HC Deb 03 July 1917 vol 95 cc1023-44

In the application of Part III. of the principal Act to Excess Profits Duty for any accounting period ending after the thirty-first day of December, nineteen hundred and sixteen, the following provisions shall have effect:

  1. (1) In ascertaining the deduction to be made from the profits of the accounting period in respect of increased capital, 1024 or the pre-war standard of profits in cases where there has not been one pre-war trade year, three per cent, shall be added to the statutory percentage per annum; and, accordingly, in Sub-section (1) of Section forty-one of, and Rule 4 of Part II. of the Fourth Schedule to, the principal Act, the expression "statutory percentage" shall be taken to mean the statutory percentage as so increased:
  2. (2) The statutory percentage shall, in the case of a trade or business not carried on or owned by a company or other body corporate, be taken to be eight per cent, instead of seven per cent.; and, accordingly, Sub-section (2) of Section forty of the principal Act shall have effect as though eight per cent, were substituted for seven per cent:
  3. Provided that nothing in this provision shall affect the amount of the statutory percentage for the purposes of Sub-section (2) of Section forty-one of the principal Act:
  4. (3) Any increase of the statutory percentage under this Section shall be in addition to any increase of the statutory percentage which has, before the passing of this Act, been made under Section forty-two of the principal Act:
  5. (4) Where the pre-war standard of profits of any trade or business does not exceed five hundred pounds, and the profits of the accounting period, after any adjustment in respect of increased or decreased capital, are less than two thousand pounds, Sub-section (l) of Section thirty-eight of the principal Act shall have effect as though for two hundred pounds there were substituted two hundred pounds with the addition of one-fifth of the amount by which the profits of the accounting period are less than two thousand pounds; so, however, that if there has been a loss in the accounting period, then for the purpose of ascertaining the amount of any re payment or set-off under the principal Act the addition allowed shall be such as if there had been neither loss nor profit, and that where the accounting period is a period of less than a year, this provision shall have effect as if there was substituted for two thou- 1025 sand pounds and two hundred pounds respectively a proportionately reduced amount:
  6. The foregoing provision shall apply where the pre-war standard of profits exceeds five hundred pounds, subject to this qualification, that the amount of the addition shall be reduced by the amount by which the pre-war standard exceeds five hundred pounds:
  7. (5) Where the Commissioners are satisfied—
    1. (a) that in connection with any trade or business two or more distinct and independent industries are carried on in separate establishments, and with books kept in such a manner that the profits in respect of each industry can be readily ascertained; and
    2. (b) that in any year by reference to which the pre-war standard of profits is calculated a loss has been sustained in respect of any one or more of such industries;
    3. the Commissioners may, if they think fit, in computing the profits standard, disregard that loss:
  8. (6) Where the Commissioners are satisfied that during the last six pre-war trade years, owing to trading losses, any former assets of any trade or business have ceased to form part of the assets of that trade or business, or the money borrowed in respect of the trade or business or the debts of the trade or business have increased, the Commissioners may, for the purpose of ascertaining the capital of the trade or business in any case where the percentage standard is adopted, compute the capital as though there had been no such loss of assets or in crease of borrowed money or debts:
  9. (7) Six years shall be substituted for three years in Sub-section (4) of Section forty-one of the principal Act (which provides for the adjustment of Excess Profits Duty in respect of un-remunerative capital).

Mr. DENNISS

I beg to move, in Subsection (1), to leave out the word "increased" ["in respect of increased capital"].

Nowadays anybody who has capital to put into a business can put it in 5¼ per cent. War Loan, and in an industrial company he can only get 6 per cent., and that 6 per cent., as compared with pre-war times, is only worth about 4 per cent. The Chancellor of the Exchequer does not include all capital in business and assess it all at the same figure as in this Section.

The Sub-section says: In ascertaining the deduction to be made from the profits of the accounting period in respect of increased capital an additional 3 per cent, shall be allowed. If a man puts money into a risky industrial venture, and especially if from patriotic motives he does so in war time, he ought to get a better return than he had before the War. Instead of that, he will get a worse return. He is getting what is really a 4 per cent. return now. If you put on the extra 3 per cent. he will be getting 6 per cent, or 7 per cent, for his money. That would be a fair thing for him. Why it should be limited to new capital I do not know, except that it is impossible to get any new capital into any of these businesses nowadays unless you give more than 6 per cent., or even 9 per cent. That is perhaps the justice of the plea why 9 per cent, should be allowed. It is the sum already allowed for capital now invested.

