§ In the case of the trade or business of planting, growing, and or preparation of crude rubber for the market on an application being made under Section forty-two of the principal Act for a calculation of the percentage standard by reference to some factor other than the capital of the trade or business, the Commissioners of Inland Revenue shall refer the case to the Board of Referees, and the Board of Referees shall deal with the case, and shall have power, if they shall think fit, to direct that the percentage standard shall be fixed otherwise than by reference to the capital of the trade or business, and may direct the percentage standard to be ascertained upon such basis and. by such method, and in such manner as shall be deemed by the Board to be fair and reasonable, having regard to all the circumstances; and such order may be made, notwithstanding any previous order made by the Board affecting such trade or business, and shall apply and have effect in lieu of such previous order.—[Mr- Acland Allen.]
§ Brought up, and read the first time.
§ Mr. ACLAND ALLEN
I beg to move, "That the Clause be read a second time."
I move this Clause at the request of the Rubber Growers' Association, which, as the Committee is well aware, represents practically the whole industry of rubber-growing in British colonies. It represents 470 companies, with a very large capital, amounting to some £50,000,000, and about 900,000 acres of planted rubber. Therefore it is an in- 1368 dustry which is well worthy the consideration of this House. I am well aware that I have certain initial prejudices to overcome when I propose anything in the nature of relief to the rubber industry. I am aware that it is generally considered to be an industry of wealthy men. I should just like to tell the Committee that that idea is unfairly stated. I will give a little of my own experience. I happen to be a director of a company which has more than 8,000 shareholders, whose average holding amounts to less than £30 apiece. Therefore it cannot be said that that company, at any rate, has for its shareholders very wealthy men. I am a director of another company, a very quiet and steady-going company which is not much seen in the public eye, which has 350 shareholders whoso average holding is less than £130 apiece. Therefore, I think I am entitled to say the rubber industry cannot be said to be an industry of wealthy men. Another prejudice one has to overcome is the fact that certain rubber companies pay very large dividends. I think I heard a murmur from the Financial Secretary to-day about a company which appears in the papers to-day as naving paid a dividend of 125 per cent.
§ Mr. ALLEN
I believe 125 per cent, for the year. That is perfectly true, but that company, he will remember, is not subject to excess profits, and, indeed, it is paving a very much smaller dividend than it was before the War. I do not want to put the case too highly, because I feel certain if I did the Chancellor of the Exchequer would immediately get up and quote some investments of his own—for he displays great ingenuity in getting hold of the best investments—and he would probably blow my arguments sky high. There are, however, certain special grievances from which the rubber trade is suffering in this matter. I do not say that the rubber industry is not prosperous, because it is. The price of rubber to-day in the market is less than it was before the War, although the expenses of working the industry are considerably higher, and are likely to go higher still. It cannot, however, be said that there is anything whatever in the nature of profiteering in the rubber industry, because the price per lb. is several pence lower than it was before the War, although freights are higher, and the price of labour is con- 1369 siderably more than it was before the War. I think the rubber-growing industry has a special claim to the favourable consideration of the Committee. In the first place, I would like to point out that this being a tropical industry is subject to all the risks which those industries have to undergo, and which are very considerable indeed. We have to maintain a constant fight against various diseases which affect plant life in the tropics, and it is only by great care and scientific study, and keeping a staff engaged in combating these diseases, that we are able to keep them under.
What happened some years ago in the case of coffee in Ceylon? The whole industry was wiped out in a year or two by diseases which got beyond the control of the planters in that island. There is another very special risk which I think differentiates the rubber trade from any other trade, and it is that there is a considerable time to wait before one gets any return. I know that consideration applies to other industries, but I think I can show that the rubber industry is affected in a very special degree. Let me give an instance of my own which I know has been absolutely authentic. I went out to the East in 1910 and selected some land there for growing rubber. I started amongst some friends of my own here a company in 1911. That estate has been under the best management it has been possible to obtain in the East, and now, in 1917, we have not paid any dividend at all, and it is extremely doubtful whether this time next year, in 1918, seven years after the company was formed, we shall be able to pay any dividend, and if the Excess Profits Tax is still in existence in 1919, when we do hope to get some slight return, the business will be very much affected. I think these facts entitle us to some special consideration.
