAMILTON

I have a paper in my hand, sent to me this morning, which refers to a sale of potatoes this week in Scotland—

Mr. PRINGLE

Hear, hear!

Major HAMILTON

And the farmer concerned, owning 200 acres, and selling the potatoes, has this year made an excess profit over last year of £10,000. There is a strong feeling in the country that the excess profits made by farmers should receive the attention of the Chancellor of the Exchequer. All I wish to ask the right hon. Gentleman to-day is to be good enough to let us know whether the Excess Profits Taxes of £140,000,000 received last year included any derived from farmers; if not, whether he will see if, by any means, he can bring such excess profits as these in his clutches in the coming year?

Mr. LOUGH

On the Second Reading I said that I thought the increase was a dangerous experiment. I would repeat that now, for nothing I have seen has induced me to alter my opinion. I believe that this tax has had a lot to do with the increase of the cost of the vital necessities from which everyone is suffering at present. However, I do not want to open up that point to-day, but if I could have got any support on the Budget on a Motion to alter the 20 per cent, into 10 per cent.—I considered I should succeed!—I would have carried it to a Division. The tax appears to me to be a sentimental sort of tax. Nobody looks at it in a businesslike way. It is mixed up with the War. It applies to 10,000 businesses in the country that have not benefited at all by the War. For growing businesses, as my hon. Friend says, the experiment was one which was exceedingly difficult to make. I believe it has been made most unequally and unfairly. Another curious thing is that we always find that the representatives of Labour are tremendously in favour of these kind of taxes. But I believe that working people, as well as everybody else, know that the country cannot prosper unless there are profits. What they should aim at is to get their share of the profits. The new Clauses in the name of the Labour representatives include proposals to exempt their enterprises altogether from the Excess Profits Tax. The representatives of Labour show the most extraordinary common sense— no sentimentality here !—when the matter touches themselves. The representatives of the Labour party are always keenly alive to everything that touches themselves. In relation to the Excess Profits Duty, Income Tax, or anything else of the sort, they say, "Go for the other fellow first!" I have not changed my opinion of the unwisdom of the tax, and I think the Chancellor of the Exchequer would do well to reconsider the matter.

Mr. DENNISS

I must apologise to the House for not being present when my Amendment came up, but I was called away. I entirely agree with what has been said by the hon. Gentleman the Member for Huddersfield (Mr. Sherwell). Now when I move my Amendment I hope the hon. Gentleman will support it. There is a great deal of difficulty, I am told by commercial people, especially by the London Chamber of Commerce—who asked me to move this Amendment—in getting the necessary capital to carry on their businesses. The very high prices, increased cost of material and wages make it very difficult to find money to meet all their engagements or even to transact the normal volume of business. Then, too, they have had to find money for new machinery for warlike purposes, and at enhanced prices, which they will have to scrap after the War or use for some purpose not to the best advantage. The Treasury are forbidding them to raise any money from the public, and for commercial men and industrial men after the War it will be almost impossible to find any money for fresh capital, though after the War a very much larger amount of capital will be required than is required at the present, not only for the purpose of that development, without which I suppose this country will never be able to pay the immense burden of the War debt, but also merely to carry on their normal business. Those who have had their business interfered with by being diverted for war purposes will have to regain not only their peace position, but will have to reconstruct their business altogether, and for that purpose will need an immense amount of fresh capital.

I shall consider whether or not I will put down the Amendment which stands in my name on the Report stage. If the Chancellor of the Exchequer could see his way to allowing the difference between the 60 per cent, of last year and the 80 per cent, of this year, namely, the 20 per cent. of excess profits being treated as a loan on interest, so that those who really are in need of capital now for carrying on either their normal business or the business which has been increased very much by diversion to war purposes, shall be able to borrow money upon the loan which would meet their present pressing necessities, and certainly after the War leave them with a fund, which fund would be available for that capital, either for recovering their former position or for developing their business in such a way as would enable the country generally to meet War Loan obligations. I shall probably put the Amendment down on Report, although I shall have some hesitation in doing so, because I have some reasons for thinking that, whatever may be said by the hon. Member for Huddersfield (Mr. Sherwell) or by myself or other hon. Members, the Chancellor of the Exchequer is not willing to accept the Amendment.