Mr. BALDWIN

The reason for the increase in the rate per cent, given for new capital is partly because capital now is of more value than it was before the War, and partly because, naturally, when the Government arc proceeding with so stringent a tax as 80 per cent, wherever possible they want to introduce such alleviations as they may think to be both desirable and justifiable. The reason they do not think it wise to give that increase to any other capital than new capital is a very simple one. If they did, it would disturb the existing basis. We do not believe there is any reason for it. I should like my hon. Friend to remember that the increase of percentage applies equally to capital that has been lost, as well as to capital that is earning money. If you take the capital that shows a decrease on the pre-war time, and if you add 3 per cent, to it, you are increasing the profits of the firm by 3 per cent. We can see no reason at all for making this provision retrospective in its action, and I am quite sure the Committee will agree with us.

Mr. DENNISS

I brought this Amendment forward on behalf of the London Chamber of Commerce, who thoroughly considered the matter and asked me to do so. I have done that, and I have received the answer of the Joint Financial Secretary to the Treasury, and although I do not quite agree with his agrument, I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir WILLIAM PEARCE

I beg to move, in Sub-section (4), to leave out the words "two hundred pounds with the addition of one-fifth of the amount by which the profits of the accounting period are less than two thousand pounds; so, however, that if there has been a loss in the accounting period, then for the purpose of ascertaining the amount of any repayment or set-off under the principal Act the addition allowed shall be such as if there had been neither loss nor profit, and that where the accounting period is a period of less than a year, this provision shall have effect as if there were substituted for two thousand pounds and two hundred pounds respectively a proportionately reduced amount," and to insert instead thereof the words "five hundred pounds."

What I want to do is to provide that £500 shall be substituted for £200 in the original Act, and to get rid of the complicated scale and the provision at the end of the Sub-section which will give rise to a good deal of trouble. I have been asked to move the Amendment on behalf of a large association of small traders. It will not very much affect the Revenue. It is very much simpler than the long Sub-section as it now stands. I believe the Committee generally has sympathy with the small trader. If my suggestion were accepted, there would be no Excess Profits Duty levied where the increase was not more than £500. The Sub-section provides that so long as the profits do not exceed £200, plus all sorts of additions, which may very easily come up to £500, the tax shall not be levied. The additions are not altogether fair in their application, in fact, it has been pointed out to me that under the last paragraph, if two men are earning now £l,500 and one of them had a pre-war standard of £500 and the other a pre-war standard of £l,200, the £500 man would get very much more than the £1,200 man, although they were both making exactly the same excess profits now. A good deal of value would be attached to the concession by the small traders, and in the interests of simplification, and because of general sympathy with the small trader who is not making very much profit, I hope the Government may be able to meet my suggestion.

Mr. BONAR LAW

I should like to explain to my hon. Friend and the Committee exactly how this matter stands. When I first had it in my mind to raise the Excess Profits Duty, and it had been indicated here in a speech by the Prime Minister, I was asked to meet a deputation of the controlled firms. It was a very large deputation, and I recognised that in increasing the duty one should try to make whatever modifications one could without losing too much revenue. I felt strongly that the kind of case which suffers most is that of young firms making small incomes, especially those firms started just before the War. I promised the deputation that the Board of Inland Revenue would go into this matter, and, if they were willing, to go into it in consultation with them. They did so, and the result of that consultation is the proposal now before the Committee in this Clause. On the whole, it is an extremely good one, and really secures the result we all aim at much better than the proposal made by my hon. Friend. He pointed out, as an example of the disadvantage of our proposal that a man making £1,500 got a far smaller advantage than the man making only £500. That is precisely the object we had in view.

Sir W. PEARCE

I took the case of one man with £500 and another man with £1,200 as the standard before the War. I believe they are both making £l,500 now.

Mr. BONAR LAW

Even so, I think my point is good. Our object was to help the very small firms, and, therefore, the firm with a standard of £500 ought to get more than a firm with a standard of £1,500. Perhaps the Committee will understand better the effect of our proposal if I tell them what the result will be. If the suggestion were adopted and we had a fixed £500, it not only has the disadvantage to which I have referred, that it would not help, in as great proportion as our scheme does, the, man in a small way, but it has this additional disadvantage, that the man with a smaller income than £500 would actually get less than the amount he gets under our scheme. I have here tabulated the result of our scheme. If the standard was £200, and the total profit was £500, at present that would pay a duty on £100 in excess profits. Under our proposal that would not pay anything. If the profits were £800 at present they would be taxed on £400; under our proposal they will only be taxed on £160. At present, if the profits were £l,000, they would be taxed on £600; under our proposal they would only be taxed on £400. I would remind the Committee that not only has this been very carefully considered by the Board of Inland Revenue, but it has been decided in consultation with those best able to judge, and consequently, I think, the Committee will be well advised to allow our scheme to stand, and not to accept the Amendment.