But there is a third reason. The rubber industry, more than any other I think, is on the percentage standard and not on the profit standard, the reason being that the great years of development of the rubber industry were the years immediately preceding the War. Prior to 1905 the plantation rubber industry was practically non-existent, and it has grown up in the Middle East and in the Colonies, in the Malay States, Ceylon and Southern India, almost entirely within the last ten or eleven years. But in the year 1905 there were only 19,000 acres under culti- 1370 vation, whilst in the year 1913 the acreage had increased to 1,575,000 acres, and those: were the years immediately preceding the War, during which the standard is to be arrived at. Therefore, hardly any of the rubber companies, or comparatively few of them, are on the profit standard, and the great bulk of them are on the percentage standard, and that does differentiate us from various other industries of the country. I think those facts of the great risk and the waiting period being so long do really make 10 per cent. inadequate as a return on the capital. We are not asking in this new Clause that the House of Commons should do anything in the way of fixing a higher standard. All we are asking is that more power should be given to the Referees to go into the whole circumstances of the case, and that they should not be bound so strictly as they are at present by the Act of 1915. We want them to be allowed to take into account other factors than the capital of the company. I know that some proposal of that kind was put before them at the time the percentage standard was fixed. A proposal was made, and it was regarded with a certain amount of favour by the Referees, that instead of a percentage standard on capital they should take as their basis a certain return per acre of planted rubber and charge profits in all cases in which the return was exceeded. As I say, they regarded that with a certain amount of favour, but we were unable to adopt it because it did not come within, the four corners of the Act. All we are proposing is that they should be given certain powers to regard these other circumstances which enter into the matter.
I think I can show the necessity there is for some such Clause as this by pointing to the gross inequalities between rubber companies produced by the present castiron rule of giving the 10 per cent, basis on capital. There are two companies with which I am acquainted—one is the Seaport Company and the other is the Third Mile Company. Each of these companies has about 900 acres of rubber planted. In the first two accounting periods the profits of the Seaport Company were £38.000 and the Third Mile Company £31,000. Now the Seaport Company pays £2 in excess profits, while the Third Mile Company is called upon to pay £16,000, the reason being that the capital is quite different. The 10 per cent, basis gives a considerable return on the Seaport Company and a very 1371 small return in the case of the Third Mile Company, and consequently the latter company is liable to £16,000 profit, whereas the Seaport, with practically the same amount of profit, is only liable to £2. I think when a real injustice of that kind can occur it seems to show that the Referees ought to be allowed to take some other considerations into account. That really is all we are asking for at the present time, and I do not think it is a very ambitious demand to make; indeed, various people connected with the rubber trade are condemning us for not asking for something more, but I may say that we have opened our mouths rather wider in some other Amendments. I think the Chancellor of the Exchequer might fairly meet us and recognise that there are certain exceptional circumstances with regard to the rubber trade, and he should recognise that the system we have in operation at the present moment gives rise to greater anomalies in this trade than in any other industry in the country.
§ General Sir IVOR PHILIPPS
In rising to support the new Clause which has been moved by my hon. Friend, I feel that we have here a case which does really demand some attention from the Chancellor of the Exchequer. We are, however, under this advantage in explaining our case, that I believe the right hon. Gentleman already knows it very well because he has on several occasions received deputations from the rubber-growing industry, and I feel sure he will agree that my hon. Friend who preceded me has stated the case very moderately and fairly. I think, however, that he made one mistake. He talked about special consideration, but I do not think that is required, for all we want is fair treatment to meet the exceptional conditions of the industry. Probably there has never been such a romantic history in the world as the history of the rubber industry. In 1900, seventeen years ago, the annual importation of plantation rubber in this country was only four tons and to-day you look round and you see nothing but rubber everywhere. The War could not be carried on without rubber, and London could not live without it. For if you remove the rubber tyres from the motor-'bus how would the people get to their work? It is a most remarkable industry, and yet the whole of this trade has been brought to its present state by those wonderful characteristics of our 1372 people, which enable them to cut out fortunes and industries in the wild jungles.
It is only some twenty years ago that the first seeds of this great industry were carried out of Brazil in a gentleman's carpet bag. Half of them were planted in gardens in Singapore and half in Ceylon, and from those few seeds this great industry has arisen. In 1900 the importation of rubber to this country was four tons, but to-day, in 1917, it is 192,000 tons. The acreage in plantations to-day is 1,800,000, and why I am going into these details is only to show that it is absolutely essential that we should do nothing by taxation to injure an industry which has been built up out of the savings of the poorer people of the country and by the industry of our pioneers and colonists. This industry can claim to be purely agricultural. We do not hesitate to tax an agricultural industry in our colonies, but we are very careful not to tax the agricultural industry at home, and I see no reason why you should tax one and let off the other. Our particular claim to-day is that owing to the great boom in rubber in 1910–11 this industry was started in those years. In those years enormous tracts of virgin forests were cut down and planted, and the people who put up the money and those who supplied the brains to carry on that great industry knew that no profits would be derived for six, seven, or eight years. It is true that some of the forerunners of this industry obtained large profits before the War, but the greater part of the industry received no profits before the War, and therefore, instead of being able to take a pre-war standard, they have had to trust to the percentage basis. It is true that the Board of Referees have raised that basis from 6 per cent, to 10 per cent., but I ask any Member of this House whether he would himself in 1910 or 1911 have invested in a rubber company if he had known that he would have had to wait till 1917, and then only get 10 per cent.? It stands to reason that under those circumstances the great rubber industry would never have come into existence.