Mr. GOLDSTONE

I do not follow the hon. Gentleman (Mr. Denniss) in what he has just said, but I think the speech of the right hon. Gentleman opposite calls for some brief reply. He, all along, has been opposed to any considerable application of the principle of excess profits, and he seemed to twit Members who sit on these benches for their keen support of this principle, and their desire to absolve anyone associated with them from the application of it to themselves. I failed to follow him entirely. I am not going to touch on the question of farmers for the moment, though I think there is reason for applying the principle to them; but we may take it that the sentiment of the working classes that the Excess Profits Tax should be applied is a very sound and true sentiment. It is the form in which they express their dissent from profiteering, about which we have heard from gentlemen as highly placed as the Prime Minister, and certainly from others lower in the scale, and it seems to me that the Excess Profits Tax is one very sound way the Government has in hand for preventing profiteering, and for preventing those who have applied this system of profiteering from reaping the unfair reward of their treatment of the working classes who have recourse to them in the ordinary way of business.

For my part, I wish to support the Government in their policy of maintaining the Excess Profits Duty at a high level, and I think the sentiment so frequently expressed in this House in the early days of the War that no person ought to be able, as the result of the War, to make any more profit than he did in pre-war days, is entirely sound, and I am surprised to find that there are so many ready to depart from that principle. The change in the expression of the sentiment of the House to-day as compared with the expression we heard when this tax was first applied is to me most remarkable, and to find so many Members now swinging away from what I regard as a sound sentiment seems to me to show a change, possibly, of attitude almost to the War, and certainly towards the conduct of business during the War, which is surprising. The right hon. Gentleman called attention—and I feel I would be out of order in going very far into the details of it—to the Clause which has been put down in the names of labour Members, presumably in their endeavour to protect the co-operative societies from the application to them of this Excess Profits Duty Evidently the right hon. Gentleman either wilfully, or because he does not know the principle of the co-operative societies—

Mr. DENMAN

On a point of Order. On this Clause may we go into the application of the tax to the particular case of co-operative societies?

The CHAIRMAN

Certainly not in detail, because it is coming up later; but the hon. Member is quite entitled in general terms to reply to the observations, also in general terms, which have just been made to the Committee.

Mr. GOLDSTONE

It was my intention merely to reply in very general terms to the observations of the right hon. Member for West Islington (Mr. Lough), and if he will only look at the Report of the inquiry into the whole question of Income Tax he will find that those responsible—and they were amongst those who knew more about this question probably than anyone else at the time— laid it down quite clearly that cooperative societies did not in any way make what is termed a profit. Their dividend is in no sense a profit. It is rather a rebate on prices, and therefore there is no real profit, and consequently no excess profit. The two things are not at all comparable, and the right hon. Gentleman was endeavouring, by bringing this question of co-operative societies forward, cither to undermine any opposition which might come from here, or to try to support the principle he was expounding. I am entirely with the Government in maintaining this tax, and I hope they will be very careful about—shall I say?—subscribing to the general principle of profiteering by altering its basis and reducing its application.

Mr. HOUSTON

I think the Committee, and, in fact, the country at large, are indebted to my hon. and gallant Friend the Member for Altrincham (Major Hamilton) for having raised the question of the farmer in connection with this Excess Profits Duty. My hon. and gallant Friend, apparently, is unaware of the fact that the farmer does not pay any Excess Profits Duty, and that he does not pay any Income Tax on his profits, but only on his rent, and, as he does not keep books, presumably he does not pay any Super-tax. I think if any member of the community has been making profits out of the War, and out of the food of the people, it has been the farmer. Personally, I am very pleased indeed that my hon. Friend raised this question, because it has a most distinct bearing upon Clause 19. I am not at liberty, of course, at the present time to deal with that Clause, nor do I propose to refer to it, except to point out that, as we are on the question of the farmer, the farmer is being coddled by the Government, whilst the shipowner is being coerced, and I think we shall be able to show later on that, so far as the charge of profiteering is concerned, the shipowner can free himself from that charge, and the farmer cannot. My right hon. Friend smiles when I say the shipowner will be able to free himself from the charge of profiteering, and I hope on Clause 19 to be able to disabuse his mind of the mistaken ideas which possess him, and which have caused him to put the shipowner in the pillory. At the present moment I would simply impress upon my right hon. Friend, as I have previously done, that it is most unfair to every other class of the community that the farmer should escape, as he has escaped. Not only is he escaping, but the Government are proposing to subsidise him as well as guaranteeing him minimum prices and fixity of tenure and other inducements to cause him to do what I contend is his duty, and what he ought to feel he is bound to do. If coercion can be applied to the shipowner, in my opinion it can also be applied to the farmer.