Sir W. PEARCE

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. J. MASON

I beg to move, at the end of Sub-section (4), to insert the words, In the case of any new business established since the fourth day of August, 1912, and before the fourth day of August, 1914, the standard of profits for the purpose of ascertaining the excess profits shall be taken to be the average profits of any two of the three years next ensuing after the establishment of the business to be selected by the taxpayer. 10.0 P.M.

This Amendment is designed to remove an injustice which is so glaring that I am sure it will have the sympathy of every Member of the Committee. It is a matter to which I have called attention on previous occasions, and I admit that some considerable difficulty arises in meeting the case, because I shall probably be told that the whole basis of the tax is affected by an alteration such as this. The injustice of the hardship involved in this case is, however, so great that I really must press very hard that the Chancellor of the Exchequer should endeavour, at any rate, to find some means of remedying it. The class of case is one in which the profits which are being taxed are not war profits at all, but are profits which arose entirely previous to the outbreak of War, and in many cases the business since the War has suffered very largely in consequence of the War. Yet owing to accidental circumstances, which I shall point out, these pre-war profits are liable to taxation, whereas if it were not for the accident of the accounting period falling a few days after the outbreak of the War, these profits would have been brought within the standard period, and these businesses would not have been subject to any Excess Profits Tax at all. I must take one typical case to illustrate what my point is. The case which I will use as an illustration is that of a small business, a shop, which by accident happens to have been transferred from one person to another four or five months previous to the outbreak of war. This shop was simply given up in the ordinary course of business by the owner in April, 1914, and the business was taken over by two of his assistants, who formed a small company for that purpose with a capital of £1,200. This is a milliner's shop, selling ladies' hats and things of that kind, and it was evidently a very satisfactory business previous to the War. I may remind the Committee that the accounting period was arbitrarily fixed as 19th August, simply because it is a period in the year which for that class of shop is a slack period of business, and therefore suitable for stocktaking. This business was taken over by these two people in April, 1914, and up to the first accounting period of 14th August, a period of four months, they made a profit of £l,437. Had that business not changed hands in April it is quite evident that the large profits of the previous year would have been taken as the standard. But as the business changed hands in April the standard amount—a certain percentage, 7 per cent., I think, on the £1,200, plus £200—was, roughly, £300. That business, which was doing extremely well up to the outbreak of war, immediately declined, so that the profits for the year ending August, 1915, were less than the profits during the four months ending August, 1914. Again, the profits during the whole year ending 1916 were again less than half the profits of the previous year, so that the business had been steadily declining further than would be anticipated in a business of this kind. It is obvious that owing to the accident that the business had to change hands in April, and that the accounting period ended on 19th August instead of on 3rd August, in which case these high profits would have been the standard, and, therefore, there would never have been any question of excess profits at all, these people are liable to pay Excess Profits Duty amounting in the first period to £593, —the actual assessed tax is £593—that is before the War; during the second period they are liable to £422, and during the third period to £135. That is to say, altogether these people have to pay over £l,000 in Excess Profits Duty, which obviously—and I think it will be agreed—ought not to be chargeable if the tax is, as it is intended to be, a war tax. After all, this tax is proposed for the purpose of taxing war profits, and in these cases it is taxing profits solely made previous to the War owing to the two accidental causes which I have described. The right hon. Gentleman this afternoon told us that taxation should not be retrospective, but you cannot have a more gross case of a tax being retrospective than when you use a war profits tax for the purpose of taxing profits made previous to the War. Although I shall probably be told that it upsets the basis of the tax, and that all sorts of difficulties arise in making exceptions of this kind, the real fact is that there are a great number of small businesses like this. This is merely a very illuminating example, but there are a great many other businesses in the same position, and I do feel that such a gross injustice is being done that I must press very hard on the right hon. Gentleman to try, if this Amendment will not meet the case—as I am quite ready to believe may be the fact—to find some means of meeting an injustice so glaring as that I have described.