It is on these grounds that we ask the Chancellor of the Exchequer to look sympathetically upon our demand that we should receive favourable treatment. I know he will say at once, "Look at the great profits which some of these companies are making." It is true that the 1373 industry has made great profits, but it is not fair to take those companies that are paying very large and high percentages. They were not placed on the market at the time of the great boom, and, although they get a very high percentage, practically the whole of the shares were placed on the market at a very high price, and the present owners in nearly every case have paid very much more than the value of the shares as shown on the balance-sheets of the companies. We claim that the hardship affects not merely a few individual cases, but the greater number of the companies. This industry in the length of period, namely, eight years, required for development has few, if any, parallels, and the period during which development took place coincided with the eight years immediately prior to the War, with the result that the majority of the companies are forced to trust to the percentage basis. It is on these grounds that we ask the Chancellor of the Exchequer to look favourably upon our demand and to try and meet us in some way, even if the proposal we have submitted to him is not such as he can accept in its present form.
§ Mr. BONAR LAW
My hon. Friend opposite paid me an undeserved compliment in saying that I had displayed wonderful ingenuity and foresight in making investments. I wish it were true, because if it were, probably it would mean that I would be a better Chancellor of the Exchequer. As a matter of fact, I put those sums into ships because they were managed by personal friends, so that I have been rewarded, not for my efforts, but for my sympathy. I am not able to make any claim of the same kind with regard to other investments. It is obvious that this is a very technical subject, and if I were to try to make an exhaustive speech now, I should only bewilder the ordinary members of the Committee, though I hope I should prove to the gentlemen especially acquainted with it that I had examined their case. I have met three deputations at least with regard to this matter, and I should like to say now, what I have said before in connection with this Bill, that, especially in cases of this kind into which the Committee as a whole cannot go, and where, if there is a Division, Members will come and support the Government, it is essentially the duty of the Chancellor of the Exchequer, before he comes here, to judge as far as he can what is the justice 1374 and fairness of the case. I have tried to do that, and I cannot admit that I ought to make any concession with regard to this matter.
I wish to put the facts broadly before the Committee. It is undoubted that this industry suffers under an essential inequality in the matter of the Excess Profits Duty, but it suffers in precisely the same way as any number of industries in this country, and the only difference is that it suffers actually to a greater degree and the inequality is more widespread over the whole industry. What is the particular case? It is that this is an industry which from the nature of the case must be more or less speculative, because you have to wait a large, number of years— five or six at least—before you can get any return. That is true. But what follows? It follows, if you are to be treated fairly, that you must get a, return which spread over the whole period makes a good investment. That is the test. It is an industry which takes this length of time to develop, but it will go on indefinitely. I do not think anyone has fixed a limit to the length of time that a rubber plantation will go on bearing. Therefore, when the Board of Referees had to decide the percentage standard to be allowed, they would naturally take all these things into account, and in coining to the percentage standard they were bound to take into account ail the facts which my hon. Friends have put before us. I rather think my hon. Friend who spoke last indicated another consideration. In making inquiries into this matter, I have found an absolute conflict of interests between different kinds of rubber estates, and I have been told that as a result of that they did not put this case for a higher standard as fully and as well before the Board of Referees as it might have been put. It is in the power of the Board of Inland Revenue, as perhaps some members of the Committee know, to make it, if not impossible, almost impossible to have the case reheard by objecting. I do not know the facts, but I can say at once that if an attempt is made to get it reopened the Board of Inland Revenue, that is to say, the Treasury, will make no opposition and will leave it to the Board of Referees themselves to decide whether there is a case for reopening the matter on these grounds.
§ Mr. BONAR LAW
Oh, yes. The Board of Referees have themselves power to reopen it on their own initiative, though nobody can compel them to reopen it unless they think it necessary. There is undoubtedly in this case a certain amount of hardship, but it was partly in view of cases of this kind that Clause 22 was inserted in the Bill, and I would like to remind my hon Friends the extent to which they are benefited by this Clause. In the first place, there is 3 per cent. additional rate of interest upon all new capital put in since the War. Probably that will be of very considerable benefit to a great many companies. In the second place, we have allowed a period of six years during which you can go back and bring in losses on capital. That, I am told, is going to help this industry enormously, though my hon. Friend should know better than I do. I will explain why it is. There is a curious judgment called the Vallambrosa judgment which has been given in the Law Courts, under which profits taken out of a year's earnings and used to develop an estate are not to be treated as income for the purposes of Income Tax. They escape Income Tax on these earnings. I have actually before me a case where there was a paper loss of something like £30,000 coming from this judgment. This amount is put back into capital, and I am told it will mean a great concession to a great many companies. There is a third way in which they are benefited. Clause 22 will benefit the rubber-growing industry in this way: The original Act authorises an addition to the profit standard of a statutory percentage on unremunerative capital invested within three years, and this Section extends that to six years. I am told that also is of considerable benefit.