4.0 P.M

Sir G. TOULMIN

Notwithstanding what has been said in this Debate, I have not discovered that there are a great many people who object to this tax. The general opinion seems to be that it is a very fair tax. Nevertheless, in its application there have been found cases of hardship in the way it is applied which might be avoided. I know the case of a young firm who started in 1912. For the first couple of years no profits were made, and the two skilled workmen who started the business themselves only took 25s. per week out of the business, and in consequence of that they are now, having made a success of then1 business, paying what is to them a very large amount in the shape of excess profits; so much so that the excess profits exceed the average profit for Income Tax which this firm has made. They had to take time to pay the excess profits, and they have actually had to borrow money in order to do so. I think the position of these small firms which started just before the War merits the attention of the Government, and I think they are entitled to greater consideration than is sometimes shown to them.

Mr. BONAR LAW

I do not complain of the discussion which has so far taken place, but I do not wish myself to set the example of treating this as a Second Reading debate. I agree with the statement that there is no good in saying the same thing over and over again, and that is a sound principle which I shall try to observe. It has been said that the Excess Profits Tax has had great results, and so it has, and I do not know how we could have financed the War without those results. [HON. MEMBERS: "Speak up !"] I may say that I have often noticed in the case of my right hon. Friend (Mr. Lough) that when he is dealing with the trade which he particularly understands he shows a great deal more common sense than he does when he is dealing with trades that he does not understand. The hon. Member for Leith (Mr. Currie) asked for particulars as to the different sources from which this income is derived, but to do this would involve an amount of labour which I am perfectly certain we should not be justified in imposing upon the officials concerned. As regards the speech of the hon. Member for Huddersfield (Mr. Sherwell), I am quite sure that he does not suppose that I or anyone in my position overlooks the seriousness of the after-the-War-effect of taxation such as that which is now being imposed upon these firms.

We all recognise that, but I should like to put two considerations before the Committee. Obviously a War like this, with expenditure like this, which is really appalling in its amount, cannot fail to have bad results on the trade of the country after the War. Nobody doubts that, and we must recognise it, and in raising our revenue all we can hope to do is to try and raise it in such a way as will do the smallest amount of harm. After all, the general trade credit of the country will depend upon the trade as a whole. I think everybody will admit that. I know that my predecessor often expressed a view, which I strongly share, that our credit as a nation depends now, and is so good now, because in one way or another we have, been able to raise such a largo amount of money to me-et our expenditure out of revenue. All this has a practical bearing on our credit, and I am convinced that when the War ends we shall have a stronger national credit as the result of this War because of the vast amount of money we are raising now as compared with Germany, where they have practically no war taxation at all. Therefore in the end we shall gain rather than lose by having raised such a large amount by taxation at the present time.

There is another consideration, although it is perhaps not so strong. I am myself convinced from inquiries I have made and the knowledge that has come to me—and this was confirmed the other day by the speech made by the Minister of Munitions—that the revolution in our methods of manufacture which has taken place under the Munitions Act in the production of all kinds of munitions will have a lasting effect in improving the general industrial condition of this country. I am sure of that, and we have at least to put that against the evil results of taxation of this kind. But while I say this I need hardly tell the Committee that I felt myself in making this Excess Profits Duty 80 per cent, that it was a very serious step, and I certainly did not do it without looking round to see if there was any other way of increasing the revenue. To me it was quite plain that this was a question either of increasing the Excess Profits Duty or raising the Income Tax, and in arriving at this decision I was much influenced by the views expressed by hon. Members below the Gangway. I thought that at a time when so many people were suffering privations of all kinds no man could consider himself ill-used who was enjoying a larger income now than he had before the War. But apart from those general considerations, I believe that an increase in the Income Tax would have had worse results than this increase in the Excess Profits Duty. But while that is the case, and while I thought it was necessary to raise taxation to this amount, I felt that I must reconsider many aspects of this tax in order to make it work a little less harshly, and I have tried to do that. Let me refer to what has been said about the hardship in the case of young firms. It is not quite accurate to say that they are treated in the same way as big firms, because the concession we have made, to a considerable extent, helps these small firms. If the Committee will look at the Clause we have put into the Bill specially dealing with these firms, hon. Members will see that we have really gone a long way to meet this grievance, and I hope our proposal will have a considerable effect in making the hardship less as regards those young firms.

But we have done more than that. I should like to express my view as to the duty of a Chancellor of the Exchequer in a case of this kind. At any time the Budget proposed by the Chancellor of the Exchequer represents the view of the Government, and it means that if the Chancellor of the Exchequer insists on his view it is either a case of his view being taken by the House of Commons or a change of Government, or something of that kind. That fact, in my opinion, lays a special duty upon the Chancellor of the Exchequer to see that, as far as possible, his proposals are equitable. I think every Chancellor of the Exchequer has recognised that fact, and I have tried to do so. If hon. Members will look at the Paper as it stands to-day, they will see that I have put down some Amendments which do meet additional cases of hardship, and certainly it is my hope that these Amendments will shorten the discussion and will convince the Committee that we are trying to deal fairly with these matters. I am not going to say anything about the hardship of shipowners, and I hope the Amendment I have put down will shorten the discussion on that subject. Perhaps I may say, in passing, that when my hon. Friend the Member for Liverpool (Mr. Houston) speaks of putting shipowners in the pillory, it is a pillory in which I should like to stand.