Mr. PETO

The whole basis of this Excess Profits Tax assumes, from the very phraseology of the tax, the standard period, the datum level, and the like, a business which has had some continuity before the war period which can be compared with the war period or the immediate ante-war period as it was in the early part of 1914, in which excess profits may be held to accrue. The kind of business the hon. Member for Windsor (Mr. J. Mason) is dealing with is that which has started since the 4th day of August, 1912. As a matter of fact the Chancellor of the Exchequer collected excess profits in some cases very nearly for a period of twelve months prior to the War, and it is quite clear that businesses of so young a growth as those started since August, 1912, should have special consideration in regard to the standard on which excess profits is levied. The hon. Member for Windsor (Mr. J. Mason) asks that two of the three years after the starting of the business should be the starting point or datum level on which excess profits should be charged. That is obviously a fair proposal and one which is in accordance with the whole principle on which the Excess Profits Tax is based, and I could not believe that the Chancellor of the Exchequer, or the Joint Financial Secretary to the Treasury, would not accept the Amendment, because it is only putting these new businesses on a fair level. I have much pleasure in supporting the Amendment, because I am satisfied that it is in accordance wit I the whole principle on which the Excess Profits Tax is based.

Mr. BALDWIN

I am afraid we cannot accept this Amendment. Of course it will have to be remembered that wherever one deals with cases by exceptional treatment you generally end by starting a fresh crowd of still harder cases. If my hon. Friend's scheme was started it would then only throw into higher relief the difference between the companies or firms that he would favour and those which had been started twelve months or twenty-four months before that, and he would get just the same kind of anomaly and you would be just as far from getting that perfect justice which we all desire to see and which we all know is perfectly impossible of attainment in a tax of this nature. I would like to point out for my hon. Friend's comfort that we have seriously considered the question of new businesses and we believe that we have gone some little way to meet their very legitimate troubles in two of the schemes of relief we have put forward in different parts of this Clause. We have first of all given an increase of 3 per cent, to the statutory percentage. We consider that this relief is quite worth having, and I think if my hon. Friends study the fourth Subsection, which contains a scheme for relief for businesses not making a profit greater than £2,000, they will find that for the kind of business they have in mind that Sub-section affords very substantial relief. I admit at first sight the plan we have selected looks a little complicated, but I have worked out a number of examples, at various rates of profit, and I can assure my hon. Friend that it gives a very substantial relief, and is graduated1 with some skill, so that businesses which are the most struggling and make the smallest amount of profit are those which benefit most. I am afraid we cannot undertake to go any further in the direction of giving any alleviation than we have gone in these two Sub-sections.

Mr. LOUGH

I am very reluctant because of the amiable speech we have had from the Financial Secretary to press the Amendment and because we agree with him that the Chancellor of the Exchequer has really gone a good way in this Clause. There are important concessions made in each of the Sub-sections, and also concessions made elsewhere, and he is really assisting the expeditious passage of this very difficult Bill. But at the same time this ought not to prevent them looking at any proposals which come from any quarter, and all my hon. Friends have asked is that some care should be taken with regard to businesses which have not been affected by the War at all, businesses that were just newly established. The great hardship is the injustice to new and enterprising firms, and owing to the continuance of the War now for three years—we hope it may soon end, but it may go on for four or five years—it becomes very important to give fair consideration to small people who are displaying a little enterprise in startng new businesses. My hon. Friend only asks you should take as the standard of profit the pre-war period of profits which have been actually obtained during the last two years. I notice whenever the Chancellor of the Exchequer is not going to give anything away he puts up the Financial Secretary, but whenever he is going to make a concession he does it himself. If I were the Chancellor of the Exchequer— I am sorry he did not catch it.

Mr. BONAR LAW

I apologise.

Mr. LOUGH

If I occupied the position which he does I would always let my young Friend make the concession. I do not like pressing my right hon. Friend unduly, especially as I have another request to make, but I do think this is an extremely just proposal, and I would ask whether he could not reconsider the position with regard to it.

Mr. POLLOCK

I desire to ask the Financial Secretary to look into this matter again before Report. The real difficulty of it is this: When we press hard cases the Financial Secretary says, "You have to select some particular date, and I admit there are hard cases, and we will try to do what we can, but hard cases there must be, and there may be others even worse." If there was any power reserved by the authorities to meet the hard cases in a matter of administration I should be more satisfied because it seems to me we might be able to meet hard cases by close examination of the facts when the case turns up, and then get the Inland Revenue Commissioners to say that in these particular cases we will not exact our full amount, we will cut it down to a lesser amount, because we see the hard ship of the case. They do not stand on their rights. But whenever one presses a case like that and brings it to the attention of the authorities they say "we are so sorry, but we cannot do it by administration, because we are tied by the Act of Parliament," and therefore one gets no assistance. The flexibility which ought really to belong to those who have to administer the Act does not exist, and the result is that the hard cases are left with an expression of sympathy and regret, and yet when they actually occur we find that those who administer the Act are unable to give any relief. The Financial Secretary says that if this Amendment were accepted a number of other hard cases will crop up. I daresay they would, but I should like to see him take some power so as to enable him to set aside, if necessary, and deal in a more flexible manner with these eases and others, and not to be compelled to impose that hard ship which he admits exists, and which may arise in this and a number of other cases which ought to be met by administrative flexibility.