Let me look at the arguments of my hon. Friends. They say that the profits here are not due to the War. According to the basis of the Excess Profits Duty that would make no difference, because the whole basis was not that the profits should be due to the War, but that a man should be getting more during the War than he was getting before. I confess, looking into any case that is put to me as a hard case, that I consider the general effect, but I do not think it can be contended for a moment that the present 1376 prosperity of the rubber trade is not due to the War. Let me show how that must be so. Look at the way prices have varied. In 1911 the price was 5s. 8d. per lb., and the number of acres in bearing was 75,000. The next year the number of acres in bearing was 180,000, and the price fell to 4s. l0d. In 1913 the number of acres was 400,000, and the price fell to 3s. 3d. In 1914 the number of acres was 545,000, and the price fell to 2s. 6d. The Committee will see, therefore, that just in proportion to the increase in acreage the price came down. What has happened to the acreage since? It was 545,000 in 1914; this year it is 1,000,000. If one can be certain about anything that has not actually happened, it is that there would have been a downward course in price corresponding to the increase in acreage, and the price now would have been a very low one if the War had not come and kept it up. Instead of coming down the price of rubber is actually higher than it was before.
My hon. Friend said that we must not take exceptional cases. I asked my advisers to try and form an estimate of what the profits were on the whole and to ascertain whether, in spite of the Excess Profits Duty, people were getting a return which made it reasonable for them to put their money into the industry. They have done so, and I have got the profits of five representative companies. They are ally as it happens, companies given to me by different deputations of rubber growers to show the different cases of inequality, so-that they were not selected for any reason except for which they were given to us. I am told that they are fairly representative of the industry. In the first of these cases, in the first accounting period, after paying Excess Profits Duty, the return to the shareholders was 21 per cent., and in the second accounting period it was 36 per cent. My reason for giving these is not to show that they are very high returns. Of course, they are high returns, but as my hon. Friends have said, they do not represent the real facts in all cases, because many people holding these shares have paid a great deal more than par for them. So that it is not really that they get this percentage in all cases. What is important is that in the second accounting period, in spite of the Excess Profits Duty, the returns were greater than in the first. The first company paid in the first accounting period 21 per cent, and in the second 1377 36 per cent. The second company paid in the first accounting period 19 per cent, and in the second 41 per cent. The third company paid in the first accounting period 12 per cent, and in the second 36 per cent. The fourth company paid in the first accounting period 24 per cent, and in the second 34 per cent. They all show the same increase. In spite of the Excess Profits Duty they have been doing better in the second accounting period than in the first. When we remember that the same kind of hardship applies to all growing industries—for instance, in one case put before us, reference was made to the motor industry—when we find that on the whole they are fully able to bear the taxation, and when we find that taking into account that the test is the amount the companies have made since the War compared with what they made before the War, I do not think that this is a case in which we should be justified in making any exception. One of the points raised in this Amendment was that you should take a different basis of calculation. It is admitted that the industry can well afford to pay a considerable amount, but what they suggest is that we should take an acreage basis or something of that kind. It must be obvious to my hon. Friends— they ought to know it, because I stated it to the deputation—that you cannot deal with one industry in a general tax of this kind in one particular way. If you allow a general principle of this kind in one case, you must allow it in similar cases. That would mean you would be opening up a number of decisions which have been made already, and the result would be to throw the whole plan of the Excess Profits Duty into confusion. I have done my best to examine this case and, although I admit that the industry suffers in a greater degree than most other industries from the special inequalities of the Excess Profits Duty, yet, on the whole, I do say that no burden is imposed upon them contrary to the principle of the Excess Profits Duty and that they are able to bear the burden which that Duty involves.
§ Sir I. PHILIPPS
The Chancellor of the Exchequer says that this increase will go on indefinitely. I do not know whether he means that.
§ Mr. BONAR LAW
I asked the deputation. I know nothing about this except what I gained from talking to my hon. and gallant Friend and his friends. I put that question to them at the deputa- 1378 tion, and I was told that up to now they had not found any period when the young trees cease to bear.
Sir I. PHILLIPS
That is when the trees are young. I am afraid they cannot look forward to such a hopeful time as the Chancellor of the Exchequer indicated. He will find that the increase will not go on indefinitely. However, I am very grateful to the Chancellor of the Exchequer for the sympathetic way in which he has looked into this matter, as I know, from personal experience, he has done. I regret he has not seen his way to accept our proposal, but if he can use his influence to get the case reopened he will give great satisfaction" to the industry.
§ Question put, and negatived.