Mr. HOUSTON

Will the right hon. Gentleman say a word about the farmer?

Mr. BONAR LAW

I had almost forgotten the farmer, but I will say a word about him. I was greatly interested by the enthusiasm with which this case was brought forward, and the hon. Member rather illustrates to me the truth of the proverb that when a monkey has lost his tail he wants other monkeys also to lose their tails.

Mr. HOUSTON

It was the fox, and not the monkey.

Mr. BONAR LAW

Perhaps I may be forgiven this slip. The fox, so far as the shipowners are concerned, has only lost a very small part of its tail. With regard to the farmers. I think there is a great deal in what has been said by those who have raised this point. I dealt with this matter on the Second Reading of the Bill, and whether my explanation was right or not, at any rate it is the best I can give. We did consider this question, and we found, as a matter of fact, that the machinery to carry out such a policy would be very difficult to organise, and it would involve a great amount of labour, which, in our opinion, would not be justified by the result. The majority of farmers do not keep accounts and consequently the difficulty of getting these facts would be exceedingly great.

Mr. HOUSTON

If the farmer was assessed at a larger amount than he had earned he would very soon prove what he had earned.

Mr. BONAR LAW

I do not know how he could do that, and I would like to ask how the hon. Member would like that policy tried with himself. I do not think that would be a very fair method.

Mr. CHANCELLOR

Will the right hon. Gentleman ignore other people who do not keep books?

Mr. BONAR LAW

I do not think there are any others who would come under the Excess Profits Tax who do not keep books. There is only one other thing I wish to say in the hope that it may shorten discussion latex on. There is one point in connection with the Excess Profits. Duty which is extremely difficult and complicated. There is an Amendment in the name of a number of hon. Members dealing with the question of stocks. I am not going into it now, but I would point out that to understand the question requires a considerable amount of technical knowledge and an acquaintance with higher mathematics. It is extremely difficult to understand. I have tried to understand it, and I think I do, more or less, but I am perfectly sure that the House of Commons would not understand it without something in writing before them. I propose, therefore, to put our case, and to show what we are going to do in black and white in a White Paper, and to ask the Committee to defer discussion on the point until the Report stage, when they will have had a better opportunity of judging of the methods we propose.

Sir J. RANDLES

The greatest objection to the working of the Excess Profits Tax in the past has been the difficulty and the delay which firms have experienced in getting their standard fixed. This has been particularly so in the case of controlled firms, where there has been taxation under the Ministry of Munitions and taxation under the Finance Act. If the Chancellor of the Exchequer, now that the taxes have been unified at 80 per cent., could devise some plan or method by which persons liable to pay the tax would know the standard upon which they would be assessed, it would really mitigate the hardship to a very considerable extent. It has been very common for it to take twelve months to get a determination of the payment of a firm or company under the measure as we have had it up to date. Even now that it is unified at 80 per cent, there will be complication to a small extent owing to the retrospective nature of the tax, and unless there is a determined effort in the Departments concerned to get these questions settled there will be very much unnecessary delay in the production of those balance sheets and statements of accounts which the shareholders of the companies concerned are entitled to have. I desire to ask that some attention may be given to this particular matter so that the grievance, not a very serious one but still a very real one, may be mitigated as much as possible.

Major HAMILTON

May I ask the Chancellor of the Exchequer whether it is a fact, as stated by the hon. Member for the West Toxteth Division (Mr. Houston), that farmers do not pay either Excess Profits Tax, Income Tax, or Super-tax? The case that I have just quoted is that of a farmer whose name is published in the Press, and who at one sale of potatoes made an excess profit of £10,000. Potatoes are the food of the people, and, if the Food Controller cannot prevent excess profits of this sort being made, is it not possible for the Chancellor of the Exchequer, when he actually sees from the Press that such a profit has been made, to ascertain from his officials whether Income Tax, Super-tax, or Excess Profits Duty have been collected? I hope the right hon. Gentleman will give us an assurance that he will go further into this matter. The reason given, that farmers do not keep books and that therefore it is impossible to tax them, is not one the country will accept. The country knows that a great many farmers are making enormous and unjust profits by holding up potatoes and other cereals, and I am sure they want the Chancellor of the Exchequer to give an undertaking in the House that he will see what the experts can do to prevent such excess profits. I keenly support the Bill for fixing the remuneration of farmers, and think it is a just Bill, but I do think that excess profits such as those made last week at a sale of potatoes in Scotland should be taxed, and I am sure the right hon. Gentleman will be meeting the wishes of the country, as well as securing a large sum for the Exchequer, if he will meet the point that I have raised.