Mr. MASON

I am afraid I feel somewhat dissatisfied at the answer I have been able to extract from my hon. Friend. Might I ask him whether it would not be possible to consider before the Report stage the allowing of an alteration in the date of the accounting period in cases of this kind? The real solution, if my proposal is not the solution, must be in allowing those cases to remake up their accounts taking their accounting period at an earlier date before the War. In that way you would get the actual pre-war profits as a standard, and you would get the tax levied on war profits only, and that, I am sure, is really the desire of the Treasury if they can only carry it out. Might I ask the right hon. Gentleman whether before the Report stage he will go into the question and see whether it is not possible, by allowing the alteration of the accounting date, to get over the difficulty, which, of course, is a real one, but which I really feel ought to be faced and got over. In that way we might be able to come to some reasonable solution of the difficulty. The Financial Secretary made allusion to some figures which he had worked out, and it would be extremely interesting if he could in some way convey them to us, because a great deal which is in this Clause will not be very fully understood by many people who might be interested and would like to know how particular cases will work out.

Amendment negatived.

Mr. LOUGH

I beg to move, in Subsection (6), to leave out the words "during the last six pre-war trade years."

There are altogether seven paragraphs, and I think each of them contains some useful concession, for which we are very grateful to the right hon. Gentleman. Probably one of the most useful is contained in this sixth Sub-section. The part to which I refer is where it allows the estimate of any capital which may have been lost by a firm to be reinstated, in calculating the pre-war capital, before any excess profit is charged. That is directly in accordance with the principles which were laid down when the Bill was carried, but it has a higher merit still. I put down a new Clause myself and handed it to the Financial Secretary in this sense, and really with one or two Amendments, of which that which I am now moving is one, the right hon. Gentleman will really have made his sixth Subsection just as good as my proposed Clause. That must be a very great satisfaction to him. Then look at the advantage he will gain I will not move the new Clause, and the progress of the Bill will be greatly accelerated. Besides he will have made a great concession to the principles of justice. It is quite unnecessary to drag in here the last six years. They were only put into the original Bill for the purpose of estimating profits, and not for dealing with these cases of loss at all. To show what injustice has been done under this tax during the last two or three years, I sent some cases to the Treasury in which the Commissioners of Inland Revenue, in cases where capital of £100,000 has been paid up and £20,000 has been lost, only allowed 6 per cent. on the £80,000, and they construed the Act in some way to justify that proceeding. I believe they were totally illegal, but the commissioners in this case and in many cases are very severe, and they have administered the Act in that way at the present time. It is evident the Treasury know that is wrong, because now they have restored what was the meaning of the original Act. I want to satisfy the Committee that this was the meaning of the original Act. When it was being passed on 23rd November, 1915, I had a discussion with the then Chancellor of the Exchequer: Mr. McKenna; Then we say in regard to such company or firm that we will allow them a minimum of six per cent, upon the money involved in the company or firm. Mr. Lough: How involved? Will he give it on the value which the public gave for the shares? Mr. McKenna: I have agreed to do that. Mr. Lough: No, Sir. That might seem rather rude on my part, but the Chancellor of the Exchequer did not take offence, and he said: Yes, on the money that the public paid for the shares, because that is money which has been paid by the public, and money in respect of which the shareholders expect a return."—[OFFICIAL REPORT, 23rd November, 1915. col. 250, Vol. LXXVI] In spite of these strong and clear words, there were many cases in the administration of this Act where they were not allowed to restore the money that was lost, and I think great injustice was done. That is proved by the fact that the Chancellor of the Exchequer has now adopted that principle, except that he has put in one or two restrictions which I am going to ask him to take out. I think he ought to leave out the period of six years, because the six years were not intended to apply to this point. It is a restriction which I think ought clearly to be removed. There is another Amendment which I will move, namely, that instead of leaving this to the Commissioners that the Act should be made in conformity with the statement of the Chancellor of the Exchequer which I have read. I am sorry to say that those who have gone before die Courts in regard to this matter have not absolute confidence in the Commissioners. I hope that these slight Amendments, which will make the Clause a useful Clause, and carry out the intention of the Government, will be accepted. I had an Amendment down to the first paragraph of the Clause to make the date the 4th August, 1914, instead of 31st December, 1916. I did not move that for this reason, that it would not be fair to other Clauses, but, so far as this particular Clause is concerned, I think it ought to be made retrospective to the 4th August, 1914. My three Amendments would be to make the Clause retrospective from the 4th August, 1914, to strike out the limit of years, and to make it incumbent upon the Commissioners in administering this Clause to carry out the declaration of the Chancellor of the Exchequer when the original Act was passed.