Mr. HENDERSON

I have always been a supporter of the Excess Profits Duty so long as it is properly and fairly administered. I know that it is difficult to administer it, but we started wrong. We started at the wrong date, and the result is shown in some cases that I hold in my hand. I take the concrete periods of September, 1914, December, 1914, March, 1915, and June, 1915, and the result is that the man who began the first accounting period in September, 1914, will have paid up to September, 1917, 135 per cent., the man who began in December, 1914, will have paid up to December, 1917, 140 percent., the man who began in March, 1915, will have paid up to March, 1918, 145 per cent., and the man who began in June, 1915, will have paid up to June, 1918, 150 per cent. There is, therefore, a difference of 15 per cent, on these periods. My right hon. Friend opposite (Mr. McKenna) will remember that we had a long debate upon the question of starting the Excess Profits Duty from the commencement of the War, but he would have it, and he justified himself by saying that those who were first in would be first out. Those first in and first out, however, will pay much less by reason of the rise. I do not object to the figure, but my right hon. Friend opposite said that the first 50 percent, would produce £30,000,000 and that the second 60 per cent, would produce £64,000,000. That was all wrong. The first and second accounting periods have produced;£l40.000,000. They are not any thing like done yet, and before they are completely done it will be £200,000,000. I do not object, but if £30,000,000 and £60,000,000 were all that were wanted, 30 per cent, and 40 per cent, for the first and second accounting periods would have been sufficient. If the 80 per cent, produces so much more proportionately, we shall have a very large sum indeed. I do not grudge it, but at the same time the Treasury take no reckoning what the sum is going to be when they have got it.

The Treasury are also apt to forget that a great number of firms paying large Excess Profits Duty have been entirely diverted from their ordinary business. I know engineering shops which have been converted into shell-making factories and so forth, and which for three years have not done a. stroke of their own work. When the War is over they will have to revert to and get back their own business, and I am quite certain that a large amount of the excess profits which they have been able to make will be more than swallowed up in their endeavour to get back to the position in which they were before the War commenced. Machinery will have to be replaced and goodwill brought back, and I am certain that a very large sum indeed, if not the whole of their excess profits, will be swallowed up in re-establishing their business. I am bound to say that the Government arc inclined to be very fair. A good deal has been laid out in plant, machinery, and stock. Heaven knows, what it may realise, and firms stand at a very considerable risk. I should like the right hon. Gentleman to meet these difficulties. It should not be forgotten that machinery which could be repaired before the War for £50 will cost £150 after the War, because the cost of this work has gone up very much. I want him when dealing with the other Clauses referring to repairs, renewals, and depreciation to bear these things in mind remembering that the 80 per cont. is going to bring him a very great deal more money. The 50 per cent, and 60 per cent, brought more than was expected, and the 80 per cent, will bring in more proportionately.

Mr. HOLT

I am one of those who always said that this tax was a bad tax, and I say so now. It is only defended by the right hon. Gentleman on the grounds of a highway man who says that he must have money. The right hon. Gentleman in a very fair speech told the Committee that the thing which is not sufficiently appreciated is that in a War like this the industry of the country must be seriously damaged. There is no way out of it, and the sooner we make up our minds to that situation the better we shall get on. Under the terms of the Act farmers were originally exempted, and they were exempted for the obvious reason that it was quite impossible to make them or anybody else amenable to the Excess Profits Tax when they do not keep books, because you cannot fix on any pre-war standard at all. It is absolutely impossible. I would press upon the Chancellor of the Exchequer whether steps cannot be taken to make the farmers as a class pay precisely the same tax as other people in the same situation. I do not believe it is good for any trade to be told that they are not to be taxed on the same terms as other people because they have got no books. It would be very much better for the farmers if they were made to keep books. We have been told that wages have got to be increased because the purchasing power of money has gone down. It is equally true of everybody else. If a person is only making his pre-war standard of profit he is not making anything like what he was making in pre-war times, and this heavy taxation puts him as regards purchasing power actually in a worse position than he was in before the War. He has not got the same power for repairs, renewals, and extending and developing his business while prices remain what they are to-day. I do not think that consideration has been put before the Committee, but it is a real consideration, and it is just as applicable to the man who is parrying on a large business, because he is just as much affected by the fall in the value of money, as it is to labour. It affects him in precisely the same manner.