Mr. BALDWIN

I am rather nervous about rising after what has been said by my right hon. Friend. I do not know whether he concludes from my rising, instead of my right hon. Friend, that what he has asked for is about to be conceded.

Mr. LOUGH

I am very hopeful.

Mr. BALDWIN

Does not the right hon. Gentleman feel that he is asking a great deal? We have given a very great concession in this Sub-section. I do not think that the right hon. Gentleman realises how great a concession we have given. In the original Act trade losses were allowed to go back for three years, and they were allowed to be written off the excess profits on which duty was payable if such were earned at a later date. Here we are going back six years instead of three. We leave the old arrangement still in force, by which the losses may be written off out of excess profits, and this Sub-clause allows losses over the six years to be written back to the capital, so that it increases as from the 1st of January this year the standard of the firm or company in question. That is a very considerable concession and shows that we recognise the fairness of giving back to the companies or firms trading losses that have been made over as long a period as we can recognise. I think that we have gone to the extreme limit. If we take any longer period than we have taken we shall then run the risk of bringing back into capital losses that are really permanent. We shall be replacing capital that had been lost. But we take the extreme view that it is possible that even for six years a company may be making losses and yet may be able to retrieve them. I do not think that the right hon. Gentleman or any other member of the Committee can ask us to go any further than we have gone. With regard to the alteration of date I do not know whether the right hon. Gentleman is in order at this point in raising the question, but we could not possibly meet him there. We think that we have gone to the extreme limit in our power.

Mr. LOUGH

I desire to withdraw my Amendment.

Amendment, by leave, withdrawn.

Sir IVOR PHILIPPS

I beg to move to leave out the words "owing to trading losses."

The reason for this Amendment is that the Clause as drafted might probably be construed as making the powers given to the Commissioners with regard to borrowed moneys conditional on trading losses having been made. I submit for the consideration of the Committee that in fairness any increase in borrowed money during the last six pre-war trading years, which obviously can only have been borrowed for the purposes of business, should not be deducted from the capital. I put this Amendment forward on behalf of a large number of firms and I hope that the Financial Secretary will give it his careful consideration.

Mr. POLLOCK

I would like the Solicitor-General to give his opinion on this Amendment, if, as I understand it, it is merely a drafting Amendment. The purpose of the Clause is to give relief in cases where there has been a loss. If there are certain former assets that have ceased to form part of the assets of the trade or business, that is one case; and the next case is where money has been borrowed in respect of the trade or business; and the third where the debts of the trade or business have been increased. If that is the intention of the Clause, then I think the alteration proposed by my right hon. Friend is necessary, because as the Clause is drafted it would appear that the loss must be in consequence of trade as a condition precedent to the relief in all three cases for which relief is provided. I do not think that can be the intention, because the Committee would apparently have these three distinct oases in which relief is to be granted— one, the loss; secondly, the increase in borrowed capital; and thirdly, the increase in the debts of the trade or business—if that be the intention, then it is unfortunate to put in those words, "owing to trade losses." The effect of putting those words in the second line of the Sub-section would be to govern all three cases pro- posed to be relieved. If that be not the intention, I would suggest bringing in the words after the word "business," and the Sub-section would then read, "Where the Commissioners are satisfied that during the last six pre-War trade years any former assets of any trade or business have ceased to form part of the assets of that trade or business, owing to trade losses, or the money borrowed in respect of the trade or business, or the debts of the trade or business have been increased, the Commissioners may," and so on. The three separate cases would then not be governed by those words. So far as I can read the Clause, that must be the intention. It is not necessary in all cases that there should be an increase of borrowed money because there has been a certain trade loss, nor ought it to be a condition precedent to the granting of relief; but it may be perfectly fair to ask whether the debts of the trade or business have increased, although that may not be in consequence of the single case of owing to trading losses. I ask the Solicitor-General to give his opinion as to the meaning of the Clause, or whether or not it would not be more accurate to alter the Clause as suggested, in order to make the three cases independent of trade losses.

Mr. LOUGH

I support the hon. Member's interpretation of these words. Many things may have caused trade losses—a fire, a shipwreck, or other causes which are not trading losses. If the Amendment is adopted the Government will lose nothing, and it would really better carry out the intention of the Government.

Amendment negatived.

Mr. POLLOCK

Does the Solicitor-General or the Financial Secretary intend to reply?

The CHAIRMAN

The Solicitor-General is too late.

Sir IVOR PHILIPPS

I have two other Amendments.