The other consideration I want the Chancellor of the Exchequer to bear very carefully in mind is that, to my knowledge and to the knowledge of everybody engaged in business, this tax is producing the most appalling waste. The fact that the man who controls expenditure is only going to get 15 per cent, out of the expenditure, because 80 per cent, is paid by way of Excess Profits Duty and 5 per cent, in Super-tax, does produce a very bad spirit throughout the country, a spirit of wastefulness and a readiness to chuck away money on all sorts of people who ought not to have it. There is a great deal of harm done as a result of this extravagance. We have all to pay for this War, and I am bound to say that the people who feel most strongly the injury that is going to be done to trade by this very heavy taxation had better begin to consider whether the true remedy is not to bring the War to a close and not proceed with this taxation.

Mr. G. TERRELL

I understand the Chancellor of the Exchequer to make a request that the new Clause, which is down in my name and the names of other hon. Members in regard to the valuation of stocks, should be postponed until the Report stage, and that he stated he would issue a White Paper which would be in the nature of alternative proposals. I quite agree to that arrangement, but it ought to be quite clearly understood that we are not in any way prejudiced by delaying the consideration of this matter. We would like to have an interval of time before the Report stage to understand what the alternative proposals are. It would be only fair that we should have some reasonable notice as to when the Report stage will be taken, so that if we are dissatisfied with the proposals put forward by the right hon. Gentleman, we may be prepared, as we are to-day, to carry the matter to a Division and take the sense of the House upon it. If that is the right hon. Gentleman's intention, I am quite prepared to withdraw the new Clause standing in my name.

Sir J. D. REES

I desire to ask the Chancellor of the Exchequer a question very much to the same effect as that put to him by the hon. Member for Chippenham (Mr. G. Terrell). The necessity for it is emphasised by what passed yesterday. Upon that occasion a Clause was passed and there was some sort of an understanding that only an attenuated discussion was to be expected on Report, allowed or approved upon a new Clause which was to takes the place of an Amendment designed to effect a certain purpose with regard to double Income Tax. I hope it will be made quite clear that those who vote for this Clause now will not be prejudiced in any way as regards the new Clause which will come on subsequently, providing that the Excess Profits Duty shall be assessed upon actual profits after proper allowances have been made for depreciation and obsolescence of assets, the tax at the present time, owing to faultiness in this respect, being a tax upon working capital. There is another new Clause dealing with valuation, and I hope also that those interested in that who vote for this Clause will not be in any way prejudiced.

The CHAIRMAN

Perhaps I may assist the hon. Member by saying that I have marked the Clauses to which he refers as being in order as new Clauses on Report. The danger arises from hon. Members themselves. If they torpedo their own vessel the responsibility will not be mine. What I mean by that is, if they anticipate, at this stage, what will be in order on the new Clauses as they stand on the Paper.

Sir J. D. REES

I hope I shall not be torpedoing any vessel by entering a caveat. If entering a caveat is a torpedoing operation I will immediately cease any such operation. It is a fact that the Chancellor of the Exchequer said yesterday—I understood' with your approval, Sir, because the matter came before you several times, and there was a long discussion as to the alternative methods of dealing with the matter by way of new Clauses or Amendments to the Clauses in the Bill—that there was an agreement that there was to be only a short discussion on the new Clause in regard to the double Income Tax. I hope it is understood that no such understanding exists in regard to this matter. The Chancellor of the Exchequer cannot have had me in his mind yesterday, for I strove to protect him against an avalanche of extra-mural Saturday morning oratory against the double Income Tax. Every manufacturer in my Constituency is immensely interested in this new Clause, and I hope there will be an understanding that there is to be a full discussion.

Mr. TERRELL

May I make the matter quite clear? I understood that the Chancellor of the Exchequer merely referred to the new Clause relating to the valuation of stocks, but that the new Clause as to depreciation will be proceeded with when it is reached in the ordinary course to-day.

Mr. BONAR LAW

That was my intention. It was only a- recommendation to the Committee, who are perfectly free, as I understand it, to take whatever discussion they like when they come to the Report stage.

Mr. ARTHUR RICHARDSON

I should like to put a question to the Chan- cellor of the Exchequer in regard to the case mentioned by the hon. and gallant Member for the Altrincham Division (Major Hamilton)—the case of a farmer who made a profit of £10,000 on potatoes. I would ask the right hon. Gentleman whether he will cause inquiry to be made into this case? It is a specific case and a public one. I think he will find that this farmer or tradesman does keep books. If the right hon. Gentleman finds that he is paying Income Tax and that he does keep books and has made a profit of £10,000 on these potatoes, I trust he will charge him with Excess Profits Duty.