The CHAIRMAN

They are part of the same proposal. I gave an opportunity, and I saw no one rise. The question can be raised on the Question that the Clause stand part.

Mr. POLLOCK

The Solicitor-General intended to reply, and surely, by leave of the Committee, he can do so?

The CHAIRMAN

I am afraid I cannot allow the Government special privileges.

Mr. POLLOCK

If that is so, if the Government were going to accept this Amendment, the words would have been inserted, and we should have had to delete them on Report. The Solicitor-General indicated to me, apparently, that he intended to reply.

The CHAIRMAN

I looked all round the Committee and saw nobody rise.

Mr. BONAR LAW

I quite feel it looks discourteous on our part and that is why I rise to explain. My hon. Friend the Financial Secretary intended to rise, but as the Solicitor-General was expressly appealed to we were discussing which of them should get up. I hope that my hon. Friends will take the reply on the Motion that the Clause stand part.

Mr. LOUGH

I beg to move, in Subsection (6), to leave out the word "may" ["the Commissioners may"], and insert instead thereof the word "shall."

I know that "may" has the same effect as "shall" in a great many cases, but as it was the intention of the House to give this relief, and as the Chancellor of the Exchequer now gives it, and as doubt at times has arisen, I think the matter ought to be made clear by substituting "shall" for "may."

Sir IVOR PHILIPPS

On a point of Order. May I ask why my third Amendment was not called, as it is not necessarily consequential on the other?

The CHAIRMAN

I thought the hon. and gallant Member had said that those three Amendments of his were part of the same proposal.

Sir IVOR PHILIPPS

I did say that, but I would get an opportunity of getting a reply from the Government. It is not necessarily consequential.

Amendment agreed to.

The CHAIRMAN

The next Amendment on the Paper, in the name of the hon. Member for Enfield (Major Newman), I am afraid I do not understand.

Major NEWMAN

I beg to move, at the end of Sub-section (6), to insert the words,

"(7) Where it is represented to the Commissioners that in a business where there is no capital invested the net profit that would be left after payment of Excess Profits Duty and Income Tax is insufficient to meet the increased cost of living the Commissioners may, if they think fit, take such fact into consideration when calculating the amount of any Excess Profits Duty payable."

This is another Amendment designed to meet the case of the small men. "We have had the hardships of the shipowners explained for the greater part of the afternoon. It came as a surprise to me, and doubtless it will to the Committee, to realise that two men, say, partners, or it may be three, taking out of a business a joint income equal to a major in an infantry regiment, or less than the earnings of a junior official, say, at the Ministry of Munitions, may be roped in as liable for the Excess Profits Tax. During the last few weeks I have had several cases of the sort brought to my notice, and I have investigated them. The Amendment draws attention to a real grievance, though it affects only a very small number of people in the community. Let me give an instance illustrating my case. There were a couple of men who in 1912 established themselves as insurance brokers. They formed themselves into a company, with a nominal capital, no money passing at all. For the year ended December, 1914, their earnings were £ 1,108, out of which they had to pay in Excess Profits Duty £62. In 1915 their earnings were £1,200, with £120 Excess Profits Duty. In 1916 their earnings were £1,489, with £295 Excess Profits Duty. If to that be added 2s. 3d. Income Tax, I suppose you will find that these two unfortunate men were, as a matter of fact, paying 25 per cent, of their net income to the State. Surely that is not fair! A big firm with cash reserves, or a rich man, could pay 25 per cent., but for small men, as in the case I have mentioned, I submit it is a hardship, and one which the House and the country does not wish to see inflicted. The Chancellor of the Exchequer will say, and has a right to say, that in the Clause there have been made two concessions which will meet this particular case— Sub-section (1) and Sub-section (4). Of course, Sub-section (1) does not meet the case at all, because as a matter of fact there is no capital invested, and Subsection (4) will meet it to only a very small extent.

I submit that in a case of this sort there ought to be no Excess Profits Tax paid at all. Of course, if this were not strictly a war tax it would have to be very carefully graduated. If you are going to levy this tax after the War, you will have to graduate it so that the small man will pay very little. But this tax is only a temporary tax, and, therefore, you have to devise, to my mind, some temporary way of meeting this difficulty, and I think my suggestion would go some way to meet it. The hon. and learned Member for Leamington suggested something of the same nature, namely, that the Commissioners in these small cases should be given some latitude. If a man can show that by paying Excess Profits Tax he would be really deprived of the necessities or amenities of life for himself and family the Commissioners should be able, to take that into consideration. I have had a case given to me where an unfortunate individual, owing to this Excess Profits Duty and the increased cost of living, has had to withdraw his two boys from school. Surely we do not want to inflict any hardship of that kind on any man. That is a hardship with which the Commissioners ought to be able to deal, and, therefore, to meet these cases I do suggest that we ought to give this latitude to the Commissioners. We do not want to inflict unnecessary hardships, or to drive men, from a sense of injustice, to be passive resisters and compelled to pay at the point of the bayonet of the law. I do not say this Amendment is very well drafted, but, at any rate, it conveys my idea, and I should like to get some sort of assurance from the Chancellor of the Exchequer that either now or on the Report stage he will deal with this particular hard case.