Major G. COLLINS

I hope the Chancellor of the Exchequer will reconsider the Excess Profits Duty before the Report stage. Several points have been put before him this afternoon and on the earlier stages of this Bill in regard to the matter. I have been asked to bring before him certain cases where businesses were started immediately before the War, and in regard to which the 80 per cent. Excess Profits Duty is a very heavy burden upon the partners. Various points of view have been placed before the right hon. Gentleman, and I only wish to ask him to consider the whole subject before the Report stage is reached.

Mr. CURRIE

I wish to ask the Chancellor of the Exchequer two simple questions. I am not quite aware whether his promised White Paper is to cover the question of depreciation?

Mr. BONAR LAW

No; only stocks.

Mr. CURRIE

The other question is what is the legal position of the farmer who made the profit to which reference has been made in regard, not to Excess Profits Duty, but to Super-tax. If he admits that he made £10,000, he is of course liable for some Income Tax, but what about Super-tax?

Mr. BONAR LAW

He is liable to pay Super-tax and Income Tax in another form.

Mr. CURRIE

Will this particular farmer be assessed for Super-tax?

Mr. BONAR LAW

I did intend to verify the case. Of course, I could not put a tax upon an individual. I do intend to have this case investigated. I should imagine that the man who sold the potatoes was a dealer and not a farmer. As regards Super-tax, a farmer is only liable to Super-tax under the system upon which he is assessed.

Sir SAMUEL ROBERTS

As one of the Members who put down the new Clause mentioned by the hon. Member for Chippenham (Mr. G. Terrell), I entirely agree with what the Chancellor of the Exchequer has proposed, namely, that the matter should stand over till the Report stage, and that he will, in the meantime, issue a White Paper. It would be a convenience to the Committee at this point if the Chancellor of the Exchequer would tell us what his position will be when the Clause with regard to depreciation comes on. This is a very important matter. I am not without hope that an agreement may be come to upon it. If the Chancellor of the Exchequer is in a position to make any statement as to his views on that Amendment, it would be convenient if he could make it now.

Mr. W. RUTHERFORD

I should like to ask the Chancellor of the Exchequer whether he has given further consideration to the difficult position in which young undertakings and companies are placed in the working out of the Excess Profits Duty?

The CHAIRMAN

May I repeat that I am a little afraid of hon. Members torpedoing their own vessel? There is a new Clause—I think more than one— dealing with these very questions. Would it not be better to get on to that point, and to raise them specifically on those proposals, rather than to anticipate them now?

Mr. RUTHERFORD

I quite agree that that would be the most convenient course. Our difficulty in passing this Clause, which deals with the duty, is that we do not know what attitude the Government is going to take upon this particular point. It is all very well to be asked to pass this Clause as it stands in Committee, and to say that we can discuss these points on some future occasion, which, in fact, may never arise. We do not know what the attitude of the Government is going to be in respect of them. I intended to-day to point out that in the collection of the Excess Profits Duty the only real unfairness or injustice which, so far as I am aware, has come to light is that which arises from the fact that a very large number of companies and undertakings only came into reasonable profit in the accounting period. I suggest that we are entitled to a little more light before passing this Clause, rather than that we should be referred to new Clauses which private Members have had to put down in the hope of doing something to mitigate the unfairness which undoubtedly exists. We are entitled to ask the Government for some general pronouncement on a subject of that kind when we are passing this Clause. During the last twelve or eighteen months my attention has been called to a large number of cases in which inequality and difficulty have arisen. The Board of Referees have had no power to do anything except fix a hard and fast percentage on capital, and, inasmuch as the capital of all kinds of undertakings bears, as between one company and another, too real relation to the value of the undertaking, the amount of the percentage of pre-war profits which the Board of Referees has been able to give has proved in many cases hopelessly inadequate, and as between one company and another hopelessly unfair to the concern which is only just coming into something like profit. If we understood that by passing the Clause the Government were prepared to do something—it does not matter what, so long as it is something of a substantial and real character—towards removing this class of grievance, it would help us, perhaps, to withdraw a number of those Clauses which have been put down and to substitute something of a character that would meet with the approval of the Government. All I am asking at this stage is if the Government can see their way to give some general indication as to whether they will be prepared to entertain this subject in a sympathetic manner, and if they tell me they are I believe it will very much shorten our discussion when we come to the new Clauses purporting to deal in some degree with these questions.