Mr. BALDWIN

I am afraid that we cannot accept this Amendment. No one has a higher opinion than I have of the Commissioners of Inland Revenue. I have every reason to have a high opinion of them, and I have seen a great deal of them lately, but I should be very sorry to throw upon them, in addition to all their other duties, the duty of deciding whether this man or that has sufficient means to meet the increased cost of living. I am quite sure the Committee would not wish to put that upon them. I would just like to say this to my hon. Friend, that it is not an easy matter in this Committee to discuss individual cases. It is quite impossible to examine the evidence as one would like to if one were to give a con- sidered opinion upon the case. But I would remind him of what, I think, he has forgotten, and that is that ex hypothesi before anyone pays Excess Profits Duty he is earning at least as much as he did before the War. The excess profits means that he is making as much as he did according to the datum line fixed for him either by his earnings before he started business, or by a percentage on his capital, or by his profits. It means not only that he had made something more— it means an extra £200 a year if a man of small means—and it means in any case that there is sufficient margin to him to compensate for the increased cost of living. I am quite sure if my hon. Friend had realised that he would not have seen the necessity for moving the Amendment.

Amendment negatived.

Mr. HENDERSON

I beg to move, at the end of the Clause, to add the words, "(8) Sub-clause (4) of Part II. of the Fourth Schedule to the principal Act shall have effect as if the words 'either of those two years' be substituted for the words' last of those two years.'"

I propose this Amendment on behalf of my hon. Friend (Mr. Denniss), although I do not think there is much in it.

Mr. BONAR LAW

I agree with the last sentence of my hon. Friend that there is not much in this Amendment. I really do not think we should be asked to do what this Amendment proposes, and I hope my hon. Friend will not press it.

Amendment, by leave, withdrawn.

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

Sir IVOR PHILIPPS

Can the Solicitor-General now give us the answer which he promised to give us?

Sir G. HEWART

The answer I have to give to my hon. and learned Friend is that in the view of the Government, which I entirely share, the words "owing to trading losses" govern the whole Subsection. I imagine there would not be much controversy likely to arise as to whether a loss was a trade loss or not. But the matter might be made more clear if the Sub-section were made to read as follows: "Where the Commissioners are satisfied that during the last six pre-war trade years, owing to trading losses (a) any former assets of any trade or business have ceased to form part of the assets of that trade or business, or (b) the money borrowed in respect of the trade or business, or (c) the debts of the trade or business have increased," and so on. In each of the three cases the root of the matter is "owing to trading losses." In our view it is essential that the words "owing to trading losses" should govern all the rest of the words.

Mr. McKENNA

Could the right hon. Gentleman say, in view of the fact that, we are close upon eleven o'clock, how far he proposes to go?

Mr. BONAR LAW

My desire is to get far enough to-night to make it quite certain that we shall finish the Committee-stage in another day, and I will be satisfied if we get to the end of the Government new Clauses, including any Amendments-upon them.

Mr. POLLOCK

I want to call attention to one very important point. We have established that the Commissioners are to be satisfied on certain points, and, if they are satisfied, then certain results are to follow. By Clause 24 the "Commissioners" mean the Commissioners of Inland Revenue. It is important that the Committee should understand—if I am wrong the Solicitor-General will correct me—that there is no appeal provided at all in respect of any of these matters from the Commissioners of Inland Revenue. The Committee ought to understand that we have now placed these important matters in the final decision of the Commissioners of Inland Revenue, who are concerned in the collection of the tax. They are, so to speak, on the one side and the taxpayer is on the other, and we take no steps to provide any appeal from their satisfaction and their opinion. I desire to point that out, because I observe one of my hon. Friends has got a Clause down providing for an appeal in certain cases. It is well that the Committee should understand that we are agreeing now, where the Commissioners, who are the collectors of the tax, are satisfied, that there is to be-no appeal, and that the subject shall have no right of questioning their decision in any form whatever.

Question put, and agreed to.

Clause 23 (Apportionment of Accounting Periods and Tears) ordered to stand part of the Bill.