Mr. P. A. HARRIS

As one of those who strongly believe in the principle of the Excess Profits Tax, I am glad that the Government have taken a strong line in regard to this question. But I think some concession is due to the small businesses that came into existence just before the outbreak of war. Only to-day I came across the case of two brothers in business. The elder brother inherited an old-estab- lished concern which, before the War, was bringing in a very large income—some thousands of pounds annually. That income has remained stable, no doubt, by ingenuity in charging up many expenses not necessarily to be charged to profits, and it has consequently not become liable to the Excess Profits Tax at all. But, on the other hand, the younger brother, who did not come into an established business, but started on his own account a year or two before the War and never made a penny of profit before the outbreak of war, getting but a very small return on the capital he had invested, has been able, since the War, to considerably develop his business, and now the whole of the profits have actually gone in Excess Profits Tax because the profits accruing in the accounting period before the War were practically nil. I think if the ingenuity of the Chancellor of the Exchequer can be brought to bear upon this matter before the Report stage and if he can find some way of making a concession to those businesses which showed no profit before the War, but which are now made liable to the Excess Profit Tax, he would add a great deal to the popularity of this tax. The hon. Member who brought this Amendment forward has done considerable service. I entirely agree with the attitude of the Chancellor of the Exchequer that you cannot possibly have taxes dealing with special and exceptional cases. But I can assure the right hon. Gentleman that this is not an exceptional case at all. Whether he is prepared to introduce the principle of making farmers liable for Income Tax as well as the Excess Profits Tax, is no doubt a big question. I very much doubt whether this Government or the Chancellor of the Exchequer can sec their way to take such a strong measure as that. At any rate before the War this Government had the courage to tackle the principle, and there seems no reason why farmers should not be dealt with in this way. Still, I do not think we can expect the Government to deal with the main principle at this stage. I should like to point out that farmers in the last year or two have not been confiding themselves to their legitimate trade of growing produce for the market. It is quite common knowledge that in recent years farmers have gone in for buying and selling without placing goods on the market, in very much the same way as business is done on the Stock Exchange. It is, in other words, "profiteering." It is quite a common thing for farmers, in addition to making money by selling their own produce, to go to the market and deal in cattle which are never transferred to their land, and never, indeed, moved by them from the marketplace. I suggest the profits made in that way should come within the purview of this tax, and I think it might, perhaps, under the Defence of the Realm Act, or by some other means, be made imperative that this sort of trading should be declared to the Revenue officers and become liable to Income Tax. If we are to get to the bottom of profiteering, then the Chancellor of the Exchequer has here the best instrument in his own hands. We do know that in many industries, owing to this tax, prices have been kept down because it has not paid the manufacturers to put on the full profits as they would have done in the ordinary way, because they knew the great part of the benefit would go not into their own pockets but into the pockets of the Chancellor of the Exchequer. If profiteering is carried on by farmers by way of buying and selling produce without its actual transfer to their own holdings, then I say it should be made subject to Income Tax, and the result of so making it, if it did not very much discourage the practice, would be to provide a useful source of revenue.

Sir FRANCIS LOWE

Many of us are very anxious to know what the Chancellor of the Exchequer is going to do with regard to the valuation of stocks. But there are two other matters on which the minds of traders and manufacturers are very-much exercised at this moment. One is with respect to the allowance to be made for obsolescent assets, and the other is the question of young companies which were making no profits before the War. It would seem, from statements I have received from various traders, that in this matter they have a very genuine grievance, which certainly requires to be met in some way, and if the right hon. Gentleman can give us some assurance that he is prepared to some extent to meet that grievance it will afford very much satisfaction.

Sir WILLIAM PEARCE

I also should like to refer to the anxiety which is felt on the three points which have been mentioned by a very large number of traders who are anxiously awaiting an announce- ment from the Government on the subject. I think such an announcement would expedite matters very much.

Mr. BONAR LAW

With regard to the first of the three points—valuation of stocks it has been agreed that the consideration of that should be postponed. As regards depreciation, we have been in constant communication week after week with the heads and representatives of firms concerned, and we have come practically to a decision on the matter which we hope we shall be able to get through.

Sir F. LOWE

Are we to have a White Paper on it?

Mr. BONAR LAW

The matter will be fully explained when we reach that particular Clause. As regards young companies, I think my hon. Friend has forgotten Clause 22, which attempts at any rate to deal with this question. If my hon. Friend wishes to raise the case of particular industries, he can do so when we come to the Clause, but I cannot hold out any hope that we shall be able to give special treatment in such cases.

Mr. FRANCE

Can the right hon. Gentleman say if the arrangement to which he has referred has been made public, and, if not, will he take steps to inform the House what it is?

Mr. BONAR LAW

When the subject comes up for discussion the position will be made clear.

Question, "That the Clause stand part of the Rill," put, and agreed to.